June 28 2019
2016: Tracey McDermott, the then acting CEO of the FCA:-
“I’m not saying in 2001 I would have seen a failure. But one of the roles of a regulator is to have the confidence to ask what you think might be stupid questions. This is a big task for a 25-year-old faced with masters of the universe. The people who live and breathe this stuff, who speak in basis points, will say you don’t understand because you are in some ivory tower as a regulator. Making sure FCA people have that resilience is very important.”
26 June 2019: Andrew Bailey (CEO of the FCA) when questioned by the Treasury Select Committee admits that, despite having concerns about the Woodford funds since February 2018 and the various risk warnings it had given, the FCA had been taken by surprise by the wave of redemption requests and their effect on the fund. He admitted that the fund had been guilty of “regulatory arbitrage” and ‘sailing close to the wind”.
The FCA’s Chairman said that the European funds regime had created a “perfect storm” that allowed the Woodford situation to escalate, but that there should have been a more incisive cutting through to the key issues. You don’t say.
27 June 2019: Mark Carney (Governor of the Bank of England) talking to the Treasury Select Committee about the issues raised by Neil Woodford and his various funds:-
“These funds are built on a lie, which is that you can have daily liquidity for assets that fundamentally aren’t liquid.”
The FCA’s answers do not impress the Committee’s Chair. “Doesn’t anyone at the FCA actually read the newspapers and listen to what’s going on in the industry?”
Evidently, developing the confidence to ask any questions, let alone stupid ones, or even learning to cut through to the key issues are harder tasks than the FCA thought. Still, after three years you’d have thought some lessons would have been learnt. If only this one: curiosity is one of the most underrated but most necessary qualities for a regulator to have.