Andrew Bailey, who is set to take up his new job at the FCA in July, has also stressed the utmost importance he places on culture in financial services.
Mr Bailey, currently deputy governor, prudential regulation and chief executive of the Prudential Regulation Authority, said where there had been problems, culture had “laid the ground for bad outcomes”.
He said: “Culture matters a great deal. And this is true for both conduct and prudential regulators. Today I am speaking as the CEO of the PRA, but at the beginning of July I will become the CEO of the FCA. One thing that this move does not require is a change of view on the importance of culture in firms.”
He said: “Today, the public perception of banking, and some other areas of finance, remains too much towards the exploitative ‘greed is good’ end of the spectrum.
“Major changes have occurred since the crisis which have improved behaviour in firms, but public opinion broadly does not recognise these developments and tends to think that nothing has changed. Culture is an important part of demonstrating that change.”
Speaking at the City Week 2016 Conference today, he said: “My assessment of recent history is that there has not been a case of a major prudential or conduct failing in a firm which did not have among its root causes a failure of culture as manifested in governance, remuneration, risk management or tone from the top.
“Culture has thus laid the ground for bad outcomes, for instance where management are so convinced of their rightness that they hurtle for the cliff without questioning the direction of travel. We talk often about credit risk, market risk, liquidity risk, conduct risk in it’s several forms. You can add to that, hubris risk, the risk of blinding over-confidence.”
He said regulators are not able, however, to determine the culture of firms and neither should they try to.
He said: “We cannot write a regulatory rule that settles culture. Rather, it is the product of many things, which regulators can influence, but much more directly which firms themselves can shape.”
Mr Bailey will take over from acting CEO Tracey McDermott, who stepped in after Martin Wheatley exited last year.