Events leading to the gating of the Woodford Equity Income fund exemplify the need for changes to UK financial regulation after Brexit, according to Financial Conduct Authority (FCA) chief executive Andrew Bailey.
Woodford Investment Management's conduct, according to the regulator, was a stark example of UK firms "following the letter, but not the spirit, of the rules", raising "questions about the rules themselves".
The FCA has been vocal in recent months about both the opportunity offered by Brexit to reassess the nature and scope of UK financial conduct regulations, as well as the need to move to a regulatory regime based on "principles" rather than the rules themselves.
Speaking at the FCA's annual public meeting on Wednesday, Bailey said: "Rules are a crucial mechanism for delivering outcomes, but can also be interpreted so rigidly as to become a box-ticking exercise.
'Do the right thing'
"We view incidents like the Woodford affair as an example of this - where firms are following the letter, but not the spirit, of the rules. It raises questions about the rules themselves."
He also issued a warning to any firms continuing to conduct themselves in a similar way: "...any organisation that prioritises being within the rules over doing the right thing will not stand up to scrutiny for long."
Elsewhere, Bailey discussed further the FCA's development of "views on what conduct regulation may look like post-Brexit".
He said the UK's departure from the European Union (EU) "continues to occupy a lot of our time and resource", with around 320 FCA staff members currently working on Brexit in some capacity and nearly 2,000 pages of consultation on changes connected to EU withdrawal.
The watchdog has focused heavily on consumer protection and ensuring markets are "prepared" for a 'no-deal' outcome.
Meanwhile, government has engaged in "onboarding" current EU regulations, passing 60 statutory instruments relevant to the FCA, with another 12 expected before 31 October.
Bailey (pictured) said Brexit also offers an opportunity to reassess the "regulatory perimeter"; the scope of firms and activity for which the FCA is responsible.
He added that technological advances, including crypto assets, "increases the speed of change in financial markets" with "firms operating at the edges of the perimeter causing harm to consumers".
Bailey said: "[Technology] can also be an enabler of new forms of harm. We often see examples of this taking place today at the blurry edges of the regulatory boundary - where grey areas create opportunities for bad actors.
"The question of what sits inside and outside this boundary - also known as the regulatory perimeter - is a matter of great importance for consumers and firms alike.
"It matters because it determines where consumers are protected, and where they are not; when we can take action, and when we cannot."
FCA chair Charles Randell added: "The issue of our perimeter is of profound significance to the public we are here to serve - and one that has caused deep frustration in some cases.
"I believe that it is vital that we are transparent about what we can and cannot do in the confines of our current remit. The perimeter report is an important tool to this end.
"But we must also recognise that we do not get things right every time. And we must strive to constantly improve, in order to keep ahead of a fast-moving, ever-evolving sector."