The regulator is moving away from an over-reliance on static rules and regulations to a "good judgement" approach, and expects the industry to follow suit, Martin Wheatley has said.
Speaking at Mansion House on Wednesday the Financial Conduct Authority (FCA) chief executive said in the past too much importance had been given by governments to creating new rules and regulations when things went wrong.
The new regulatory approach was to tackle "the obedience culture" that often failed in the first place, he said.
Firms will be expected to place more importance on doing what is right than doing what is allowed.
Wheatley (pictured) said: "The traditional mechanism for dealing with a lapse has been to beef up the rules.
"The problem with this approach is two-fold. First: it is, ‘static'. So it is closing stable doors after horses have bolted. Second: it encourages the very behaviours it seeks to stamp out."
Wheatley alleged that a lot of the cases the FCA is dealing with at the moment, such as misselling scandals in the banking sector, were bred at a time when the regulatory guidance expanded by 27%.
He added: "The important point here is that to move things forward in the current context, the consumer expects regulators, and firms, to look beyond a narrow interpretation of the law to questions of fairness."
"So today, we are moving back to the future in a sense - with the regulatory system placing far more emphasis on good judgement and less on narrow compliance with a set of rules."
Wheatley said he expected firms to become fairer in their terms and conditions, particularly the fine print that "no one reads".
But he also said he expected more emphasis on fairness and in the way firms market their material and deal with customers.
He said he wanted firms to subsrcibe to "a culture where the ‘ethic of care' - doing what is right - takes precedent over the ‘ethic of obedient' - doing what is allowed."
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