Excessive regulation could turn the City of London into a “graveyard” by stifling innovation and risk-taking, Sam Woods, chief executive of the Bank of England’s Prudential Regulation Authority (PRA), has warned.
Speaking at the City’s annual banquet at Mansion House, Woods cautioned that while financial regulations are necessary for stability, over-regulation could suffocate the financial sector’s ability to drive economic growth.
Woods described risk as the “lifeblood” of a thriving economy, arguing that attempting to eliminate it altogether would hinder innovation and leave the City stagnant. “Risk is the lifeblood of a thriving capitalist economy, fuelling growth and innovation,” Woods said. “The whole point of having a strong financial system is to enable society to take risks.”
His comments come amid growing concerns that Britain’s efforts to make financial institutions safer are becoming counterproductive. Woods acknowledged that the balance between regulation and risk management is difficult but crucial, noting: “It’s implausible that good businesses can thrive in an environment of ever-expanding regulation.”
Woods pointed to recent moves by the PRA, such as the decision to abolish the cap on bankers’ bonuses, as evidence of regulators taking steps to reduce the burden on the City. The cap had been “damaging to competitiveness,” he said, and scrapping it sent an important signal of intent that unnecessary regulations should be rolled back.
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