City watchdogs have revealed the biggest problem in finance

City regulators have said the British financial industry is heading towards a more stable post-crisis footing, with regulation now focusing on improving conduct rather than mopping up the meltdown of 2008, reports The Telegraph.

Andrew Bailey, deputy governor of the Prudential Regulation Authority, played down talk of increasing the size of capital buffers for the banks “because there are more important things for us to do, which revolve around getting the incentives for behaviour right in firms”.

Mr Bailey told the City Banquet in the Mansion House that “we have achieved much progress towards strengthening the resilience of the global banking system, with stronger capital ratios, and this has demonstrated, in my view, the important principle that appropriately strong capital positions support rather than deter lending by banks”.

He also defended the Treasury’s decision to rejig the new conduct regime for senior bankers, arguing that the move to drop a “guilty until proven innocent” rule will not water down the regulations.

Mr Bailey said “the important word is not ‘presumption’ or ‘duty’ but rather ‘responsibility’, it’s about holding people more personally to account”.

Echoing the sentiment of a more normal outlook for the sector was the Bank of England’s deputy governor, Sir Jon Cunliffe, who told a banking conference that the central bank is now weighing up its “counter-cyclical buffer” that it can impose to try to cool off an oversupply of credit.

“We have until recently been in a very muted phase of the credit cycle,” Sir Jon said. “We are now, I hope, entering a more normal phase of the cycle, and approaching the point at which, from a macro-prudential standpoint, the Financial Policy Committee will have to spend less of its time on the design of the regulatory framework and a lot more of its time on whether and when it needs to address the build-up of cyclical risk in the financial system.”

Tracey McDermott, the acting chief executive of the Financial Conduct Authority, also told the Mansion House that emergency measures to stabilise the City after the financial crisis are now giving way to “a sustainable approach to regulation, which breaks the regulate, de-regulate, repeat cycle”.

“I do not think I will get much argument in this room when I say that the intensity and volume of regulatory activity over recent years is not sustainable – for regulators or for the industry,” she said.

“We are often told that boards are now spending the majority of their time on regulatory matters. This cannot be in anyone’s interests. If that continues indefinitely we will crowd out the creativity, innovation and competition which should present the opportunities for growth in the future.”

Ms McDermott took over from Martin Wheatley at the head of the FCA this summer after his abrupt departure, amid concerns from the Treasury about his combative approach to some quarters of the financial industry.

Meanwhile, the Lord Mayor, Alan Yarrow, who ends his one-year stint in the job next month, repeated his call for the City of London to shoulder more responsibility for its own conduct, particularly in areas where the regulator is not setting out explicit rules.

“I condemn those who put themselves before their clients, using their firms to feather their own nests with little risk to themselves. I have a message for those people: your days are numbered. The system is being changed to dig you out, and get you out. But at the same time, and in order to avoid repeating the same mistakes, we need to acknowledge something. Regulators can only do so much.”

Mark Carney, the Governor of the Bank of England, pledged in June to end the “age of irresponsibility” that has seen a wave of scandals in the City, including attempts to rig the $5 trillion-a-day foreign exchange market.