FCA: Going for growth means taking risks
Ashley Alder, chair of the Financial Conduct Authority, says the financial services sector has long recognised that effective regulation can be a powerful enabler of growth. The question now is not should we embrace risk, but how much?
January is a time to reflect, re-balance and re-focus. And this year, the relationship between regulation and growth is front of mind at the Financial Conduct Authority.
The financial services sector clearly has a key role to play in creating prosperity, not only as the crown jewel of the UK economy, but in facilitating the supply and flow of capital that can help businesses across the UK thrive.
The Prime Minister has challenged regulators to do more to support the growth mission.
At the FCA we have long recognised effective regulation can be a powerful enabler of growth. Delivering on our primary objectives of protecting consumers, keeping markets clean and promoting competition all contribute to building trust and confidence in financial services which can in turn spur growth.
And we have already shown our determination to act decisively to deliver our secondary objective to facilitate competitiveness and support growth. For example, we have prioritised much needed reforms designed to free the flow of capital to growing businesses and to expand investment opportunities so people can make the most of their money. 2024 saw landmark listings reforms, shifts in prospectus rules and a new public offer regime, all designed to boost the UK’s attractiveness as a destination to list.
We are ready to go further
We are ready to go further and will put sustainable growth at the heart of our next five year strategy. We will unlock more capital investment and liquidity, accelerate digital innovation, reduce regulatory burdens, enable more businesses to start-up and grow, promote the UK internationally and provide greater certainty and predictability for firms to support business confidence.
This will require a bolder approach. We will have to make decisive trade-offs. And we will have to take greater risk. We have shown we are up for it, for example as we made it easier for businesses to raise capital on our public markets, we were clear that while it could mean higher returns for investors it came with a risk of more listed firms failing.
That same trade-off too is inherent in proposals we are considering to lessen friction in our system.
Removing the £100 contactless payment limit would make life easier for consumers and retailers. Smoother payments, could however, increase fraud.
Removing the £100 contactless payment limit would make life easier for consumers and retailers. Smoother payments, could however, increase fraud
The reforms made of the mortgage market in the wake of the financial crisis have had a transformative impact, and repossessions are thankfully low. But with our consumer duty setting a new standard, should we consider whether the rules could be revised to allow struggling first-time buyers to get on the property ladder – even if that results in more defaults down the line?
These are the types of choices we face. And we need both government and parliament to be behind us and for there to be a shared, consistent and enduring acceptance of our appetite for risk.
To go for growth, we – the regulator – need to prioritise our resources and assess whether what we ask for is proportionate. That means risk-based decisions about which cases to pursue, what intelligence we follow up, and how far. In making those risk-based choices, we won’t stop all harm, and some failures are likely.
To go for growth, then, the question we must ask is what is our collective tolerance for failure? Not, should we embrace risk, but how much?
Ashley Alder is chair of the Financial Conduct Authority