FCA rejects ‘light-touch’ regulation in push for City growth
The heads of the Financial Conduct Authority (FCA) told MPs they will not adopt a “light-touch” approach to regulation today after criticism the City watchdog has hampered growth with burdensome red tape.
Appearing before the Treasury Committee on Tuesday, FCA chief executive, Nikhil Rathi, and chair, Ashley Alder, warned of the challenges in delivering on a statutory directive for the regulator to boost the UK’s global competitiveness.
“I think we’re at a bit of an inflection point,” Alder said, flagging “difficult trade-offs” in enabling “informed and responsible risk-taking by firms and customers”.
“If we look at regulators across the globe, particularly in the large financial centres, most of them… governments are asking them similar questions,” he added.
“I think here, if anything, it’s a more high-profile, direct question around the relationship between regulation and growth than it is elsewhere.”
The new government has vowed to tear up post-financial crisis red tape that it argues has gone too far in regulating banks and other financial firms.
In November, Chancellor Rachel Reeves sent a “remit” letter to the FCA, officially outlining how it should meet a “secondary objective” introduced last year that requires UK financial watchdogs to facilitate the country’s growth and competitiveness.
In a letter responding to Reeves on Monday, Rathi and Alder said they would “advocate for global cooperation and openness, while acknowledging that this may be an increasingly hard argument to make”.
They highlighted green finance and crypto assets as two areas where the FCA might diverge from its international counterparts
Alder told MPs: “When it comes to standards for firms, I think my view, Nikhil’s view and the organisation’s, is that standards for firms need to remain high.
“This is not a return to pre-crisis, light-touch in the sense that that was happening at the time, because frankly that ended in tears,” he continued. “However, there is a very, very, very good argument around proportionality.”
Alder highlighted the FCA’s “significant strand of work around growth which is to do with reform of the capital markets at large”, including changes to listing rules that took effect this summer. He argued a “more difficult piece” would involve “mobilising domestic savings” like pensions.
“There’s a spectrum here as to how far you wish to go,” Rathi said. He added that changes to listing rules, designed to make it easier for companies to float on London’s stock market, “will mean more things will go wrong over time”.
“I don’t know when, but sometime in the next few years, one or two more things will go wrong,” Rathi said. “But that is necessary to shift the risk apetite that the economy needs for growth. I think the test will come when those things do happen and what the tolerance is here in Parliament for some of those situations when they crystalise.”
Monday’s letter said a call for feedback on how the FCA could streamline its rulebook generated more than 170 responses “with mixed views from industry”.
Conservative MP and former Treasury minister John Glen asked whether the FCA could more closely align with the US Securities and Exchange Commission’s (SEC) style of approving firms.
“Broadly, if you go to the SEC, they will approve somebody very quickly but tell them, ‘Six months further down the line we’re going to come after you and review everything’,” he said. “Would we be doing it better if we approve things more quickly but came down very hard?”
Rathi responded that while he understood why “people make comparisons to the US”, it has a separate regulator for consumer protection and “a system which relies on litigation, an adverserial system in the courts, much more than we do”.
“It takes a long time to get a non-cooperative firm out of the regulatory perimeter once they’re in,” he added.