If the FCA stays stuck in the past, London will lose capital to European competitors
Sometimes, when things are not working fully, you have to start from the beginning. Perhaps it was this rationale driving Nikhil Rathi, chief executive of the Financial Conduct Authority, when he made several promises in the regulator’s “three year strategy” almost identical to those made by George Osborne in 2011 when the body was set up.
Where Osborne promised a “new culture of regulation”, Rathi assured us we would see “a different type of FCA”. The “space for innovation and commercial success” promised in 2011 sounds remarkably like the commitment to becoming “more innovative, more assertive, more adaptive.” 11 years on, you could be forgiven for thinking we’re stuck in Groundhog Day.
This matters because any sense the FCA is stuck on repeat, or merely paying lip-service to long-established industry concerns, risks undermining confidence in the regulator – especially among international institutions weighing up competing jurisdictions. There is a perception of the FCA as a slow moving beast. Crucially, however, the strategy, though commendable in its efforts to clamp down on “problem firms”, offers oceans of silence on how it will expedite dealings with well-run, already-authorised firms.
While there is no doubt the FCA employs good, well-intentioned staff, is it right that non-problem, authorised firms simply trying to interact with their regulator on a routine basis or to get straightforward applications processed should have had to encounter such bureaucratic delays?
I have the privilege of often advising US and Asian institutions who are considering the merits of establishing themselves in the UK. One of the key questions they repeatedly ask is “how long will it take” to become regulated by the FCA? Routine delays in securing authorisation, and then dealing with the regulator when authorised, do nothing to help the UK’s competitiveness in a post-Brexit world with other continental regulators offering a more efficient decision-making process.
After all, the government has pinned much on ensuring the UK’s regulatory regime is “competitive”, by the softening of listing rules, for instance. Firms need to feel they are presided over by a nimble regulator that really understands their businesses and there is a real danger that the patchwork plan unveiled last week undermines these efforts.
Take the issue of authorisations, a fundamental consideration for global institutions. If it takes an age to secure authorisation, might you better setting up shop abroad? Indeed, Rathi acknowledged before the Treasury Select Committee that the FCA had “work to do” when confronted by MPs concerned about the scale of the delays. One application had sat with the regulator for 11 months before having its first substantive review. And though 95 new staff have been hired, the “work” that will be done to improve things remains vague.
Separately, in relation to important (and often urgent) change of control applications the FCA’s own website currently acknowledges a two-month delay before a case officer is even appointed. Many authorised firms have experienced substantial delays in their day-to-day interactions with their regulator. Again, we have nothing but silence on proposed reforms.
There are always trade-offs. As Harvard academic Michael Porter has said, “the essence of strategy is observing what not to do”.
The FCA’s plan contains too many implicit trade-offs to the detriment of well-run authorised firms who are not getting the support they need from the regulator. With London facing ever-greater competition from international jurisdictions, let’s hope the FCA’s strategy doesn’t come to resemble more of a valediction.