Speech by Nikhil Rathi, FCA Chief Executive, delivered at the City Dinner, Mansion House.
Speaker: Nikhil Rathi, Chief Executive
Event: City Dinner, Mansion House
Delivered: 17 October 2024
Note: This is a drafted speech and may differ from the delivered version
Highlights
- Growth is urgent but it has always been part of the FCA’s story.
- We are seeking answers about what more we can do to support capital formation, productivity gains and financial services exports.
- The secondary growth objective is liberating and we are having a much needed, more candid conversation about our collective risk appetite.
- We need to collaborate to deliver growth.
As the prime minister said at Monday’s investment summit[3], “growth is the cause that binds us together”. It is urgent.
In truth, growth has always been part of the FCA’s story. Trusted, liquid markets. Consumers confidently engaging with products they need. Competition. Reduced financial crime.
Our longstanding work to support growth, now enshrined in law as a secondary objective.
We recognise that the jury is out on whether the FCA is helping to achieve growth.
Take our annual firm survey. Increasingly positive on our delivery on consumer protection and market integrity. More ambivalent on our competition mandate. And weakest on international competitiveness and growth. Though 70% say we enhance the UK’s standing as a financial centre.
We clearly have more to do.
So, how do we keep improving performance on primary objectives, whilst firing on all cylinders on the secondary, too?
Literature review
Our economists have published today a literature review[4] on links between financial regulation and growth.
A summary of existing research: a mile wide and an inch deep. It identifies not how much we know but, often, how little.
So we will shortly open a research competition to find the missing answers on how we can support:
- capital formation
- productivity gains
- financial services exports
Operational effectiveness
While we seek those answers, we won’t let up on our operational effectiveness … we know that matters.
Your predecessor raised authorisations 2 years ago – 98% of applications are now done within statutory deadlines. Our first application form is now fully digitised. More digitisation is coming.
We are not perfect. But some firms now say they can’t always keep up with us.
Same rigorous standards. More efficiency.
We’re more assertive against harm. 10,000 errant financial promotions tackled. Doubled cancellations of firms breaching minimum standards.
And we have more targeted enforcement. 9 successful fraud prosecutions and 21 charges last year – the most ever. A record 45 people facing proceedings.
Investigation times are falling – as low as 14 months in recent cases vs a 42-month average.
We have proposed being more transparent on enforcement. Not in all cases. But no longer just by exception. Because our current approach doesn’t work. We think a degree more openness can reduce harm, build whistleblower confidence and benefit firms that play by the rules.
We know the proposals came as a surprise, falling short of our ‘predictability’ test.
And we have heard the strength of opposition and some concern that we could be an international outlier, detracting from competitiveness.
We want to work through this together, mindful of all our objectives.
Next month, we will provide more data and case studies on how a public interest test could work in practice.
This is about firms, not individuals. We hope to reassure the sector – here and overseas – that relatively few cases would be affected, given so many are already disclosed, mostly by firms themselves.
Where we decide to name a firm in the public interest, it wouldn’t by default be when an investigation starts. Unlike in many jurisdictions, our enforcement investigations typically follow at least a year of supervisory engagement.
We would give firms of all sizes longer to make representations about impact. And we know we have to be particularly mindful of impact on small firms.
We’ll continue to listen to feedback and our Board will decide early next year.
Ultimately, an FCA that tackles financial crime and deters serious misconduct reduces the drain on growth and competitiveness.
We have heard, too, industry concerns about data requests: number, scope, time to respond.
A lack of timely data featured in recent market issues:
- over-the-counter (OTC) trading in the nickel episode
- clarity on leverage in the liability-driven investment (LDI) crisis
- position information in August’s yen carry trade unwind
We now ingest 1 billion records a day, double a few years ago.
We all need to invest in technology to make it easier to share data and ease regulatory burdens. Our move to the cloud and use of large language models means we can analyse it quicker.
Digital infrastructure
I understand Tom Cruise wants to go beyond the clouds and shoot his next film in space.
Unlike Mr Cruise, I don’t see the FCA’s objectives as Mission Impossible.
Not if you are alongside us.
Katherine Johnson, whose calculations enabled NASA’s first crewed spaceflights, observed: “We always worked as a team...Never just one person.”
That collaborative approach is now needed more than ever – I will highlight 2 areas.
First, infrastructure underpinning markets. There are bright sparks such as progress on tokenisation in asset management. But a collective execution deficit. Some boosters are not yet fully fired:
- the Smart Data Bill for the next phase of open banking
- the National Payments Vision
- timetables for T+1 settlement and share register dematerialisation
- pensions dashboards
- or, critically, a roadmap on identity authentication
Others are pulling ahead, fast. They’re overcoming vested interests.
Government or regulatory action is not always needed. Rachel Kent recommended an investment research hub that requires neither. Just industry funding and leadership.
Innovate Finance calls for tech positive rather than tech neutral regulators.
Let’s overcome national tech scepticism, and adopt an optimism which could tackle financial exclusion, as biometric identity has done from India to Sweden.
Our review of bereavement insurance claims shows far quicker payouts if electronic verification of death became the norm.
Risk appetite and regulatory reform
We won’t always get it right. We may back the wrong technology.
Is there really appetite for greater risk? We have shown we’re up for it. Our far-reaching listing reforms are already being used. More radical reforms on prospectuses are readying for take-off.
We've published competitiveness metrics. Are policymakers willing to set metrics for tolerable failures to create conditions to unlock growth capital? We are a nation of improving savers, but bad investors. Credit to Barclays for shining a light on savers’ excess cash.
The advice guidance boundary review[5] seeks innovation so people can access affordable support. But if that results in greater holdings in investments not cash, more will be at risk from short-term market volatility.
You have until Halloween to tell us how we can use the Consumer Duty to trim our rule book.
Fewer tick boxes, less cost; no doubt welcome. But if we streamline disclosure, affordability or product rules, will firms be spooked if they have responsibility for outcomes without the comfort blanket of rules or guidance?
Outcomes-based regulation brings risk as well as opportunity.
Our history shows the value of risk taking.
A decade ago, the FCA launched Project Innovate[6] – supporting firms trying new things. The FCA’s competition objective spurred the idea – proof of our responsiveness to Parliament. Almost 1,000 firms have benefited. With firms that tested in our sandbox, 50% are more likely to attract capital. 95 foreign regulators have replicated it.
We’re now launching an AI Lab[7].
Can we go further still … will the market accept more risk?
Can we build on enhanced supervision for newly authorised firms with an L-plate for provisional authorisations … even if that means more firm failures, and increased Financial Services Compensation Scheme (FSCS) costs?
What if we bring promising startups together with venture capital? Would we be conflicted, in the event of future problems?
The secondary growth objective is liberating. We are now having a much-needed, more candid conversation about our collective risk appetite.
Conclusion
So, Lord Mayor, lots done. Much more on its way.
We are now in 2024, not 2008. A shift in approach is underway.
We won’t always all agree. But we should challenge one another on risks we’re willing to accept for growth.
The foresight to invest for the long term, particularly in technology. Acceptance that that brings opportunities to succeed but also to fail. A shift in our public discourse when that happens. And ownership of outcomes we are seeking, leaving behind prescriptive rules.
In short, isn’t it time to stop admiring the problems and execute solutions? To collaborate to deliver growth rather than compete for who’s done best.
We ask for all your help, such that by next year when Mission Impossible 8 comes out, we can demonstrate that the FCA’s mission impossible is, in fact, possible.