Promoting competitiveness is a juggling act

Speaker: Sarah Pritchard, Executive Director, Markets and Executive Director, International
Event: TheCityUK International Conference 2024
Delivered: 18 April 2024
Note: This is the speech as drafted and may differ from the delivered version

Highlights

• We want to strike a balance between encouraging competition and innovation and advancing our other operational objectives.
• We aim to support beneficial and responsible innovation, ensuring consumers and markets reap the benefits of new technology.
• We welcome international firms but want them to operate in a way that protects consumers and market integrity.

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Today is International Jugglers’ Day.

The art and skill of juggling dates back to at least 2000 BC. Representations of jugglers were found inside Egyptian tombs.

And in China, skilled juggling warriors distracted their opponents in battle with their acrobatic skills, allowing their army to ambush the dazzled rivals.

You will be relieved to hear I will not attempt to bamboozle you with any such live tricks today. Nor do I plan to make any new policy announcements – something I know your compliance teams will thank me for.

Juggling is, at least metaphorically, a skill we regulators have to master.

Whether it is balancing the demands of consumers, markets, firms. Or our multiple objectives. Or – as I will argue today – the various elements of regulation that contribute to growth.

Accountability

That juggling act is recognised in the report[3] published by TheCityUK and Freshfields.

It is no secret that our hosts can be tough on us regulators – and rightly so. I was, therefore, pleased to read that our role as a leading financial regulator is recognised.

That is perhaps a product of a notable shift in engagement that I have heard a number of you comment on over the last year. 

As we have set about delivering on our new competitiveness mandate, I have heard from many firms how good it is to be able to engage constructively with us regulators rather than only when things go wrong. You’ve told me how good it is to be able to engage direct on regulatory reform – to speak to regulators openly and before rules are formulated, not afterwards in the courtroom.

Today’s report from TheCityUK concludes few, if any, of the 21 other jurisdictions studied have published metrics equivalent to those of UK regulators.

While other regulators do also have objectives around growth and international competitiveness, we are recognised as providing world-leading standards of accountability and transparency.

The objectives of regulators around the world do, of course, differ. That, as the report’s authors acknowledge, makes international comparisons difficult.

TheCityUK’s suggestion of working on an international benchmarking framework that would include qualitative analysis as well as other metrics is one that we will, therefore, actively engage with. Because good benchmarks, although difficult they might be in practice to deliver, would support others in holding us to account.

Last year, we published our framework for implementing the secondary objective[4], showing how regulation can influence growth through 7 drivers of productivity.

One significant element is our own operational performance.

Following entirely justified criticism of the length of time it was taking some to become authorised or approved, we stepped up. We also started to share in greater detail our own performance metrics on a quarterly basis[5], to support the drive to improve our delivery so others could hold us to account for achieving it.

Today, 97% of authorisation cases are assessed within statutory deadlines. Better applications take the least time. Senior Managers and Certification Regime (SMCR) applications take on average 40 days, 50 days ahead of deadlines.

Central to achieving that was not just more resource, though there was. Or more investment in tech and training, though there was that too. But greater commerciality – and a relentless focus on balancing all of our statutory objectives.

And in authorisations, in particular, we have driven improvements by bringing together private sector commercial experience at Executive Director and Director level, and matched it with deep Director-level regulatory experience. That combination of commerciality and regulatory experience is something we are focusing on more broadly as we drive changes in the way we operate.

But we should never focus only on the areas that are straightforward to measure. Stats alone won’t tell the whole story. 

And we need to be mindful that it is how these different elements of regulation work together to ensure a regulatory environment to support the attractiveness of a market.

Take crypto. We continue to hear concerns raised about the length of time it can take for some cryptoasset firms to be registered by us for anti-money laundering purposes.

Some complain that too few meet the bar for entry. The argument is we should be faster, let more in.

Achieving that would be easy to measure. Pretty bar charts could decorate our annual report. We could pat ourselves on the back for better operational efficiency and speed of authorisation, one of the drivers of productivity I mentioned earlier.

But a simple focus on numbers could undermine trust and reputation – another of our productivity drivers. Lower standards could leave open our market to abuse by those who seek to launder criminally made cash, damaging market integrity and confidence in financial markets.

Instead, we take a longer view. Crypto’s success – and the success of any base for crypto firms – relies on trust being built and maintained. 

Sustainable growth relies, after all, on faith in the system.

International cooperation

International cooperation and development of consistent global standards are central to the level playing field on which true competitiveness relies, rather than the simple – and perhaps easier to measure regulatory arbitrage.

The relationships built carefully over decades by the FCA are helping us lead international discussions on issues of risk that fail to stick neatly to national jurisdictions. Those links enable us to make sure markets can work well effectively and efficiently across borders.

Take Non-Bank Financial Intermediation (NBFI). Our Chief Executive, Nikhil Rathi, co-chairs the Financial Stability Engagement Group (FSEG) at IOSCO. One significant area of focus for this group is international policy work on leverage, liquidity risk in open-ended funds, and fund preparedness for margin and collateral calls. And I am co-chairing work with the European Central Bank on the financial stability risks posed by leverage in NBFI under the Financial Stability Board’s (FSB) Standing Committee on Supervisory and Regulatory Cooperation.

And LIBOR. As I speak to you today, sterling LIBOR is no more. All LIBOR panels have ended[6]. Only synthetic LIBOR settings in US dollars remain and they are expected to end before October. In March, the Bank of England’s Financial Policy Committee concluded that the financial stability risk to the UK from the US dollar LIBOR has been mitigated.

Many said this couldn’t be done in this timeframe, but thanks to international collaboration and industry partnership, the FCA has led and driven a consistent global approach together with our key domestic partners in the Bank of England and Treasury, as well as IOSCO and the FSB, whose LIBOR steering group we co-chaired.

The final remaining synthetic US dollar LIBOR rates stop in just over 5 months. But when that happens, the final outcome – of a more stable financial system, which protects investors and consumers and builds confidence in UK financial markets, will be complete.

And our cooperation with fellow regulators doesn’t need always to be through the auspices of large multi-lateral bodies. Nor does it need, always, to be focused on risk.

Last year, we partnered with regulators across the world, as part of the Monetary Authority of Singapore’s Project Guardian[7], to share knowledge and examine the benefits, regulatory challenges and commercial use cases of asset and fund tokenisation.

We understand that in order to properly support innovation, we must work closely with other regulatory and technical standards, as the industry changes and evolves internationally.

Rightsizing our regulation

That international work on tokenisation finds its mirror in our domestic approach, with practical collaboration between government, regulators, and industry on fund tokenisation through the Asset Management Taskforce.

This detailed work has concluded that the UK regulatory framework is 'open for business' – it can support the adoption of tokenisation in investment management and the funds industry without the need for significant regulatory reform. We remain committed to supporting this innovation and ensuring that the UK regulatory regime is at the forefront of innovation.

Along with the Bank of England, we are consulting on a new Digital Securities Sandbox[8]. We want to respond to industry’s desire to make the infrastructure supporting traditional securities markets even more efficient, transparent, and resilient, as it adapts to support distributed ledger technology.

It is an exciting new way of making policy as firms in the sandbox will be able to test new business models under a temporarily modified legal framework which, if successful, can then be made permanent. The consultation is open until 29 May.

As we have demonstrated consistently over the past year or so, adherence to international standards and global cooperation does not mean we cannot ourselves innovate – and at pace - to ensure our regulatory regime supports UK market needs and a changing environment.

We have forged ahead in delivering on our part of the Edinburgh Reforms.

Earlier this month we put in place the final elements of a regulatory framework for a consolidated tape[9]. By building a more complete picture of the market, a tape will reinforce the UK’s position as a leading centre for the listing and trading of bonds.

And, just last week, we proposed giving asset managers greater freedom in how they pay for research[10], supporting their investment decisions. This greater choice should suit firms of varying business models and sizes, helping to promote competition.

Our analysis shows that asset managers are largely getting the research they need under the current rules.

But our proposed changes would ensure greater compatibility with other major jurisdictions, making it easier for asset managers to buy research in the same way, across borders.

Similarly, we are aiming to publish final rules on changes to the UK’s listing regime – the most wide-ranging and consequential reforms to the UK’s capital markets in over 3 decades – by the summer.

While our rules are only one part – and perhaps not the largest part – in the decisions taken by companies’ boards on whether and where to list their securities, we have demonstrated our commitment to doing what we can to support dynamic capital markets in the UK.

Open Britain

Underpinning our approach is our belief in open wholesale markets. This has long been the hallmark of the UK. Overseas firms can access UK markets without needing to be authorised here. And firms based in the UK can connect with counterparts and customers globally. 

Openness brings benefits – it can help promote greater economic dynamism through greater liquidity, increased competition, and act as a magnet for other international firms to do business in the UK.

Our openness is the reason why so many across the world come to do their business in London. And why, therefore, we remain global leaders from insurance to debt issuance, from asset management to derivative trading. 

But openness of itself is not sufficient to advance competitiveness and growth. Enhancing the UK’s international competitiveness in financial services is about creating the right conditions so firms have confidence to innovate and invest in the UK. 

Creating those conditions means then maintenance of high standards and the preservation of our ability to act, where required. 

We have noticed an uptick in proposals where for a firm's activity taking place on UK soil, the individuals undertaking senior management functions will not be based in the UK.  

If firms run or manage their UK operations from elsewhere, our ability to supervise them is lessened. As is our ability to hold parties to account should things go wrong. 

Over time this could impact the UK’s attractiveness as a global financial services centre. 

It is for this reason that we expect senior managers to spend time in the UK appropriate with their responsibilities here.

At the same time, however, we are working to ensure that the door is open to those who want to operate in our markets and are able to meet the standards we expect.

While it is the Government rightly in the lead, we are playing our part to support the recently signed Berne Financial Services Agreement[11] with Switzerland, which allows UK-based firms new opportunities in accessing Swiss markets and vice versa.

And, last year we launched our pre-application support service (PASS)[12] – targeted at overseas wholesale firms wishing to expand into the UK. Or at any wholesale firms planning to set up in the devolved nations and outside the south-east or seeking to operate an unusual or high-risk business model.

We know that some firms would like a bit of extra assistance. So, we are offering firms pre-application meetings with our case officers, giving them dedicated support and guidance through the application process.

I would encourage any firm looking to expand into the UK or out of London and the south-east to come and talk to us – we can get you to market more quickly.

Conclusion

I started by comparing regulation to juggling, and this is no more true than in the area of promoting growth. As with juggling, keeping your eye on a single ball will mean you drop them all. 

So, by focusing on one narrow contributor to the competitiveness of the UK’s financial services you can lose sight of the bigger picture, or the longer-term. Only by considering all the elements that create the right foundation for investment and growth will we succeed. To do so, we – the regulator – need to be open-minded, open to change. To provide support for those who want to do business here, but sustain trust and our national reputation through the maintenance of high standards.

And we need to work cross-border, with our fellow regulators around the world, to set consistent, global standards.

We are committed not only to participate in those discussions, but to continue to lead them.