In a speech to the Association of British Insurers roundtable, the FCA’s CEO Nikhil Rathi announced the FCA’s commitment to supporting the government’s growth initiative and to be bold not just in “what we do, but how we do it.”

Drawing inspiration from Alexander the Great’s sword to cut through the “Gordian growth knot of regulation”, he also said, like Alexander, he wouldn’t “just rely on warriors”, and he would draw on “a broad range of expertise.” Therefore emphasizing a shift towards a more collaborative and pragmatic approach with the industry.

Key changes include:

• Fewer large-scale initiatives: The FCA does not rule out other major redress events in the event that systemic breaches of the law emerge, but the regulator is not currently anticipating any further mass redress events.
• Policy streaming: The FCA is actively reviewing existing proposals, with plans to shelve or revise certain rules. For example the removal of the FCA’s expectation for a Consumer Duty Board Champion and giving the choice back to firms
• Reduced regulatory pace: Rathi acknowledged concerns about the speed of recent regulatory changes and the regulator is aiming for fewer large-scale changes in its next five-year strategy

However, what does this really mean? It looks like a regulator trying to find a role for itself. But the government’s insability so far to define what its “growth” mantra means doesn’t help. Is this a distraction rather than serious policy? We asked leading industry veterans for their views.

Getting the message right

“Nikhil Rathi’s every word confirms the FCA’s lukewarm response to the Government’s challenge to boost growth,” said Simon Morris, a financial services Partner at law firm CMS. “Rather than propose a timid trickle of top-down tinkering, the FCA would do better to ask firms to list the top five FCA-driven growth inhibitors – collate, evaluate and where practicable act on them.”

Rob Mason, Director, Regulatory Intelligence Strategy & Market Intelligence at Global Relay, had some empathy for his former stomping ground. “Despite the efforts mentioned in the speech, the FCA and Rathi remain under extreme pressure, due to the numerous issues and concerns which have delivered exclusively negative headlines over the last 12 months. On first read, the initiatives he talks about in his speech do not materially impact the damage previously suffered.”

However, Mason reflected that “a regulator on the ropes is not good for UK regulated firms, nor investors.” He suggested that the FCA “could do with delivering positive messages, perhaps identifying wrongdoing and delivering as a credible deterrent and innovative regulator, but most importantly, one which gets the basics right.”

Speed of change

In the responses to the Consumer Duty “call for input”, Rathi reported that some stakeholders thought that the FCA was going “too fast” and some “not fast enough.”

Helen McCarthy VP, Global Markets Compliance, State Street, said: “I would say more of between a rock and a hard place than the sword of Damacles, especially.

“Increasing growth goes hand in hand with increasing risk and you know that no matter how much the FCA re-iterates this, they will ultimately be blamed when something goes wrong. Which it will. The rock and a hard place again.”

On the FCA’s green agenda, McCarthy expressed her concerns. “I also don’t know how the green regulation agenda is going to play out. Do we go with Trump and ‘dig baby dig’? BP certainly seems to think so, and so does Macron. But it feels wrong to me at least to be putting shareholders’ disgruntlement above the fate of the planet. Rock and a hard place…”

Consumer Duty tightrope

“The FCA appears to be walking a tightrope,” said Gary Watson, Director, Clarionet Consulting. The regulator wants “to be seen to be easing the regulatory burden, which addresses concerns from the Government that regulation was stifling growth, but also maintaining a key primary objective, to protect consumers.”

Watson explained that FCA had good reason for its approach, citing the historic mis-selling scandals and that “consumers don’t always have sufficient trust in UK financial services to act in their best interests. However, we know that trust and confidence in financial services supports growth.” 

On removing the FCA’s expectation for a Consumer Duty Board Champion and giving the choice back to firms, Watson said: “The Consumer Duty has a big part to play in ensuring consumers have access to the right financial products and the right information to make informed financial choices. Therefore, allowing firms the option to drop the Consumer Duty Board Champion, given that it was created to ensure the Duty is regularly raised and discussed at board level, feels a little reactive. 

“We will wait to see how the FCA juggles its role as an independent regulator and the need to ensure fair outcomes are delivered for consumers, coupled with the political pressure for economic growth.”