A strong defence of the regulator’s role in promoting sustainable, competitive business was given by FCA Chief Executive Nikhil Rathi at the Lord Mayor’s banquet in London’s Mansion House on October 27.

He said that after a particularly challenging few years in which there had been considerable market disruption, it was clearer than ever that “upfront effort from firms should mean fewer rules down the line”, especially in relation to the new Consumer Duty.

Tackling some of the criticism levelled at the FCA head on, he said: “often arguments are put to us on the grounds of competitiveness that are anything but”. He went on: “It is not our role to create or maintain barriers to entry that support short term revenues of incumbent players at the expense of new entrants.”

Sustainably competitive

Using an example from the insurance industry, he said the FCA had been criticised for “undermining competitiveness of the UK insurance industry by litigating to secure clarity for policyholders”. He said the response was simple. “A market in which insurers do not meet their legal obligations to customers will not be a sustainably competitive one.”

And he sent a clear signal to those voices in government political circles who have been floating the idea of asserting greater control over regulators and their priorities. “As an independent regulator, we have shown we can act quickly, whether it was in our reaction to Covid, Russia, the rising cost of living and unprecedented market turbulence.

“While we embrace and embed a secondary mandate for growth, making it a primary mandate would clearly undermine our international standing.”

Nikhil Rathi, Chief Executive FCA

“It is vital that this independence and agility at speed is not undermined by any proposed call-in power. And while we embrace and embed a secondary mandate for growth, making it a primary mandate would clearly undermine our international standing.”

Rathi emphasized there would be “no compromise on consumer protection or market integrity”, and also went on to detail work the FCA is doing on updating regulation post-Brexit, and through consultation on the use of AI and the innovation of big tech.

Use of leverage

Referencing disruptive events such as the Archegos default, the LME suspension and “extreme turbulence in commodity and fixed income markets”, he said that “In each case, there was a significant use of leverage, sometimes hidden leverage, concentrated counterparty risk and margin modelling based on periods which did not address the stresses that actually crystallised.”

He also acknowledged changes on a wider platform, observing in his speech that: “For the first time I live in a country where the Prime Minister is younger than me” and mentioning his pride to be “speaking in a city which has a directly elected mayor from a British Asian background and in a country now led by its first British Asian Prime Minister”.