The head of the UK’s FCA has warned about the consequences of some of the agency’s own recent proposals on relaxing rules for mortgage lenders.
Nikhil Rathi, who has faced constant pressure from the Labour government to take a more lenient approach to regulation to encourage growth, has now asked parliament to define what ‘an acceptable level of harm to consumers’ might be.
He told the House of Lords financial regulation committee on Wednesday the government push to slash regulation could pave the way for things to go wrong in the future:
“On mortgages, [what] if there are more defaults if we relax [rules]? One or two things are going to go wrong here and not everybody is going to play completely by the rule book, and is there acceptance of that?”
He also warned that cutting requirements for banks to verify customers’ identities could also lead to fraud, money laundering and systematic abuse by ‘money mules.’
The FCA has faced mounting pressure and criticism from politicians and the government in recent months, and was recently called ‘dishonest and incompetent’ by an all-party parliamentary report (which itself we criticized however).
But the regulator, whilst defending its work on growth, has shown a more conciliatory tone and has recently said it wants to work with the government “in a fundamentally different way to support the growth mission.”
Difficult balance to strike
The FCA chief has made his concerns over the risks of slashing regulation very clear. He has also asked politicians to define “a range that would be seen as broadly politically acceptable in parliament and we would be able to be held to account on”.
But the government’s tone and approach have been increasingly aggressive, with Prime Minister Keir Starmer warning regulators last October he will rip up any regulatory bureaucracy that hinders growth.
Nikhil Rathi’s remarks also came only a day after senior ministers forced the chair of another major UK financial regulator, the Competition and Markets Authority (CMA) out of office for what they called ‘insufficient’ work for economic growth.
The departure of Marcus Bokkerink, who took office in September 2022, was confirmed by the government in a statement on Tuesday evening, and comes off the back of a meeting of the UK’s top regulators with Chancellor Rachel Reeves and Business Secretary Jonathan Reynolds last week.
Some experts believe the government’s constant pressure to prioritise growth have put the FCA and regulators in a difficult position, one in which they were “increasingly ‘damned if they do, damned if they don’t’.”
Others have gone a step further and accused the government of being “on the side of the abuser,” suggesting that the tearing up of consumer protection means “the UK consumer can be taken for a ride by monopolists without care for the consequences.”
The stakes are obviously high. The government has to deal with rising borrowing costs, a falling pound and a struggling economy. The regulators on the other hand are bound by duty to protect consumers and prevent misconduct. It is a difficult balance to strike, for both sides.