The fallout from Covid-19 should place a number of new items at the top of the incoming Financial Conduct Authority chief executive Nikhil Rathi’s list.
Mr Rathi’s appointment to head the City regulator was confirmed on June 22, and was something of a surprise.
He joins from the London Stock Exchange Group, where he was the chief executive of the UK business, having previously worked in the offices of Tony Blair and Gordon Brown, when both were prime ministers. And he has also worked in HM Treasury.
Nikhil was one of the most able officials I worked with During an 11-year career at the Treasury, he worked on issues relating to the banking crisis, where he headed the financial stability unit and later served as director of the Financial Services Group – the body within the Treasury that deals with the UK’s relationship with the EU.
Key points
- Mr Rathi has been appointed chief executive of the FCA.
- He had a good track record at HM Treasury.
- He will have to deal with the fallout from Covid-19.
Lord (Nicholas) Macpherson, who served as permanent secretary to the Treasury from 2005 to 2016, covering the period of the global financial crisis, worked with Mr Rathi during that time.
He says: “Nikhil was one of the most able officials I worked with. He was in the lead in resolving RBS in 2008 and made a big impression on the ministers, bankers and lawyers he worked with.
“He has a sharp intellect, is a good communicator and is very personable.”
Mr Rathi also worked in the Treasury during the years of the coalition government, while Vince Cable was secretary of state for business. Sir Vince told Financial Adviser he remembers – from his limited dealings with Mr Rathi – that he was a “very clever official.”
Mr Rathi left the Treasury in 2012 to join the London Stock Exchange Group, and became that company’s UK chief executive in 2015; LSEG has recently fought off a takeover attempt by the Hong Kong stock exchange, while at the same time trying to acquire data company, Refinitiv – a deal which is still pending.
Mr Rathi joins the FCA at a time when the regulator has received criticism for what many believe is its slow response to problems, including the marketing of mini-bonds to retail investors, the collapse of Woodford Investment Management, and the rise in adviser professional indemnity insurance.
Mike Barrett, consultant at the Lang Cat, says the challenge for the new boss “is to show he can be ahead of events, starting with the pandemic.
“We don’t know precisely what the impact of that will be on the issues that come under the FCA remit, but we know that there will be an impact, and it’s a question the regulator should be asking now, rather than later.
“It may be that Mr Rathi’s private sector experience makes the organisation more dynamic.”
Mr Barrett adds: “If I had this job, the main thing I would want to be addressing is the speed of reacting to emerging issues.
“Obviously it’s easy to look at things with the benefit of hindsight, but there is a long list of issues where the speed of response, that is, stopping consumer detriment and holding those responsible to account, simply hasn’t been good enough: London Capital & Finance mini-bonds, Woodford and British Steel defined benefit transfer advice to name but three.
“The FCA needs to improve its market intelligence to identify these issues at an early stage, and when they do, they need to move more rapidly to protect consumers.”
Mr Barrett says he also believes there has been a decline in the communications provided to advisers.
“They are being sent huge documents with the information buried in there, rather than receiving it in the bite-sized chunks they need.”
Steve Kenny, commercial director at consultancy Square Mile, says the Covid-19 crisis is likely to raise several business continuity issues for the industry, many of which are systemically important.
He says: “At the start of this crisis, one of the major platforms was unable to transfer from landline phones in the office to mobiles because of the system it has: that’s potentially a business continuity event.
“We don’t know exactly how this pandemic is going to pan out, but I think the working-from-home trend is something we will see in future more often, and as that happens it could have a detrimental impact on clients, for example, what if a trade is taking place and someone’s broadband goes down?
“Now is the time for regulators to be thinking about these issues, as pandemics may not be once-in-a-century events and as the experience of working from home has been so positive for many people, that is likely to continue – has business continuity as a risk been forgotten in this?”
He adds the regulator needs to take action on the issue of PII as “there are now only four providers, and that is a crisis; if it does not act soon, it will kill the advice industry”.
He says the FCA should get clarity quickly on whether advice suitability requirements around environmental, social and governance funds – where the client has to be asked if they have considered ESG – will come into force as part of the Mifid regulations, even as the UK exits the EU next year.
Increased use of technology and its likely implications on adviser and providers’ businesses is also central to the thoughts of Ben Hammond, platforms director at Altus, who says: “The current situation has meant a massive, further drive towards digital over the past few months, something the new chief executive of the FCA would do well to take into account when thinking about the future of regulation in the UK, looking to the rest of the world for inspiration.
“More widely, there have been a number of calls to take a serious look at restructuring the Conduct of Business Sourcebook to bring it into the modern age – in particular how this can define who is liable for advice and therefore potentially for compensation costs.
“When it comes to the advice boundary, it should be really simple: if you pay someone to help you, that’s regulated advice and the adviser is liable for it; if you get that help for free, then it’s up to you if you take it and whoever provides it shouldn’t be liable.
“On this note, the FCA should be engaging more with investors themselves, and will then perhaps realise that most people are savvy enough nowadays to realise that ‘free’ services involve payment somewhere along the value chain.”
Among the earliest casualties of the pandemic-induced market sell-off were open-ended property funds, all of which had to suspend withdrawals due to difficulties in assessing the value of the underlying assets.
That came hot on the heels of the Woodford Equity Income fund being forced to suspend redemptions as a result of difficulties with the unquoted parts of the portfolio.
Ian Sayers, chief executive of the Association of Investment Companies, says: “One of Mr Rathi’s priorities should be to address the continuing problems of open-ended funds holding illiquid assets and promising daily redemptions.”
Clearly Mr Rathi has been through some tough crises in the past; opinions of those that know him indicate that he is up to challenges in the future.
David Thorpe is special projects editor of Financial Adviser and FTAdviser
