James ConeyJul 1 2020

Is Rathi the right man for the job?

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If you did not know who Nikhil Rathi was before, then I rather bet you have spent the past few days swotting up on his background.

I confess the stellar career of the newly appointed chief executive of the Financial Conduct Authority had rather passed me by.

Unlike Andrew Bailey, who seemed a shoe-in from the moment Martin Wheatley – who had been chief executive of the FCA until 2015 – departed, Mr Rathi was not even on many people’s radars as a candidate.

Until now, he has been the UK head of the London Stock Exchange.

He was private secretary to Tony Blair and then Gordon Brown between 2005 and 2008, and spent 11 years at the Treasury.

His roles included being director of the Financial Services Group, representing the government’s financial services interests in the EU. He was also head of the financial stability unit during the financial crisis, where he worked on the bailout of Royal Bank of Scotland. 

He has a first-class degree in philosophy, politics and economics (what else?) from the University of Oxford. And guess what? He is only 40. That is clearly a rather brilliant CV, and his appointment tells us one of two things. 

We may see more strides towards efficiencies in markets and some steps away from consumer protection

(Okay, it could actually be three. The third being that this was an enormous error and that they have got the wrong man, but let’s put that aside for now.)

Anyway, the first of the two points is what the chancellor expects of the role of the chief executive of the FCA.

Ever since the Financial Services Authority was disbanded, its predecessor has had a very clear remit and that was consumer protection.

The major failing of the FSA was that it spent too long focusing on the efficient running of markets from the point of view of business, and not on whether the consumer was getting a fair outcome.

I would argue that Mr Rathi’s background means we may see more strides towards efficiencies in markets and some steps away from consumer protection.

Brilliant as Mr Rathi is, what does he know about safeguards needed for a steel miner in south Wales, or a grandad in Grimsby who has just seen an advert for a high-rate savings account on Google?

Mr Rathi seems like a policy man, not a consumer champion.

The second signal is that he also seems like a Treasury man, and that this may be an attempt to get one of Whitehall’s own inside the regulator.

Escaping the mess of Covid-19 is going to need co-ordination between all arms of the economy, and it would be no good if the pesky protectionist voices in the FCA were putting in barriers that stopped financial markets from doing their business.

That could be good news if you are in the industry as it is likely to be less red tape. But less regulation has never worked well for the consumer.

Still, if it all goes wrong, you could just shut down the FCA and give it another name.

Impact of recovery measures

Speaking of Mr Bailey, he seems to be quickly putting the cat among the pigeons in his new role at the Bank of England.

Last week came the announcement that one major decision by the BoE had to be an unwinding of quantitative easing.

It knocked 1 per cent off the FTSE on opening, but that quickly bounced back by the time traders had got to the second paragraph where Mr Bailey said it would come later down the line.

He has got a point though. Amid all the talk of taxing the wealthy and pensioners to pay for this crisis, the impact of QE on their asset prices quickly becomes forgotten.

This is where they have benefited the most. The losers are those coming into the market now, the young savers being introduced to auto-enrolment.

If QE is to be undone, then they are coming in at the very top. It could take ages for their pensions to recover. I think any discussion about who has been harmed by the crisis is moot.

Terrible service

It is only when you look at other industries that you realise how effective and far-reaching the financial services regulator actually is.

In energy and telecoms for example, there is very little consumer protection when things go wrong, and as a result service levels can be diabolical – though profit margins are also miniscule.

And in the airline industry and travel sector, consumer protection is almost non-existent, which is why again, service levels are so appalling, and so many travellers have rotten experiences and struggle to get refunds.

Sometimes, the regulators can get it right – if you are a consumer, that is.

James Coney is money editor of The Times and The Sunday Times

@jimconey