Speaking at City Week 2022: Resetting Priorities for a Better Future, FCA chief executive Nikhil Rathi said the regulator was preventing firms with inadequate controls from entering the market.
Currently, the number of applicants who do not obtain authorisation is up from one in 13 applicants to one in seven.
“We are being tougher on firms causing harm,” he said. “We have empowered more colleagues to take more decisions, so we act faster and are being more proactive even where we don’t have powers, be it by positively engaging with the Government to ensure scams are covered by the Online Safety Bill, or working with Google so they voluntarily changed policy to only permit FCA registered firms to advertise financial promotions with them.
“Following our engagement, Meta have now promised to do the same this year. We look forward to seeing them deliver and await clearer plans from Twitter and others.”
This comes after the FCA said it would recruit 80 new people to crack down on problem firms and police the market.
Rathi said to truly transform the regulator, the additional 80 colleagues would focus on the most problematic firms already in the market and would go further to remove more quickly those firms that can’t or won’t meet basic standards.
Today, the regulator also launched an initiative to provide support in the first few years for newly-authorised firms.
The approach, called 'Early and High Growth Oversight', has been introduced by the regulator following a "successful pilot".
The FCA said firms can face challenges in meeting their regulatory obligations in the first few years after authorisation, so its scheme will provide closer support for 300 newly authorised businesses by the end of 2023.
In his speech, Rathi said: “This [new initiative] will mean firms better understand our expectations while they start up and grow and ensure that we can identify and address harm developing in newly authorised firms quicker.”
An innovative regulator
Meanwhile, in May, the FCA will also be hosting its first ever CryptoSprint to explore how the evolving world of cryptoassets could be regulated within the UK.
The CryptoSprint is focused on informing regulatory policy changes based on evolving technologies.
This comes as earlier this month, the FCA said the expansion of its scope to include crypto firms has increased its fees by £8mn.
In its fee proposal document, the regulator said the fee will go towards the costs of developing IT systems and recruiting extra staff for the project.
Although the FCA is not responsible for regulating how crypto firms conduct their business with consumers, they have recently been brought under the regulator’s supervision under the money laundering and terrorist financing regulations.
Rathi said: “In crypto, our remit is currently limited to ensuring anti-money laundering rules apply to crypto firms.
“Minimum standards expected of firms we regulate – and some we don’t – from notaries to estate agents to make sure firms are not used to funnel money to fuel crime, terrorism or war.”
So far, 33 crypto firms have gained registration from the FCA under the anti-money laundering rules.
“By meeting the standards society expects and helping to build faith in their business model. Many were rejected as they had inadequate provision to prevent harm or even identify it in the first place.
“We worked with many firms to help improve their capabilities instead of just rejecting or approving with no feedback or advice. But those that couldn’t or wouldn’t meet the standards didn’t make it through.”
He welcomed the Government’s recent announcement of a flexible approach to regulation, arguing that it means the regulator can proportionately deal with any risks that emerge and to use the new powers over the promotion and marketing of high-risk assets, like crypto.
“Ahead of receiving these powers, we are finalising our rules, so we can act assertively once we do,” he said.
However, he explained that supporting innovation while maintaining standards is not enough.
The debate between legitimate investment and trading and unregulated entertainment and gambling has become blurred, he explained.
Research shows that those investing in these products frequently do not understand the risks they run, with nearly half not knowing they could lose their money.
“Many overstate their understanding. And most adults do not know that crypto is not regulated by the FCA, apart from our narrow remit on ensuring anti-money laundering rules are upheld,” he said.
“We need to draw clear lines. We need clarity around ruling out future Financial Services Compensation Scheme coverage for investment losses from crypto, even when advised.”
Elsewhere, another issue highlighted by Rathi was that firms it rejects can still service UK customers from offshore.
“While we have been encouraged to see partner agencies follow our lead when we have rejected firms’ registrations, it is not enough to rely on our global influence,” he said.
“This needs wider consideration by policymakers.”
sonia.rach@ft.com
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