The Financial Conduct Authority boss has said the regulator is always open to making regulation easier to follow, provided it does not compromise on its strategy.
Speaking at the Lord Mayor’s City Banquet at Mansion House yesterday (October 27), Nikhil Rathi, chief executive officer of the FCA said it is embedding competitiveness further into its approach.
“Often arguments are put to us on the grounds of competitiveness that are anything but,” he said.
“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.
“We are always open to simplifying regulation whilst delivering the same outcomes and streamlining our processes without undermining rigour.”
Rathi said as an independent regulator, it has shown it can act quickly, whether it was its reaction to Covid, Russia, the rising cost of living or unprecedented market turbulence.
He emphasised that it was vital this “independence and agility at speed” is not undermined by any proposed call-in power.
“While we embrace and embed a secondary mandate for growth, making it a primary mandate would clearly undermine our international standing,” he said.
Testing standards to the limit
Rathi was appointed in June 2020 on a five-year term as chief executive of the regulator.
He explained that during this time, he has “fundamentally reoriented the FCA”.
Our gateway is more robust as we have learned the lessons from independent reviews. Nikhil Rathi, FCA“We have greater willingness to take more legal risk, to intervene earlier and to test our powers to the limits,” he said.
Referencing the three-year strategy, published earlier this year, he said it holds the FCA to account for the first time against specific outcomes and metrics.
“We have bolstered our senior leadership, promoting our top internal talent and bringing in commercial, operational and international experience,” he said.
“We have made difficult reforms to our pay and rewards to focus more on collective and individual performance, support career mobility within the FCA and lay the ground for substantial expansion in Leeds and Edinburgh.
“We are attracting over 1,000 new colleagues this year.”
This comes amid strikes earlier this year when three quarters (75 per cent) of Unite union members voted for the first time in favour of industrial action against the FCA over disputes around changes to pay and conditions.
Key concerns by staff included the loss of routine payments labelled ‘bonuses’ which represents 10 to 12 per cent of salary, the narrowing of pay bands, lower pay bands for Scottish staff, cuts affecting graduate trainees, and a threat of future cuts to pensions.
In the speech, Rathi said the FCA needs the extra support as its workload has increased, and remit continues to broaden.
While the events we have seen have been unprecedented, there are lessons to be learnt. Nikhil Rathi, FCA“We have greater willingness to take more legal risk, to intervene earlier and to test our powers to the limits,” he said.
“Our gateway is more robust as we have learned the lessons from independent reviews. Now one in five firms are initially rejected for authorisation compared to one in 14 in the previous year.
“Despite this extra scrutiny and workload, we have made huge progress on our backlog and plan to improve this further with our investment in automation.”
Big data techniques
The FCA said it is investing in and deploying technological solutions and it now tests firms’ sanctions controls with big data techniques.
The City watchdog scans around 100,000 websites a day to identify scams and has developed a single view analytics tool to be able to spot where to intervene and when, faster.
“In the last year, we have seen disruptive market events, such as the default of Archegos, the temporary suspension of the nickel market on the London Metal Exchange and the extreme turbulence in commodity and fixed income markets, including gilts which particularly affected defined benefit pension funds,” he said.
“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.”
Rathi added: “While the events we have seen have been unprecedented, there are lessons to be learnt.
“In each case I can see the need for better regulatory and risk reporting and oversight both domestically and internationally and this is something we will be focusing on with our partners.”
Rathi said the regulator has listened and knows that what is needed is a regulatory system that is joined up, avoiding duplication.
He said during periods of market turbulence, Sam Woods of the Prudential Regulation Authority, the FCA and its teams are in constant daily contact.
“We will work with the government and industry to prioritise and sequence the 40 or so EU files due to return to the UK statute book,” he said.
“We have heard strong, consistent views that this should be done at a steady, manageable pace, minimising transition costs.”
sonia.rach@ft.com
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