FCA to rely less on new rules, chief executive says
Speaking on the Fairer Finance podcast, Nikhil Rathi said the regulator is moving to a more outcomes-based model, stating: "not every problem is going to be solved quickly by doing big interventions, more rules, bans, guidance."
Financial Conduct Authority (FCA) chief executive Nikhil Rathi has signalled a shift in regulatory approach away from introducing new rules and towards greater reliance on the Consumer Duty and supervisory powers.
Speaking on the Fairer Finance podcast, Rathi said the regulator is moving to a more outcomes-based model, stating: “not every problem is going to be solved quickly by doing big interventions, more rules, bans, guidance,” and adding “I think that there’s a whole range of influences that are informing our willingness to write lots of new rules […] we’re moving to an outcomes-based approach, and that will mean less rules in the future because we think the Consumer Duty will do a lot of the work for us.”
He also acknowledged pressure from the Treasury on transparency around enforcement actions, saying: “The Treasury, I think, weren’t pretty secret about their view that they weren’t a big fan of transparency, about our actions when it came to firms.
“They were very persuaded by some of the lobbying they received on that topic. Nonetheless, we are stepping up the way in which we communicate through our enforcement watch.”
On market fairness, Rathi suggested that some issues fall outside the regulator’s remit, stating: “What is not within our mandate to decide on is some of the distributional questions that you’re pointing towards,” and adding: “there can be some areas of our work which intersect with social policy.
“And the issue that certain products may be more expensive for certain parts of society is not going to be directly something a regulator deals with. It becomes something that becomes a matter for government.”
On mortgage lending, Rathi acknowledged potential risks from loosening rules: “Over the cycle, over an interest rate cycle, that might mean a modest amount of additional distress if interest rates rise significantly.
“You can’t do both, but there are benefits and there are costs of any policy shift.”
James Daley, managing director of Fairer Finance, said: “This was a remarkably candid interview, and credit to Nikhil for being so open about the pressures the FCA is under and the trade-offs they’re making.
“We are of course disappointed to see confirmation that the FCA is stepping back from tackling problems with new regulation. While the Consumer Duty provides a useful framework for the FCA to tackle poor conduct on a firm-by-firm basis, there are a number of wider market failures that won’t be addressed without new rules or much clearer guidance.
“Nikhil’s comments will also be hard reading for those who are campaigning to eliminate the poverty premium. While there are certainly some social policy issues where the FCA may need the Government to take the lead, there are a number of areas that are within the FCA’s remit to address.
“In particular, the credit card market continues to rely on unfair cross-subsidies which mean that the least financially resilient subsidise the better off. These business models arguably breach the FCA’s fair value rules – but it looks unlikely the FCA will address them in the current political climate.”
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