The landscape of British financial regulation is poised for a significant transformation as the Financial Conduct Authority indicates a move away from the constant implementation of new rules. Speaking at a recent industry gathering, Nikhil Rathi, the Chief Executive of the FCA, articulated a vision that prioritizes the refinement of existing frameworks over the introduction of fresh legislative burdens. This shift marks a notable departure from the post-crisis era characterized by a relentless stream of compliance updates.
Rathi emphasized that the regulator is acutely aware of the competitive pressures facing the City of London in a post-Brexit global economy. By streamlining the rulebook, the FCA aims to foster an environment where innovation can flourish without being stifled by excessive red tape. The CEO suggested that the era of high-volume rulemaking may be drawing to a close, replaced by a more surgical approach to supervision that targets specific risks rather than applying broad, catch-all restrictions.
This strategic pivot comes at a time when the UK government is under pressure to bolster the nation’s financial services sector. Industry leaders have long argued that the sheer volume of regulation has made the UK less attractive compared to burgeoning financial hubs in Asia and the United States. Rathi’s comments suggest that the regulator has listened to these concerns, acknowledging that a secondary objective of supporting economic growth and international competitiveness is now a core part of the FCA mandate.
However, the move toward fewer rules does not imply a softer stance on enforcement. Rathi was clear that while the quantity of rules might decrease, the quality and impact of supervision will likely intensify. The FCA intends to lean more heavily on its Consumer Duty, a landmark principle introduced last year that requires firms to deliver good outcomes for customers. By relying on overarching principles rather than prescriptive rules, the regulator believes it can achieve better results with a more flexible, outcomes-based system.
The transition to this new philosophy will require a cultural shift within both the regulator and the firms it oversees. For years, compliance departments have operated on a checklist mentality, ensuring every specific rule is followed to the letter. A principle-based approach requires more judgment and a deeper understanding of institutional risk. Rathi noted that the FCA is investing heavily in data and technology to better monitor market behavior in real-time, allowing them to intervene quickly when things go wrong without needing a massive library of specific regulations.
Market participants have largely welcomed the rhetoric, though many remain cautious about how it will translate into daily operations. There is a lingering concern that a lack of specific rules could lead to uncertainty, as firms may struggle to anticipate how the FCA will interpret broad principles during an audit. To combat this, the FCA has committed to more frequent engagement with industry stakeholders to provide clarity and guidance on its expectations.
As the UK seeks to redefine its role as a global financial powerhouse, the FCA’s new direction represents a bold gamble. If successful, it could unlock significant investment and cement London’s status as a hub for fintech and green finance. If it fails to maintain adequate safeguards, it could risk the very stability that the UK has worked so hard to rebuild since 2008. For Nikhil Rathi, the path forward is clear: the focus must shift from writing the law to ensuring the law actually works for the modern economy.
