FCA chair: Our growth push will test UK’s risk appetite
The Financial Conduct Authority’s (FCA) push to slash red tape and unleash growth in the City will test the UK’s appetite for risk, its chair has warned, accepting that two of its new proposals could open the door to more fraud and mortgage defaults.
Writing in City PM today, Ashley Alder said the FCA will put “sustainable growth” at the heart of its strategy over the next five years but cautioned there would need to be “trade-offs” and acceptance that changes could lead to more business failures and threats to consumers.
“This will require a bolder approach. We will have to make decisive trade-offs. And we will have to take greater risk,” Alder said.
“We have shown we are up for it, for example as we made it easier for businesses to raise capital on our public markets, we were clear that while it could mean higher returns for investors it came with a risk of more listed firms failing.”
He added the UK must decide on its “collective tolerance for failure” and question how much it is willing to “embrace risk”.
The comments come after Rachel Reeves wrote to 17 watchdogs on Christmas Eve demanding they lay out fresh proposals to boost growth within their respective remits.
In response to the Chancellor last week, FCA chief Nikhil Rathi set out plans to ease the burden of its stringent consumer duty rules, lift a £100 cap on contactless payments and loosen requirements to access a mortgage.
However, Alder warned that reducing “friction” in payments and mortgage rules could also increase scams and failed loans.
“Removing the £100 contactless payment limit would make life easier for consumers and retailers. Smoother payments, could however, increase fraud,” he said.
“With our consumer duty setting a new standard, should we consider whether the rules could be revised to allow struggling first-time buyers to get on the property ladder? Even if that results in more defaults down the line,” Alder added.
The comments underscore the balancing act facing the FCA as it looks to adhere to a secondary growth mandate introduced by the previous government while maintaining its primary objective to protect consumers.
After the growth and competitiveness objective was introduced in 2023, the watchdog has come under fire from some in the City and Westminster for failing to fall in line. It triggered fury last year after revealing plans to name and shame companies facing investigation. Alder said last year the FCA would water down its plans following the backlash.
Labour made slimming down the financial rulebook a key part of its pitch to the City ahead of the election and Reeves has taken aim at the burden of financial rules since taking office.
In her maiden speech to the Square Mile in November, she said post-financial crisis rules had “gone too far” and were now hamstring growth.
Business secretary Jonathan Renyolds last week added that firms were complaining to him directly over the cost of complying with the FCA’s consumer duty framework, which forces firms to ensure they are delivering “good outcomes” for customers.
However, the push to slacken financial rules has triggered warnings of a “race to the bottom” and a return to “light touch regulation” from some in the City.