Exclusive: Nikhil Rathi’s FCA is ready to go on the offensive
Nikhil Rathi’s first five-year term at the helm of the FCA was dominated by difficult situations – most beyond his control, some firmly in it. But after being reappointed by Rachel Reeves in April, and with the added pressure of a new growth mandate from government, he outlines to Ali Lyon what he hopes his watchdog will achieve in the next half-decade.
Given the unprecedented period of market and geopolitical turmoil that Nikhil Rathi has witnessed during his first five years leading Financial Conduct Authority, the City’s regulator-in-chief – and self-declared tennis fanatic – could be forgiven for playing something of a defensive game.
Thrust into the high-stakes role just as the UK entered its second lockdown, the softly-spoken boss has had to steer the FCA through the latter stages of the pandemic, the onset of Russia’s war in Europe, and several moments of acute market turbulence to boot; all the while forging relationships with no fewer than four Prime Ministers and seven Chancellors.
That same period has brought no shortage of controversies surrounding what is the Square Mile’s main regulatory enforcer, either. Just three months ago, it was forced to navigate an undignified U-turn on its plans to ‘name and shame’ firms and individuals under investigation after a protracted and aggressive backlash from the City and parliamentarians.
And in consecutive reports on its track record, the public body has been accused of demonstrating “very significant shortcomings” in both its processes and its treatment of consumers and businesses. Even as it burnishes its new pro-growth credentials, the regulator has many critics. Some City-watchers have said the watchdog has failed and should be broken up.
Now, though, speaking two months on from being reappointed by Chancellor Rachel Reeves to serve an unprecedented second term as its chief executive, Rathi – a former county-level tennis player – is ready to take the game to his opponents.
“We’re accelerating the pace of our serve,” he tells City PM, reaching for an analogy from his favourite sport. “We have an opportunity in the UK… to really put our effort and focus behind moving fast. Agility is going to be critical for us – and it’s a critical competitive advantage if we get it right.”
This proactive approach is plain to see in the flurry of recent activity that has emanated from the FCA since Rathi’s reappointment in April. Having published its first ever five-year strategy a month earlier, the watchdog has – in the past four weeks alone – unveiled plans to allow retail investors access to a form of cryptocurrency product, vowed to drastically strip back the rules underpinning London’s insurance market, and – most recently – given City firms the chance to ‘experiment with AI safely’ through a partnership with Nvidia.
All of which is probably just as well, for Rathi’s second term comes at one of the most consequential and defining junctures for British regulators in modern history.
Regulating for growth?
As part of its strategy to achieve its “number one mission” to grow the economy, the government has turned to regulators – not traditionally renowned for their entrepreneurial spirit or nimbleness – for help.
On Christmas Eve, Keir Starmer, Rachel Reeves and business secretary Jonathan Reynolds co-signed a letter to all the country’s largest watchdogs, demanding they prepare ideas to “prioritise growth”.
“Improving regulation in the UK – ensuring that it enables growth and does not unduly hold back investment – is an essential part of this government’s growth mission,” the letter said. “This is a shared endeavour in which we all have a stake, and therefore we would like your support in delivering it.”
The major strategic pivot took some watchdog bosses off-guard. It precipitated the departures of several key personal changes, including a somewhat acrimonious ousting of Competition and Markets Authority chair Marcus Bokkerink. Critics lampooned the idea that the UK could regulate its way to growth.
We have an opportunity in the UK to really put our effort and focus behind moving fast
But despite Rathi having worked in in the Treasury’s financial stability unit during the financial crisis, he and his FCA staff have appeared – from an outside observer’s perspective at least – to answer the call to arms with enthusiasm.
The City watchdog has, Rathi says, responded to the fresh impetus from Westminster with over 50 different ideas. In its five-year strategy, it put its sections on ‘rebalancing risk’ and ‘supporting growth’ ahead of priorities like ‘helping consumers navigate their financial lives’ and ‘fighting financial crime’. And since the turn of the year, rarely have any FCA announcements (bar those relating to updates on investigations and prosecutions) failed to include an explicit mention of either ‘red tape’ or ‘growth’ – or usually both.
“There’s a huge amount that we’re doing which we think will deliver benefits, support productivity and support growth,” he says. “Every part of the system has a role to play, and we recognise the job that regulators have within that.”
FCA is ‘clear-eyed’ on downside risk
But despite the enthusiasm with which the FCA appears to have embraced its directive from Westminster, Rathi is not afraid to address head on the unavoidable trade offs involved in this more laissez-faire approach to City rule-making.
He is speaking to City PM a day before appearing in front of the Treasury Committee, the main source of scrutiny for the FCA and other regulators. When asked what messages he will be looking to get across to the nine-strong panel of MPs, the 44 year old immediately reaches for his desire to have a “good open debate about risk”.
“There’s a huge amount we’re doing which we think will deliver benefits, support productivity, support growth,” Rathi, who before his role at the FCA was chief executive of the London Stock Exchange and the Treasury’s director of financial services, says. “But there are downside risks too, whether that’s on mortgage lending rules, what we’re doing on our payment innovation, what we’re doing on some of our financial crime, or indeed, some of the review of the streamlining of the rulebook.”
One of Rathi’s predecessors at the FCA – Bank of England governor Andrew Bailey – used a similar appearance in February to warn policymakers not to “forget the lasting damage” caused by the financial crisis in their push for growth.
And in the more colourful setting of the Hampstead Theatre cafe, Rathi strikes an identical tone when demanding ministers be “clear-eyed” about the inevitable downsides of the push.
“Not all of these changes [to mortgage lending rules and payments] are going to work,” he says. “But overall, the hope is that they will provide a more efficient and more effective financial system.”
Those caveats will not, he insists, obstruct the regulator in its efforts to deliver change at the speed required for a body that remains firmly on ‘report card’ with key stakeholders like cross-party committees of MPs and peers that accuse the body of being “captured” by lobbyists at big City institutions.
“The Prime Minister talks about rewiring the state to deliver for the public,” he says, outlining what success will look like for the FCA over this period of scrutiny and new responsibility. “We’ve already moved to become a more confident organisation with very dedicated colleagues. Now I’d like to crack using data and technology to move at pace and keep up with the range of challenges coming our way.”
High-profile mistakes
And a day after his favourite sport’s two top ranked players – Carlos Alcaraz and Jannick Sinner – faced off in an epic French Open final, Rathi calls on another metaphor to lay out the approach he’ll adopt to achieve his aims.
“Tennis is about both tactics and strategy,” he says. “You have to have brilliant short-term tactics to aim to win every point. But you also need to endure over five sets in the way Alcaraz did yesterday.”
But on top of tactics and strategy, Rathi will know full well tennis matches are almost always won by the player who makes the fewest unforced errors.
And as the FCA adopts its more proactive approach, both he and the City’s biggest watchdog can ill afford to risk any more high-profile mistakes.