Reeves to tell UK financial watchdog to prove it will support growth

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Chancellor Rachel Reeves will next month issue a formal edict to the City of London regulator to prove it is serious about its duty to support growth.

Reeves will send a formal “remit” letter to the Financial Conduct Authority around the time of her October 30 Budget, according to government officials.

In her letter, Reeves will tell the regulator it needs to prove that it is acting to promote the expansion of the UK financial services sector, as the chancellor seeks to boost Britain’s growth rate.

The previous Conservative government last year gave the FCA a second brief — to prioritise growth, something that the new Labour administration has vowed to continue.

Officials said the FCA was a “constant source of frustration” to ministers, who rail over the complexity of the regulator’s 10,000-page rule book and some of its decisions. “They need a bit of a rocket,” said one.

The watchdog insists it is already embracing its legally binding “secondary objective” to support growth and competitiveness and wants to work with ministers.

Nikhil Rathi, FCA chief executive, told reporters on Thursday it had “already done a lot” to promote growth and was “always keen to do more”.

An FCA spokesperson said it had already “delivered a wide range of measures to support competitiveness and growth” and “looks forwards” to receiving a letter “with the government’s policy priorities”.

Reeves said last month she was pushing regulators to demonstrate that they were taking seriously the competitiveness of the financial services sector.

By law the chancellor must set out a remit to regulators relating to the government’s economic policies at least once in a parliament.

Treasury ministers have been consulting financial services firms over the regulatory landscape in Britain and share concerns that the FCA rule book is “complicated, out of date and cuts across competitiveness”, according to one person briefed on the discussions.

One flashpoint, which first arose under the Conservative government, was over the FCA’s plan to “name and shame” companies under investigation more frequently and at a much earlier stage.

The regulator this week pledged to “intensify its engagement” on the new regime and to be “mindful of all our objectives” including supporting growth.

Another recent confrontation came over plans by the Payments Systems Regulator, an independent subsidiary of the FCA, to introduce a mandatory bank compensation scheme for customers hit by online fraud.

A compensation limit was originally set by the PSR at £415,000 but was later cut to £85,000 after pressure from ministers and fintech start-ups, which feared a major financial hit.

Rathi, who joined the FCA in 2020 after running the London Stock Exchange for five years, said one of its most “far-reaching” policy reforms to support growth was this year’s overhaul of the rules for London-listed companies to increase their flexibility in areas such as dual-class share structures.

He also cited recent proposals to make it easier for companies to raise capital by lifting the threshold at which they need to issue prospectus documents for secondary share issues; new powers to ban poorly performing pension funds from taking on new business; and a recent call for suggestions to slim down and simplify the FCA rule book.

The rule book has expanded massively since Brexit as it has inherited many of the laws enacted by the UK government to transpose EU financial services directives.

It is in the midst of a multiyear process of rewriting, simplifying or ditching many of these rules, such as the cap on bankers’ bonuses, which was scrapped last year.

City executives also worry about a dearth of new listings by companies in London.

However, the latest ranking of international financial centres by Z/Yen showed the UK capital remained in second place, although it had closed the gap to the leader, New York.

The FCA is hosting an international conference on capital markets on October 8 in London with major industry players flying in from the US.

More than 22 overseas regulators will attend to discuss the balance between rules and risk. 

The regulator’s duty to support growth is likely to feature prominently in its new three-year strategy that it is expected to present early next year.