Britain needs fresh approach to risk-taking, says FCA boss
The head of Britain’s financial watchdog has urged the UK to adopt a “new mindset towards risk” amid concerns the regulator has failed to boost growth.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), said a new era of “predictable volatility”, where wild swings in markets happen more frequently due to increased connectivity in global markets, meant regulators and companies had to change their behaviour.
In a speech delivered at the FCA’s International Capital Markets Conference on Tuesday, he said that market shocks that used to happen once in a decade were now happening each month.
Because of the changing landscape, Mr Rathi said the FCA was “challenging long-standing principles to seize the opportunities” to boost growth.
This includes the regulator’s proposed stock market listing reforms to make it easier and cheaper for companies to raise cash and encouraging pension funds to take greater risks in their investments.
His comments follow calls in the Square Mile for substantial reform of the FCA over fears that it has failed on its mandate to promote growth.
Rachel Reeves, the Chancellor, is exploring ways to shake up the FCA to become more competitive as she seeks to unlock UK growth, although the Treasury has said there were no plans to overhaul the watchdog.
Ms Reeves will reportedly send a formal remit letter to the FCA this month, instructing the regulator to prove that it is promoting the expansion of UK financial services.
It comes after the previous Conservative government last year issued the FCA with new objectives to make the UK a more attractive destination to do business.
Critics have raised concerns that the FCA is beset by a risk averse culture and relies on a complex and out dated rulebook which undermines competitiveness.
However, Mr Rathi said: “We need a new mindset towards risk. UK markets stay relevant because we are always open to reform. And I am proud that the FCA has so often been at the heart of progress.”
The FCA is also exploring how “adjustments” to the bank capital requirements for smaller lenders could boost market liquidity and reduce barriers to entry for specialised trading firms.
But Mr Rathi warned against introducing “rules for the sake of it” and said regulation should be proactive not reactive.
He said: “The goal of regulation shouldn’t just be to step in when things go wrong, or respond to a crisis. We want to deliberately create an environment that helps firms compete, and grow.”
Mr Rathi added that Britain faces a sharp rise in volatility because of an increased reliance on algorithmic trading platforms which mean a “single glitch can run haywire through global infrastructure”.
He pointed to July’s global IT outage caused by cybersecurity company CrowdStrike, which brought down payment systems across Europe.
Increased reliance on fewer investment management giants, reduced liquidity and increased interconnectedness of financial systems also means that events in one country can quickly trip the global market, he said.
Mr Rathi highlighted the global stock market rout in August, sparked by widespread fears about a possible US recession, which saw Japan’s Nikkei index record its worst trading day since Black Monday.
He said: “Today a small blip can ripple across equities, fixed income, FX, commodities.. or more recently, crypto. All more and more connected. And things that used to be one-in-10-year events now happen every month.”