The UK Financial Conduct Authority (FCA) has cautioned that aligning its objectives with the government’s push to boost the country’s global financial standing may face significant hurdles in key areas.
In a letter to Chancellor of the Exchequer Rachel Reeves, FCA Chief Executive Nikhil Rathi and Chairman Ashley Alder highlighted challenges in aligning international regulatory standards, particularly in green finance and cryptoassets, as major jurisdictions like the US and EU take divergent approaches.
“We agree that the financial services sector is fundamental to delivering the government’s growth mission,” Rathi and Alder wrote. “We will advocate for global cooperation and openness, but acknowledge this may become increasingly difficult and, in some cases, we may need to progress with smaller, like-minded jurisdictions first.”
The FCA’s remarks were in response to a directive Reeves issued last month, urging the watchdog to prioritise measures that enhance the UK’s global competitiveness.
This comes as the regulator faces scrutiny from parliament, financial firms, and the Labour government for allegedly stifling innovation and failing to support economic growth.
In her Mansion House speech last month, Reeves criticised post-crisis banking restrictions, arguing they had gone too far, and pledged to issue fresh guidance to regulators to refocus on economic expansion.
The FCA’s leadership defended the agency’s current efforts, including capital markets reforms and consultations on pensions regulations. However, they warned that any deregulatory changes could increase risks, which should be fully debated in Parliament.
They also called for clearer government direction on consumer redress issues, citing ongoing uncertainty over potential liabilities related to past practices in motor finance—a problem that Moody’s analysts estimate could cost the industry up to £30 billion.
“Improving how we work with stakeholders to manage future mass redress events will help foster more informed risk-taking and, consequently, greater trust and confidence in the UK’s financial markets,” Rathi and Alder said.
Efforts to streamline the FCA’s regulatory framework have received mixed feedback from industry participants.
While some firms support reducing duplicative rules, others favour the current prescriptive approach, citing lower operational risks. Concerns have also been raised about the pace of any proposed changes.
The FCA received 170 responses to its consultation on rulebook simplification, with industry insiders expressing divided opinions, according to a source familiar with the matter.
As the FCA navigates these challenges, its ability to reconcile the government’s growth ambitions with the need for regulatory stability will be crucial.
The debate underscores broader tensions in striking a balance between fostering innovation and maintaining financial security in the UK’s evolving financial landscape.
