We get a budget on 30th October, financial regulator gets a 'must try harder' letter
Next month, Chancellor Rachel Reeves will formally tell the Financial Conduct Authority to demonstrate its commitment to supporting economic expansion, marking a push from the new Labour administration to ensure the UK's financial sector is fostering growth.
According to government sources that spoke to the FT, Reeves plans to issue a formal "remit" letter to the FCA around the time of her October 30 Budget. The letter will stress the importance of promoting growth within the UK's financial services sector, as part of the chancellor's broader effort to boost the country's economic performance.
The previous Conservative government had already tasked the FCA with a secondary objective of prioritising growth (you can see its reply here), and the Labour government intends to maintain that directive. However, officials within the new administration have expressed frustration with the FCA, criticising its 10,000-page rule book and certain decisions that they believe hinder competitiveness. "They need a bit of a rocket," one official commented to the Financial Times. “How do you get it to think about competition and growth – not just beating people with a stick all the time?” said another source to The Times.
In response, the FCA has insisted that it is fully embracing its legally mandated secondary goal of supporting growth and competitiveness. Oxford University educated Nikhil Rathi, the FCA's chief executive, recently told the media that the regulator had "already done a lot" to promote economic growth and was "always keen to do more." The FCA also stated that it looks forward to receiving the chancellor's letter outlining the government’s policy priorities.
Reeves has previously emphasised her commitment to ensuring that regulators take the competitiveness of the financial sector seriously. By law, the chancellor must outline the government's economic priorities for regulators at least once during each parliamentary term.
Treasury ministers have been consulting with financial services firms, many of which have voiced concerns that the FCA's regulations are outdated and overly complex, often obstructing the sector's competitiveness. One issue that sparked controversy under the previous government was the FCA's plan to "name and shame" companies under investigation earlier in the process, a move that remains contentious.
The National Audit Office has already criticised the FCA for tardiness. “There can be a significant delay between the FCA identifying an issue to tackle, and it taking regulatory action,” it said in a 56 page report on the regulator last year.
The FCA recently pledged to "intensify its engagement" with stakeholders regarding the new regime and to carefully consider its various objectives, including the need to support growth. Another point of contention emerged when the Payments Systems Regulator, an FCA subsidiary, proposed a compensation scheme for victims of online fraud. Initially, the compensation limit was set at £415,000, but after pushback from fintech start-ups and ministers, it was reduced to £85,000.
Rathi, who has led the FCA since 2020 after previously running the London Stock Exchange, highlighted several recent initiatives designed to foster growth. These include reforms to rules for London-listed companies, offering more flexibility in areas like dual-class share structures, and proposals to simplify capital-raising processes by reducing the need for prospectus documents for secondary share issues.
Additionally, the FCA is working to simplify its extensive rule book, which expanded significantly after Brexit as it absorbed many EU financial regulations. The regulator is undertaking a multiyear project to revise, streamline, or remove many of these rules, such as last year’s removal of the cap on bankers’ bonuses.
A Treasury spokesman said: “We have no plans to overhaul the FCA. We respect the independence and expertise of the financial services regulators.”
