FCA Unveils Larger, Leaner Enforcement Arm As Challenges Expand

October 31, 2022
The chief executive of the UK Financial Conduct Authority (FCA) has spoken of the agency’s plans to grow in both manpower and legal tenacity to meet future regulatory challenges.

The chief executive of the UK Financial Conduct Authority (FCA) has spoken of the agency’s plans to grow in both manpower and legal tenacity to meet future regulatory challenges.

Speaking at the Lord Mayor’s City Banquet, FCA chief executive Nikhil Rathi said the agency has faced “unprecedented” and “disruptive” market events in the last two years, but finds itself in a stronger position going into 2023 and beyond.

Rathi, who joined the FCA in June 2020, stressed the importance of the agency’s three-year strategy that was published in April this year, which for the first time outlined specific performance outcomes and metrics to which the agency will hold itself accountable.

This is part of the FCA’s efforts to make its activities more “data-led” and to move faster to shut down problem firms that do not meet basic regulatory standards.

With this mind, the FCA plans to significantly increase its staffing levels over the next three years, with more than 1,000 new starters expected in 2022 alone.

“We have bolstered our senior leadership, promoting our top internal talent and bringing in commercial, operational and international experience,” said Rathi.

“We have made difficult reforms to our pay and rewards to focus more on collective and individual performance, support career mobility within the FCA and lay the ground for substantial expansion in Leeds and Edinburgh.”

Rathi said the FCA needs the extra support as its workload has increased and its remit continues to broaden.

For example, last year the FCA pursued its first criminal case against a bank for anti-money laundering (AML) failings, resulting in a guilty plea and a fine of £265m for NatWest.

In April, the FCA also issued its first account forfeiture order, leading to the confiscation of £2m from QPay Europe, a company caught up in an alleged conspiracy to commit wire fraud against banks and other financial service providers in the United States.

“We have greater willingness to take more legal risk, to intervene earlier and to test our powers to the limits,” said Rathi, highlighting the agency’s recent victories in court.

Rathi also said the FCA has taken on board the feedback it has received through its independent reviews process, which has led to stricter implementation of its registration authorisation rules.

Last year, one in 14 firms were rejected for authorisation, while this year one in five firms have been rejected.

Despite the increased workload, Rathi said the FCA has made “huge progress” on its pandemic backlog and has plans to make further improvements to its efficiency by investing in automation tools.

For example, it now tests firms’ sanctions controls using big data techniques, scans around 100,000 websites a day to identify scams, and has developed a new single-view analytics tool to identify where and when it should intervene as quickly as possible.

Rathi said the FCA has had to learn fast from unforeseen market events in the past year, including the default of the Archegos hedge fund, the temporary suspension of the nickel market on the London Metal Exchange and, most recently, gilt sales that squeezed UK pension funds.

Consumer Duty takes priority

Going forward, the FCA’s new Consumer Duty regime will also be a major focus in the years ahead.

Announced in July this year and set to launch in July 2023, the Consumer Duty will set higher and clearer standards for consumer protection across the entire financial services industry.

Rathi said the idea of a more expansive Consumer Duty came about in response to the rising cost of living and the challenge that many consumers are facing in terms of budgeting and interest rates.

Last week, the FCA’s Financial Lives survey of 19,000 consumers showed that nearly 8m Brits are struggling to pay for basic items — an increase of 2.5m over last year’s survey.

Against this backdrop, Rathi said the FCA intends to be “hyper-vigilant” against firms that prey on customers’ vulnerabilities, and plans to maintain its higher rate of interventions against such firms, which has already increased eightfold this year compared with last year.

“Our Consumer Duty puts the onus on firms to put good outcomes at the heart of their products and services,” said Rathi.

“Upfront effort from firms should mean fewer rules down the line. We know the timetables are demanding and we will aim to be pragmatic in our oversight of implementation.”

Rathi also mentioned the 40 or so EU financial service regulations that are still to be added to the UK statute book, saying the FCA will work closely with government and industry to prioritise and sequence these “equivalence” measures, helping to ensure legal certainty among firms’ compliance teams.

On a related note, Rathi added that the FCA is actively looking into potential options to regulate the expansion of bigtechs in the payments industry, as described in a report covered by VIXIO earlier this week.

Those rules may differ from that of Brussels, but the FCA emphasised that its thinking in this area will be oriented towards consumer protection, market integrity and ensuring competition.

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