Chair reflections: rebalancing risk

It can’t have escaped your attention that a dominant contemporary theme for UK regulators is to do with our contribution to economic growth and UK competitiveness. And it’s not surprising that there have been some fairly intensive debates around this question ever since our secondary objective went live in 2023.  

Different viewpoints have centred on apparent trade-offs between growth and our consumer protection objective, and between growth and system resilience. Many have also pointed to successive cycles of regulatory tightening – usually in response to a financial crisis – which were then followed by periods of relaxation as memories fade and economic priorities change...until the next crisis.

And back in February, the chair of the Treasury Select Committee, Dame Meg Hillier asked a fair question: ‘Rhetoric and vested interests aside, where is the proof that stripping away financial services regulation will generate meaningful growth?’  

All of this set the scene for our new 5-year strategy published in March.  

The strategy is absolutely explicit about the connections between what the FCA does as a regulator and positive economic outcomes. For example, greater financial security for an aging population, fostering innovation and, for younger people, the ability to get onto the housing ladder. We were also clear about the trade-offs that must accompany the choices we make.

This focus on regulation for growth is also happening amid a period of radical secular change, of a type which feels unprecedented and which, as a regulator, we must take into consideration.

The risks and benefits of AI, distributed ledger and other technologies are all part of the daily conversation. And we can add to this heightened geopolitical and security risks as well as the short- and long-term effects of climate change.  

Now we could dwell on these issues all day. But for now, I would point to the fact that all of us are facing into at least 3 big themes: 

1. Low growth and productivity on the domestic front.
2. Technology revolutionising how we operate in our business and personal lives.
3. A challenging geopolitical environment requiring rapid adaptation.  

And we don’t underestimate the implications of all of this for your industry. After all, UK asset management is a world leader, influencing the allocation of vast pools of domestic and international savings.  

This fact has not been lost on policy-makers who, understandably, are keen to redirect more of the savings that you manage into domestic investment.  

That brings me to one of the main headlines with which we introduced our new 5-year strategy.  

This was 'rebalancing risk', intended to signal that in any market economy, risk is not to be avoided but is essential for fostering investment and innovation.  

'Risk’ is, however, far from a straightforward concept.  

Effective management and understanding of risk spanning different markets and different participants – ranging from the sophisticated to the vulnerable – is critical to the healthy development of the financial system. It also underpins our work around more proportionate regulation as a smarter regulator. 

FCA approach to risk

So what does this mean for FCA policy and the firms we regulate?  

At a high level, there are a few overarching themes:

First, a shift from hard-edged gates and checks to an emphasis on transparency and disclosure, for example through our reforms to the listing rules.  

Second, giving firms more freedom to act, provided that investors have the clarity and support they need to make informed decisions. This is enabled by our emphasis on outcomes over prescription in fast-changing, complex markets, exemplified by the Consumer Duty.  

Third – and to be clear I’ve lifted this phrase from a recent speech by Sarah Pritchard – regulation operating in response to digital innovation ‘not as a brake but as a stabiliser’. This approach is evident in the way in which we work alongside firms on AI use cases and, of special interest to your industry, an ambitious consultation paper on fund tokenisation.  

Finally, a continued insistence on high industry standards in order to increase overall trust in the sector, particularly among retail investors. With trust comes greater participation which, in turn, enables greater financial security, more financial inclusion and more productive uses of savings.

Key initiatives

So how are we operationalising these themes?  

Our flagship initiatives can be grouped under 4 headings of:

• high standards
• market access  
• support
• innovation

High standards

Starting with standards, I would point to Consumer Duty, our authorisation gateway and the Senior Managers and Certification Regime (SM&CR). Each of these is critical for greater trust and increased participation in the financial system, but we also recognise proportionality and efficiency as a driving principle. That’s why we are right-sizing the SM&CR regime, expanding our pre-application support services, and proposing a ‘provisional’ form of authorisation.

The financial crime pillar of our strategy also plays a crucial role: to participate with confidence, people need to trust that wrongdoing is being addressed and bad actors are being removed from the system.  

Market access

Market access refers to a series of reforms that enable investors to participate in a wider spectrum of risk across regulated activities. I’ve already mentioned listing rules reforms.  Other changes include value-for-money principles for pension schemes, long-term asset funds, and the new PISCES marketplace.  

Support

Moving to support, I make no apology in once again highlighting our Advice Guidance Boundary Review, representing a once-in-a-generation opportunity to help consumers better navigate their financial lives and plan for the long term.

75% of defined contribution pension holders aged 45 and above do not have a clear plan for how to take their money at retirement or know that they need to make a choice. Targeted support will help bridge the longstanding ‘advice gap’ between free, high-level guidance and paid-for advice.

As part of this initiative, we are also enlisting the Consumer Duty to enable firms to make suggestions about potential actions and products where they have reasonable grounds to expect better consumer outcomes.  

To be clear, ‘support’ is not just confined to new forms of advice. It is also about effective, actionable communications between firms and consumers.  

Which is why we are encouraging industry to think about different, more engaging ways to communicate. Our Consumer Composite Investments initiative should enable firms to innovate and communicate in new ways – including clear, easy to understand explanations that give a balanced impression of the risks and potential rewards of investing.

Innovation

And finally, innovation. At the outset I pointed to digitisation as one of the secular shifts all of us are engaging with in all aspects of our lives. For now, I’ll just point to our fund tokenisation consultation as an example of a ‘tech-positive” mindset. Here we set out what firms can do now, how the model can be streamlined through a ‘Direct2Fund’ model, and also explore how tokenisation can shape the future of the sector in the long term.

Private markets

I’ll finish up by highlighting one ‘mega trend’ all of us are now paying attention to – increased participation of retail savers and pension schemes in private markets. Sometimes called the “democratisation” of markets. This includes private credit, private equity, and other activities often characterised by low liquidity, higher leverage and limited transparency.

Regulators usually calibrate protections depending on the nature of the client. Basically, we want the right clients to have access to a wide range of investment opportunities.  

But as firms broaden the asset classes they invest in, or broaden the client base they are targeting, you can also expect us to take an interest.

To support industry and investor confidence we are working to understand the associated opportunities and risks. When it comes to private assets, we are concentrating on valuation practices, conflicts of interest management and risk management.

I’ll highlight just 2 of these areas.  

Conflicts of interest can arise where firms operate multiple intersecting business lines, continuation funds, co-investment opportunities or partner with other financial institutions. We have launched a multi-firm review in this area, which aims to identify areas of potential investor harm. We will then look to communicate good practices to firms to support conflicts management.  

Risk management is also crucial. We see traditional asset managers adding private markets to their offerings and specialists expanding into new client segments. It is important for all firms to recognise and manage the distinctive risks associated with new areas of business and understand the needs of new clients.

To understand risk profiles, enhance transparency and identify opportunities for capital and growth, we also need better data. We aim to transform our regulatory data model by means of new, proportionate regulatory returns that will embed international standards. This is intended to reduce the amount of data we collect from firms. But with relatively opaque private markets now opening up to retail, we will need more information to enable data-led supervision, increase confidence in UK markets, and thereby support investment and innovation.

And where private assets are offered to the public, we are looking carefully at how these offerings are structured and communicated. 

Scottish asset and wealth management sector

Now my favourite line in any speech where I’m on the receiving end is the one that says ‘…to conclude’.

But before doing so I would like to recognise the continued success of Scotland as a global asset management centre. I hope that the initiatives I have described will, taken together, contribute to even greater success in future.    

This success is, of course, founded on people. And, just like your sector, the FCA has benefited enormously from local expertise, investing in our workforce here. Staffing in our Edinburgh office has increased from over 200 in 2021 to just under 350 in 2025. And we aim to at least double our numbers across our Edinburgh and Leeds offices to over 1000 people over the next 5 years.