Critical issues in financial regulation: The FCA's perspective

Speech by our CEO, Nikhil Rathi, delivered at City Week 2022.

Speaker: Nikhil Rathi, CEO
Event: City Week 2022
Delivered: 26 April 2022
Note: this is the speech as drafted and may differ from the delivered version


  • Cost of living crisis means consumers are more exposed to risk and more reliant on financial services.
  • New consumer duty will ensure firms take into account ‘good outcomes’ for consumers and clear rules will in future cut costs for firms.
  • Supporting innovation to encourage long-term economic growth and international competitiveness: 
    • Extending an early oversight scheme to give 300 newly authorised firms guidance on regulatory issues as they grow 
    • Over 500 applications to attend our first ever CryptoSprint event in May 
  • Post-Brexit, if you are a predominantly UK business, your regulated entity should be here to protect investors and the integrity of the markets.

Last 12 months 

It is great to be here again at this important event. It doesn’t seem long ago that I was last telling this audience about our plans to transform the FCA.

To be more rigorous on firms seeking approval to operate in our markets, to tailor our rules to better suit our global markets and play a leadership role in supporting the market-led transition to a more sustainable economy. 

We are being tougher on firms causing harm. We launched the first ever criminal prosecution under anti-money laundering regulations and are acting against individuals carrying out regulated activities without authorisation. 

We have empowered more colleagues to take more decisions, so we act faster and are being more proactive even where we don’t have powers, be it by positively engaging with the Government to ensure scams are covered by the Online Safety Bill, or working with Google so they voluntarily changed policy to only permit FCA registered firms to advertise financial promotions with them.  

Following our engagement, Meta have now promised to do the same this year. We look forward to seeing them deliver and await clearer plans from Twitter and others. 

To truly transform we must continue building an operational platform that can adapt and facilitate collaboration, with the human capabilities to harness a data-led approach.  

That is the only way we can effectively face the threats and opportunities, be it market abuse, digitalisation of financial services, cost of living challenges or ESG reforms. 

Cost of living crisis 

Our economy already faced rising inflation on the back of the economic recovery emerging from the pandemic. War was then visited on Ukraine by Russia, with the resulting aftershock for commodity and agricultural prices, rippling down to wholesale markets, firms and consumers.  

Inflation is set to reach a 40 year high this year with energy bills rising much faster than wages.  Those least able to bear the rises will be hit the hardest. 

Our own data shows that over a quarter of UK adults have low financial resilience. Cost of living challenges mean consumers are more exposed to risk while also being more reliant on financial services.  

So our focus is on ensuring all firms we oversee act in their customers’ interests.  

Our three-year strategy, published earlier this month, sets out market-wide outcomes we expect all firms to deliver, while holding ourselves to tougher standards.  

We are stopping firms with inadequate controls from entering our markets.  One in seven applicants currently do not obtain authorisation, up from one in 13. 

We’re now hiring another 80 colleagues to focus on the most problematic firms, already in our markets, going further to remove more quickly those firms that can’t or won’t meet basic standards. And setting and testing higher standards, where needed.   

New Consumer Duty

Our New Consumer Duty is progressing well, with final proposals coming in July. This is designed to ensure firms take account of the actual impact of their services and product suitability on consumers.  

Selling someone the right product with suitable customer service is uncontroversial but, too often, established firms don’t.  

I want to thank the many business leaders who have engaged positively with us as we develop this significant policy change and assess its impact which will include:

  • action to tackle competitors who drive down standards 
  • giving firms greater certainty about how they should treat consumers and flexibility on how they deliver good outcomes  
  • supporting future innovation by being clear about the standards required, whatever the product

We envisage fewer future rule changes as a result, which should lower costs to firms. 

Action on Russia

Changing our operating model has been vital in our response to the war in Ukraine. We moved fast to respond to the introduction of a range of globally coordinated sanctions.

We are becoming more capable of working through solutions at extremely short notice, working hand in glove with domestic and international partners.  

We will publish proposals allowing the exceptional use of side pockets in investment funds, given the challenges of disposing of Russian and Belarussian assets.

Our work with the Bank of England and others made sure we could effectively monitor volatile commodity markets and as we both saw with London Metal Exchange (LME) and LME Clear, take assertive action where necessary.

LME has since agreed to appoint additional independent directors to strengthen its governance.

Environmental, Social and Governance (ESG) reforms

As the world is looking to financial markets to enable the transition to a greener and more sustainable economy, international collaboration has never been more vital.  

As a regulator, we have been mandated by the government to help firms transition to net zero and asked to take into account Government policy in relation to energy security.

We are supporting international partners who are beginning to mandate climate related disclosures while we continue to build on the changes we introduced here last January. 

Diversity and Inclusion

At the FCA we are passionate about promoting Diversity and Inclusion to support effective risk management and high standards of conduct.

We recently confirmed positive diversity targets for listed companies, which firms must comply with or explain to their investors why they are not.

These are that 40% of Board seats should be held by women and at least one position should be held by a minority ethnic director. We have broken new ground in asking firms explicitly to aim for at least one of the four most senior Board positions to be held by a woman.  

As we invest in our technology platform, we are also recruiting more staff in more parts of the UK, focusing on diversity and new capabilities and being tougher on our own performance

Accountability and performance 

We set out market wide outcomes we expect firms to deliver and we have published metrics to which we can be held accountable to in the delivery of those outcomes.

Internally at the FCA, changes to our employment offer, which came into effect at the start of April, mean we can more effectively link pay with performance – both collectively and individually.  

We continue to offer one of the best, if not the best, employment package of any regulator or enforcement agency in the UK.  

In the face of a highly competitive market for recruitment, over 250 new colleagues have joined us this year already at all levels, including experts from enforcement to crypto and anti-money laundering.

We expect to keep hiring at that pace throughout the year and as part of the Government’s Future Regulatory Framework, we stand ready to meet expectations on us of greater transparency and accountability.  

Innovation and crypto

Having carefully managed the impact on financial services of the UK’s departure from the EU, we also have a vital opportunity to further enhance the attractiveness and global reach of our wholesale markets.

This is through a proposed secondary objective to support long-term economic growth and international competitiveness of the UK economy.

We welcome this as it builds on our work we have already been doing and retaining our agility will be key. We have introduced wide-ranging listing reforms. Our pioneering ‘sandbox’, a regulatory safe space to test innovative products, has been much copied and now serves as a blueprint for over 40 regulators globally. It has supported the growth and innovation of over 50 blockchain firms. We are building on this through our Early and High Growth Oversight scheme. 

Following a successful pilot,  we are expanding it to provide closer supervision and support to 300 newly authorised firms.

This will mean firms better understand our expectations while they start up and grow and ensure that we can identify and address harm developing in newly authorised firms quicker. 

In May, we will host our first ever CryptoSprint, having been overwhelmed by applications – more than 500 so far.

Innovate Finance say the UK represented nearly half of all European fintech investment last year. High standards, enforced effectively, underpin this success.

As the City Minister said in April, alongside encouraging innovation and having an open mind to new technologies, we need checks and measures that protect our system and consumers from serious financial crime.  

In crypto, our remit is currently limited to ensuring anti-money laundering rules apply to crypto firms. Minimum standards expected of firms we regulate – and some we don’t – from notaries to estate agents to make sure firms are not used to funnel money to fuel crime, terrorism or war.

So far 33 crypto firms have gained registration from us under the anti-money laundering rules. By meeting the standards society expects and helping to build faith in their business model. Many were rejected as they had inadequate provision to prevent harm or even identify it in the first place.

We worked with many firms to help improve their capabilities instead of just rejecting or approving with no feedback or advice. But those that couldn’t or wouldn’t meet the standards didn’t make it through. This should not be interpreted as anti-innovation. Rather for innovation to endure and benefit consumers as well as entrepreneurs and investors, it cannot trade off against basic expected standards.

So we welcome the Government’s recent announcement of a flexible approach to regulation so we can proportionately deal with any risks that emerge and to receiving new powers over the promotion and marketing of high-risk assets, like crypto.  

Ahead of receiving these powers, we are finalising our rules, so we can act assertively once we do. But supporting innovation while maintaining standards is not enough.  

The debate between legitimate investment and trading and unregulated entertainment and gambling has become blurred.  

Research shows that those investing in these products frequently do not understand the risks they run.  Nearly half do not know they could lose their money. Many overstate their understanding. And most adults do not know that crypto is not regulated by the FCA, apart from our narrow remit on ensuring anti-money laundering rules are upheld.  

We need to draw clear lines. We need clarity around ruling out future Financial Services Compensation Scheme (FSCS) coverage for investment losses from crypto, even when advised.  As we have consistently warned, if you invest in crypto, you need to be prepared to lose all your money.   

Another issue is that firms we reject can still service UK customers from offshore.  While have been encouraged to see partner agencies follow our lead when we have rejected firms’ registrations, it is not enough to rely on our global influence. This needs wider consideration by policymakers.  


For authorised firms, we remain committed to a system that allows firms to provide cross-border financial services in a way that protects consumers and markets.

We are effectively collaborating with Government and supporting the Treasury’s market access agenda. Whether that be the Mutual Recognition Agreement with Switzerland or standing ready to play our role in implementing the UK-EU Memorandum of Understanding on regulatory cooperation. 

To ensure post-Brexit stability we introduced a Temporary Permissions Regime (TPR) for firms to continue operating here while making permanent arrangements.

As that comes to an end firms are coming to us with their plans. For businesses focussed in the UK, this will usually mean they want to set up an FCA authorised subsidiary. Most plans we’ve seen meet our expectations. But in some cases we’ve asked firms to think again. 

Where firms are not predominantly focused on the UK, and where we have good cooperation with the home state regulator, a branch may be appropriate.

We have different powers over branches.  So if you are a predominantly UK business, if most of your clients are here, it follows that your main entity should be here as well. This better protects UK based investors from harm and protects the integrity of the wider UK market.   

In some cases, an international firm can operate here without FCA authorisation, through the Overseas Persons Exclusion (OPE). For example, if a firm’s UK business is just a handful of wholesale market clients. But in our view the OPE is not intended to run a UK-focussed business.  

The Government has been clear that firms with significant UK business must continue to maintain the appropriate operations, permissions and authorisations in the UK.  And importantly we need to be able to supervise them effectively.

Facing the future

I have outlined just some of the challenges and opportunities confronting us, and how we plan to meet them by focussing on those problems in front of us rather than addressing issues by asset class or sector, often after the event.  

Our new strategy will ensure everything we do has an overarching focus on:  

  • reducing and preventing serious harm     
  • setting and testing higher standards   
  • promoting competition and positive changes   

So we are always programmed and equipped to tackle big problems and embrace major opportunities, whatever they may be.