Enhancing the UK’s capital markets – The FCA’s role and priorities

Speech by Sarah Pritchard, Executive Director, Markets, to City & Financial Global – The Future of UK Financial Regulation Summit. 

Sarah Pritchard, Executive Director, Markets

Speaker: Sarah Pritchard, Executive Director, Markets
Event: The Future of UK Financial Regulation Summit
Delivered: 8 February 2022
Note: This is a drafted speech and may differ from the delivered version

Highlights

  • Her Majesty’s Treasury is consulting on giving the FCA significant new rulemaking powers, through the Future Regulatory Framework (FRF)
  • The FRF is a critical opportunity to adapt the regulatory system so that it continues to enhance the attractiveness of UK capital markets
  • The UK already boasts globally recognised expertise in creating sustainable investment propositions, and the FCA has a role in supporting that.

I’m pleased to be addressing this City and Financial Global summit today with the opportunity to discuss the future of UK financial services regulation and in particular the opportunities that lie ahead for financial markets. This is a topic which is really important to us in our role as the UK’s conduct regulator (not forgetting that we are Europe’s largest prudential regulator by number of firms).  

Before I dive in, I’d like to introduce myself. For anyone who doesn’t know me, I am Sarah Pritchard, the FCA’s Executive Director for Markets. I have overall responsibility for the FCA’s market integrity objective and I co-lead the FCA’s Supervision, Policy and Competition Division with Sheldon Mills. I have had a mixed career across the public and private sector, having worked alongside the FCA as a government partner, been regulated by the FCA while working in industry, and dealt with the FCA as a lawyer in private practice earlier in my career.   

All of that experience has shown me how important it is for the regulator to set out clear expectations and outcomes against which progress can be measured. Alongside that sits the importance of partnering with industry, other regulators and government partners when setting the policy framework and rules which set the standards for the UK. 

Our statutory objectives are to protect consumers, support market integrity and promote competition in the interests of consumers – and in doing so we have 2 key tasks – to make markets work better and to stop and prevent serious misconduct which leads to harm.  

This morning I will speak briefly about the FCA’s priorities, the Future Regulatory Framework (FRF) and what you can expect to see from us in the months ahead.

How the FCA is transforming 

Last July our CEO, Nikhil Rathi, set out our vision for change and the future of the FCA. We want to become a more innovative, assertive, and adaptive regulator. One that is data-led. One that partners more effectively with others to deliver the outcomes that are needed to protect consumers and promote market integrity. And one that is much more outcomes focused – we want to be a regulator that thinks clearly about the outcomes we are seeking to achieve when setting the regulatory framework, and one that monitors progress.  

To be innovative and adaptive, we know that we will need to stay abreast of the changes in the world around us – particularly changes driven by technology, innovation, and climate change - and reflect those considerations in the regulatory agenda. In doing so, we will need to work with government partners, other regulators and industry (both through our statutory panels, individually and via trade associations) to inform our rules, so that we can ensure that they will deliver the outcomes that are needed to protect consumers, and ensure a well-functioning market. 

Since we set out our vision 6 months ago I hope you will have seen some signs that we are already doing this: 

  • We are embracing innovation and are seeking to support it too. We have announced that we will be making the Regulatory Sandbox permanent in the FCA so that we can offer innovative services to enable new market entrants a chance to test out their ideas in real world scenarios, providing an incubator for firms and products to develop. In October we finalised rules for a new type of fund designed to invest efficiently in long term assets – setting rules for a Long Term Asset Fund which should help support investment in assets such as infrastructure and private equity. And in December, we confirmed a series of rule changes to the listings regime, so that UK public markets remain an attractive and trusted place to list companies – supporting growth and innovation.  
  • We are being more assertive. We have confirmed further changes to our decision making processes, moving decisions into the line, to enable us to intervene more quickly and tackle harm when we see it. We are publishing more consumer warnings. We have had our first successful prosecution under the Money Laundering Regulations against NatWest Bank, for failing to have adequate Money Laundering systems and controls. And we continue to take a tough approach at the gateway for cryptoasset firms which need registration under the Money Laundering regime – with those firms so far falling short at a significantly higher rate than others. We are running a 'Use it or Lose it' pilot, seeking to remove permissions from those firms who do not use them. 
  • Finally, we are continuing to adapt, both ourselves and to support a changing marketplace, and to lead the regulatory agenda in key areas. We are proposing to introduce new rules to embed diversity and inclusion across financial services and in listed markets. We have consulted on the sustainability labelling of investment products, so that investors can be helped to make more informed decisions. We have taken steps to implement the recommendations of the Taskforce for Climate Related Financial Disclosures.   

It is fair to say people do not typically think of a regulator as innovative or particularly adaptive – but that is our vision. In a recent speaking event I did I talked about 'keeping things simple' – this prompted a number of sidebar comments saying that this was refreshing but unusual for a regulator. But our rather simply expressed ambition of being innovative, assertive and adaptive means challenging ourselves to do things differently. I hope you have seen us seeking to do so in the last few months. From the outside, I would welcome your views on whether the FCA you interact with looks and feels different in the months ahead.  

The Future Regulatory Framework 

I’m grateful to Her Majesty’s Treasury for setting out the government’s vision for the Future Regulatory Framework. The FCA welcomes the government’s consultation- which as you know includes a proposal to transfer significant pieces of onshored legislation into our Handbook. The consultation presents an opportunity to create a rulebook which meets the specific needs of the UK market, while still remaining anchored by the high international standards which the UK has done so much to shape. 

As I mentioned earlier, our statutory objectives are to promote market integrity, protect consumers, and ensure competition in the interests of consumers. The FRF proposals would give us, and the Prudential Regulatory Authority (PRA), a secondary objective that will require us to operate in a way that facilitates the long-term growth and international competitiveness of the UK economy – growth that should be consistent with the government’s commitment to achieve a net zero economy by 2050.  

We welcome the published proposals and the intent to have a regulatory framework that supports and maintains the UK's status as a leading financial centre - I hope you will have seen some of the work that we are already doing - for example our work on primary market effectiveness and listing reform, leadership on ESG, and continuing work on open banking.   

The FCA has a leading reputation for supporting innovation and we take seriously the important role we have to play in the continued future success and integrity of the UK's financial services markets. A secondary competitiveness objective for UK financial regulators strikes an appropriate balance that recognises the important role the FCA plays in supporting long-term growth of the UK economy, as we continue to deliver on our existing core strategic objectives. 

In this vein, the FRF is a critical opportunity to adapt the regulatory system so that it continues to enhance the attractiveness of UK capital markets - supporting our position as a world-leading place for savers to invest and for businesses to raise capital. 

As the FCA gains new responsibilities for rule-making, we also recognise that accountability is an important topic. We will continue to be guided by our statutory objectives, subject to governance and, of course, accountable to Parliament.  

The FCA’s role in capital markets and our priorities 

In the last year, there have been some major consultations issued by the government and regulators and some changes already introduced. 

In Primary Markets, the FCA has taken steps to improve the functioning of the UK listing regime. Our Primary Market Effectiveness Review built on many of the recommendations made by Lord Hill, and has already introduced changes to rules on free float, SPAC listings and dual class share structures. As we noted in our consultation, there are many other topics that will be considered in the near future, including through work with HMT on prospectus reform and a primary market effectiveness discussion paper. 

In secondary markets, the FCA is working to support the government’s Wholesale Markets Review. As you know, those proposals include potential changes to the UK commodities regime transparency in fixed income and derivatives markets, and some of the requirements on firms admitted to trading on a potential new category of trading venue. Once the outcomes of HMT’s work are known, we will work to ensure that the rules for capital markets continue to support good outcomes for investors and market participants. 

On the buy-side, we see major opportunities to improve the rules applying to UK-domiciled funds. We are committed to work with the government to support their UK Funds Regime Review, with the aim of making sure that regulations for UK based-funds based support good outcomes for investors.  

We recognise the importance of data in today’s financial markets and in January announced further work to examine in detail the markets for trading data, benchmarks, and credit rating data, to understand whether a lack of competition may be causing harm to market participants. This followed an FCA Call for Input that showed that competition may not be working well in some areas, with the rising cost of market data cited as a concern by many of our respondents.  

ESG 

I’d like to finish by talking about ESG (environmental, social and governance).

As you may know the proposed new secondary statutory objective focusing on growth (a proposal under the FRF) states that sustainable growth should occur in a way that is consistent with the government’s commitment to achieve a net zero economy by 2050. 

We expect that sustainable finance will continue to grow as an area of interest, as the world transitions to a zero-carbon future and financial services firms come under closer scrutiny on social issues. The UK already boasts globally-recognised expertise in creating sustainable investment propositions, and the FCA has a role in supporting that. 

The FCA published its ESG strategy in November, to coincide with COP26.  

That lays out our intent to support positive change in the financial services sector, both through formal rules, but also by working collaboratively with Government, regulatory partners and industry, both domestically and internationally. We want to advance the debate on sustainability and promote the development of the tools the industry needs to manage climate-related and wider sustainability risks, opportunities and impacts. We will also need to redouble work on our innovation agenda, to support the data and technology solutions which underly ESG integration. 

There is clear demand for sustainable investment opportunities, with many investors keen to ensure that their portfolio reflects their values on a whole range of sustainability topics. To gain the trust of investors, firms need to ensure that they have a credible strategy to integrate ESG criteria into their investment process, including applying sufficient scrutiny to 'green' or 'sustainable' claims.  

Last month, we closed a Discussion Paper on product labelling and product disclosures, with the aim of helping consumers navigate the complex landscape of sustainable investment options. The level of engagement was overwhelming, with around 130 stakeholders providing their views. We are now working towards formal proposals by mid-year. 

We are already taking steps to improve transparency through sustainability reporting, implementing in December the second phase of our rollout of climate-related disclosure rules aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). Our regime spans disclosures made by listed companies, asset managers and FCA-regulated asset owners.  

We will continue to work with our international partners to deliver consistent global standards, as well as supporting HMT’s Green Finance Roadmap here in the UK. Through this work, we will help investors and other actors along the value chain make informed decisions. And we will encourage companies to strengthen their climate transition plans. We also see an important role for stewardship, increasing engagement by asset managers with investee companies, to support investors’ ESG priorities. 

As a foundation for this, we will need to further enhance our internal team, ensuring that FCA intelligence, data and regulatory staff embrace and role model sustainability. 

What to expect in 2022  

Later this year, we will be publishing our overarching consumer and markets strategies which will set out our priorities and focus over the coming years. 

You should expect to see a continued focus on the elements I have covered above, but with a focus also on the outcomes we are seeking, and how progress will be measured. 

Those strategies, together with the Regulatory Initiatives Grid which gives a forward look of upcoming consultations and planned publication dates, should help to address the criticism that we have heard, which is that the regulator’s priorities are not understood, and consultations land without the opportunity to meaningfully contribute. 

The months and years ahead provide the opportunity to look again at what regulations are right for UK financial markets. The right regulatory regime is a crucial ingredient in retaining our place as a leading global financial centre. 

However, to make the most of this opportunity, we need your support and partnership, providing your expertise and experience of financial markets, to ensure that the changes we propose really will improve outcomes for market participants. 

We will be continuing to build our team of people. Job vacancies at the end of the last year in the UK were at a record high. We are fortunate that our turnover has remained in line with pre-pandemic levels – and with new roles created through transformation you will see us continuing to hire at pace, attracting highly talented colleagues from private sector, public sectors and other regulators too. 

In the last quarter a number of new senior leaders have joined who you will also see more of in the months ahead. Stephen Braviner Roman, a top government lawyer and litigator, has joined as our new General Counsel. Our Interim GC, David Scott, a former Freshfields partner is staying on part time for the transition. Miles Bake is our new Director of Governance (joining from the Bank of England/PRA) and Amit Shanker is our new interim Head of Digital Intelligence Exploitation (previously Chief Data Officer at JLL and Head of Digital Transformation at HSBC). We are recruiting for new senior leaders across Supervision, Competition and Policy, Enforcement – and a new Finance Director will be announced shortly too.

Within the broader organisation we are moving to recruiting campaign style, to ensure we can regularly bring in and attract talent in London, Edinburgh, and Leeds. We have completed the bolstering of our authorisations team, with 95 new colleagues joining to help ensure our gateway is robust, to speed up our authorisations processes and to support new, innovative firms – the gateway plays a key role in supporting a competitive financial system.

We are making major strides towards diversity targets with 47 percent of our SLT being female as of end-January (with a 50 percent target by 2025) up from 43 percent this time last year and at least 15 percent now from an ethnic minority. Recognising that trends may fluctuate monthly, this is a sign of progress. 

These senior leaders from a wide range of backgrounds joining the FCA alongside what are expected to be around 200 new joiners to the FCA in the first quarter of this year or very soon thereafter. 60 joined this month and we expect similar or increased levels in both Feb and March. As we evolve to become more innovative, assertive and adaptive, will continue to offer one of the best, if not best, employment package of any UK enforcement agency or regulator and we look forward to continuing to build our people capabilities and our organisation as a whole by recruiting diverse talent, and supporting career growth of our existing colleagues.

Strengthening the UK’s capital markets is a multi-year journey, but it begins today. We are keen to engage with industry as we enter the next phase, including understanding what regulatory reform means for you. Many of the outcomes we all want to see (including market orderliness, cleanliness, and transparency) depend on clear rules, supervised and enforced by an effective regulator. With your help, I am confident that we can achieve this.