Chancellor Rachel Reeves is set to issue a formal directive to the City of London regulator next month, emphasizing the importance of its duty to support economic growth. According to government officials, Reeves will send a formal “remit” letter to the Financial Conduct Authority (FCA) around the time of her October 30 budget.
In the letter, Reeves is expected to instruct the regulator to demonstrate that it is actively promoting the expansion of the UK financial services sector, aiming to boost Britain’s growth rate. The previous Conservative government had assigned the FCA a secondary objective to prioritize growth, an initiative that the new Labour administration plans to continue.
Officials have expressed ongoing frustration with the FCA, criticizing the complexity of its extensive 10,000-page rule book and certain decisions made by the regulator. One official indicated that the regulator needs a significant push. Despite this, the FCA maintains it is committed to its legally binding secondary objective to support growth and competitiveness and is willing to collaborate with ministers.
FCA Chief Executive Nikhil Rathi remarked that the organization has already implemented several measures to promote growth and remains open to doing more. An FCA spokesperson also confirmed that the regulator looks forward to receiving the government’s policy priorities in the forthcoming letter.
Last month, Reeves emphasized that she was urging regulators to take the competitiveness of the financial services sector seriously. Legally, the chancellor is required to outline a remit to regulators concerning the government’s economic policies at least once during each parliamentary term.
Treasury ministers have been engaging with financial services firms to discuss the regulatory framework in Britain. Some stakeholders have voiced concerns that the FCA rule book is overly complicated and negatively impacts competitiveness.
One contentious issue that initially arose under the Conservative government was the FCA’s proposal to publicize the names of companies under investigation more frequently and earlier in the process. The FCA recently committed to enhancing its engagement with stakeholders regarding the new regime, while keeping all its objectives in mind, including support for growth.
Another recent point of contention involved the Payments Systems Regulator’s plan, an independent subsidiary of the FCA, to introduce a mandatory bank compensation scheme for victims of online fraud. The initial compensation limit was set at £415,000 but was later reduced to £85,000 following pressures from ministers and fintech start-ups concerned about the financial impact.
Rathi, who took leadership of the FCA in 2020 after managing the London Stock Exchange for five years, cited one of the FCA’s most significant policy reforms this year: overhauling rules for London-listed companies to provide greater flexibility, including in areas like dual-class share structures. He also mentioned proposals to simplify capital-raising processes, increase the threshold for issuing prospectus documents for secondary share issues, and grant new powers to prevent poorly performing pension funds from acquiring new clients. Additionally, the FCA has issued a call for suggestions to streamline its complex rule book.
The regulator’s rule book has expanded significantly since Brexit, incorporating many laws previously enacted by the UK to comply with EU financial directives. The FCA is currently engaged in a multiyear project to rewrite, simplify, or eliminate many of these rules, including the cap on bankers’ bonuses, which was scrapped last year.
City executives have expressed concerns about the lack of new company listings in London. However, the latest ranking of international financial centres by Z/Yen shows London remains in second place globally, closing the gap with New York, the leader.
The FCA will host an international conference on capital markets on October 8 in London, with key industry participants from the US and over 22 overseas regulators expected to attend. The conference will address the balance between rules and risk, with the duty to support growth likely to be a central theme in the FCA’s forthcoming three-year strategy, anticipated to be presented early next year.
