FCA chief draws clear line of responsibility for government, parliament on financial regulation

Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), reminded lawmakers this week that the regulator carries out the mandate it is given by parliament, and said that there were choices to be made in the government’s quest for economic growth.

One of the most frequent “challenges” the FCA received from industry was regarding the “billions of pounds” cost of financial crime controls, sanctions and money laundering.

“A large component of that comes from statute — we are implementing the laws as passed by parliament,” Rathi told the Treasury Select Committee this week. The FCA was working with the government to “modify some of those controls” but if regulations were removed, the regulator could not guarantee “that one or two more money mules are not going to get through the system”.

Likewise, if government amended mortgage affordability rules, this could lead to an increase in homes being repossessed, he said.

Mortgages and repossessions

In January, Rathi told the House of Lords Financial Services Regulation Committee that it was up to the government and parliament to decide what would be an acceptable number of repossessions.

On Tuesday, he told the Commonsʼ committee: “Eighteen months ago, when we introduced the mortgage charter, or supported its introduction by the government of the day, the general consensus from pretty much every major party was to keep repossessions down. We have done that. In the last quarter, [there were] about 1,000 repossessions, which is very low historically.”

However, a consequence of this policy was the “highest number ever” of mortgage accounts that had arrears of more than 10% of the loan, he said. “There are trade-offs when you make these choices.”

The government also needed to be mindful that changes to affordability criteria to help renters on to the housing ladder would result in driving up house prices unless housing supply was also boosted, Rathi said.

Perimeter focus

Experts, including former regulators, often lament the ever-expanding remit handed to the FCA by lawmakers. Most recently, Paul Hamalainen, director of the financial services regulatory centre and sustainability expert at consultants Forvis Mazars, said the regulator’s wide remit made it hard for the FCA to focus on its strategic vision.

Responding to criticism about the FCA not acting on information about funeral plan provider Safe Hands, Rathi said the FCA focused its resources on identifying wrongdoing and harm that occurred inside the regulatory perimeter — that is what it does and doesn’t regulate — but “did not decide which products are in the perimeter”.

Funeral plans were being discussed and considered by the Treasury and, subsequently parliament, between 2017 and 2022, as well as for buy now, pay later (BNPL) arrangements. “We have to be respectful about using our resources on the things that parliament has asked us to do. We have made the case on buy now, pay later, but we also have to respect that it is not our decision — either the substance or the timing of when that comes into regulation,” Rathi said.

He was aware of media reports of “very serious” potential misconduct around BNPL firms debt collection practices, he said, but the FCA “had to make a judgement that it is not appropriate” to chase down every bit of intelligence regarding a sector that parliament had not given it the powers to regulate.

“When the authorisation gateway opens for BNPL in 2026, some firms with existing problems [today] might not meet the necessary standards for authorisation,” he said.

Since 2019 the FCA has produced an annual report on its perimeter, which is discussed with the economic secretary to the Treasury.

Slowing fraud

The FCA’s five-year strategy, published on Tuesday, said it would focus on slowing the growth in both investment and authorised push payment (APP) fraud.

Investment fraud was coming down, Rathi reported. “Over the [three years], we have seen progress on investment fraud. It has been tough, but we have seen the numbers come down, and we have a record number of financial crime prosecutions.”

The FCA is currently considering measures such as increasing, or even removing, the £100 limit on contactless payments made with a debit or credit card. The committee was concerned this might lead to an increase in fraudulent transactions but Rathi said data showed “lower levels of fraud associated with contactless payments” compared to other payment methods.

Committee member Harriett Baldwin wanted assurance that the work of the Payment Systems Regulator (PSR) on APP fraud would not be watered down as it was rolled into the FCA. Rathi said that the PSR workplan on APP fraud would continue, but its precise “structure and architecture” of regulation was a matter for the government and parliament. Legislation to transfer the powers of the PSR to the FCA is expected by the end of 2026.

Financial education

The UK government is considering capping the annual limit for cash in individual savings accounts (ISAs) at £4000, down from the current maximum allowance of £20,000 , and committee members Rachel Blake and Yuan Yang asked about the potential of such a change alongside the review of the advice guidance boundary for increasing investment among the UK population.

Changing the cash ISA limit was a matter for the government, said Rathi, but in his opinion, shifting consumer investment behaviour would “take decades”. There were “quite serious issues” with financial literacy among the population — for example, many lacked a “basic understanding” of percentages and compound interest.

Rathi was equally concerned about the “sheer number of under 35-year-olds for whom the financial product that they invest in first is crypto — several million in the UK — rather than equities or debt or other types of products”. He recommended that the committee support the Education Committeeʼs “seminal” 2024 report on delivering effective financial education.

Meanwhile, Rathi defended criticism of the FCA over crypto authorisations, saying it had taken “a lot of flak” when it rejected 86% of all crypto firms seeking authorisation. However, these firms had all been refused because they did not meet anti-money laundering standards set by Parliament, and some of them had blown up in other jurisdictions, he said, which had vindicated the regulatorʼs decisions.