FCA speech on critical issues in financial regulation

On 26 April 2022, the FCA published a speech given by Nikhil Rathi, FCA Chief Executive, on the FCA’s view of critical issues in financial regulation.

Mr Rathi sets out the challenges and opportunities confronting the FCA and how it plans to meet them by focussing on the problems in front of it rather than addressing issues by asset class or sector. This approach was outlined in the FCA’s Business Plan 2022/23.

The past year

• FCA was being tougher on firms causing harm.
• FCA was empowering more colleagues to take decisions, so that FCA can act faster and proactively.

Cost of living crisis

• FCA’s focus is on ensuring that all firms act in their customers’ interests, in view of the current cost of living challenges.
• Firms with inadequate controls will be prevented from entering UK financial markets.

Consumer Duty

• The new Consumer Duty was progressing well, with the final instrument to be released in July.

Action on Russia

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

ESG reform

• FCA was supporting international partners who are beginning to mandate climate related disclosures and FCA will continue to build on its ESG reforms.

Diversity and Inclusion

• FCA recently confirmed positive diversity targets for listed companies which firms must comply with or explain to their investors why are not.
• Over 250 new personnel joined the FCA so far this year and FCA expects to keep hiring at that pace throughout 2022.

Innovation and Crypto

• FCA has received over 500 application for its first ever CryptoSprint.
• FCA’s remit is currently limited to ensuring AML rules apply to crypto firms and 33 firms had registered with the FCA under the AML rules.
• FCA welcomed the Government’s announcement of a flexible approach to regulation to ensure FCA can proportionately deal with any risks that emerge and receive new powers over the promotion and marketing of high risk assets, like crypto. FCA was finalising its rules, to enable it to act assertively once it receives these new powers.
• FCA maintained its warning that if you invest in crypto, then you need to be prepared to lose all of your money.
• Wider consideration by policymakers should be given to firms rejected for authorisation by the FCA servicing UK customers from offshore.

Post-Brexit

• FCA is committed to allowing firms to provide cross-border financial services, in a way that protects consumers and markets.

Future Strategy

• FCA will focus on:

1. reducing and preventing serious harm;
2. setting and testing higher standards; and
3. promoting competition and positive changes.

Other points of interest in the speech include the following:

• Promotions. Meta is following in the footsteps of Google by agreeing to voluntarily change their policy to only permit FCA registered firms to advertise financial promotions with them. The FCA is awaiting clearer plans from other firms, including Twitter.
• Cryptoassets. The FCA has so far registered 33 cryptoasset firms under the anti-money laundering (AML) and counter-terrorist financing (CTF) regime for certain cryptoasset businesses. Mr Rathi explains that the regulator worked with many firms to help improve their capabilities instead of just rejecting or approving applications with no feedback or advice.
• Post-Brexit. The future plans of most firms that are operating under the temporary permissions regime (TPR) meet the FCA’s expectations. Mr Rathi explains that where firms are not predominantly focused on the UK, and the FCA has a good co-operation with the home state regulator, a branch may be appropriate.