By Kirstin Ridley and Sinead Cruise
LONDON (Reuters) – Britain’s markets regulator on Tuesday urged the government to provide more clarity about who holds the blame for financial failures as it attempts to balance an objective to promote growth and competition by encouraging greater risk-taking.
Vowing that standards would remain high, the Financial Conduct Authority’s (FCA) CEO Nikhil Rathi told lawmakers on the Treasury Committee there would be no return to the “light touch” regulation that preceded the 2007-2009 financial crisis, which had “ended in tears”.
In a letter to Finance Minister Rachel Reeves, published alongside the hearing, Rathi and FCA Chair Ashley Alder noted there would be “trade-offs” between competing priorities but that the FCA would support responsible risk taking, consumer resilience and cut financial crime.
“Recent issues have highlighted the diversity of views between those who would prefer us to invest more resource to minimise consumer losses and risk-taking, and those who want us to focus on reducing burdens on firms and supporting the growth and international competitiveness of the financial services industry,” they said.
Wary of being held accountable for regulatory failures, the regulator is calling for more consensus across parliament about the definition of appropriate risk appetite and greater clarity on questions around compensation and where liability should fall when things go wrong.
“The reality is we will never operate a zero failure regulatory regime. That would stifle innovation at a cost not just to business but consumers too,” they said in the letter.
Reeves sent a “remit” letter to the FCA in November, formally outlining how it should meet a secondary objective that requires the regulator to promote the financial service industry’s growth and competitiveness.
“The FCA’s lack of enthusiasm for the government’s new brief is striking and pours cold water on every challenge,” Simon Morris, a financial services partner with law firm CMS, told Reuters.
Rathi also told the cross-party Treasury Committee that more risk would attract people who “don’t have the best intentions” and re-issued a warning that anyone who invests in crypto markets must be prepared to lose everything. Compensation should not and would not be available, he added.
Asked about the “unholy mess” of secret motor finance commissions, Rathi told lawmakers that the regulator could scour the consumer finance sector to spot further misconduct as it consults on a potential redress scheme that could reach tens of billions of pounds.
London’s Court of Appeal ruled in September it was unlawful for car dealers to receive commissions from banks providing motor finance unless the payments had been properly disclosed to the customer and clients had given informed consent.
That judgment could yet be overturned at the Supreme Court next year, however.
(Reporting by Kirstin Ridley and Sinead Cruise, editing by Ed Osmond)
