(Bloomberg Markets) — Not long into his tenure as Britain’s top financial cop, Nikhil Rathi summoned some of America’s most powerful tech executives for a showdown. A world away from Silicon Valley, Rathi works in a remote government office building in gritty, gentrifying East London. Via videoconferencing, he conveyed his message to the representatives of Google: Scams and get-rich-quick schemes that companies advertised on their site could lead consumers to lose their life’s savings—and the dodgy online material needed to come down.
Rathi had been meeting with Google for months. Like other international companies, the search engine giant argued it couldn’t set rules for a single jurisdiction. “This is serious,” he told the executives, a person familiar with the exchange recalls. “We don’t accept that you’re unable to prevent this.”
If he kept seeing these ads, Rathi warned, he reserved the right to take enforcement action, according to the person, who requested anonymity to discuss last year’s private talks. In June, Google relented. It would no longer run ads in the UK from companies that didn’t pass muster with Rathi’s agency, the Financial Conduct Authority. Google, a unit of Alphabet Inc., says the policy, which builds on earlier company initiatives, is delivering “a substantial reduction in users’ risk from scam ads.”
Since becoming the FCA’s chief executive officer in 2020, Rathi has positioned himself as one of the world’s toughest financial enforcers. He’s extracted some headline-grabbing penalties, including the £265 million ($333 million) fine of NatWest Group Plc last year for failing to monitor money laundering at an English gold dealer. The company admitted to the criminal charges and said it deeply regretted its failings.
Under Rathi the agency is investing an additional £120 million in technology, including artificial intelligence, in an effort to root out fraud and streamline paperwork. In keeping with a leader whose last job was CEO of the London Stock Exchange, he’s also using financial incentives—overhauling the agency’s compensation plan—to improve his staff’s performance. It’s been something of a rocky start. Financial technology companies are fuming, and part of his own workforce is in open revolt over what they view as a huge pay cut.
The FCA has 4,000 employees and oversees more than 50,000 businesses ranging from Goldman Sachs Group Inc. to secondhand car dealerships. It has a reputation for being understaffed and overstretched. It’s also a young agency. Parliament created the FCA in 2013 to protect consumers and the UK financial system as part of a regulatory overhaul after the 2008 financial crisis. At 42, Rathi is young, too, and moving fast. His name is often floated as a future governor of the Bank of England, though he’s best known as a behind-the-scenes policy adviser to two prime ministers.
In his most sweeping measure, Rathi last year proposed holding all financial firms to a higher “standard of care” toward customers. Brokers would be required to sell only products that are actually good for their clients—the kind they might offer their own friends and family. In the US a narrower version of this rule has faced years of political reversals, delays, and lawsuits because of industry opposition.
Rathi, who declined to be interviewed for this article, maintains that selling suitable products shouldn’t be controversial. “Firms showing leadership and doing the right thing should welcome action to tackle businesses who lower standards,” he said in April, in detailing his strategy.
The FCA is taking an especially hard line on crypto. In December a member of Parliament nailed down Rathi’s views. “Are they the tulip bulbs of the 21st century?” asked Harriett Baldwin, a Conservative Party MP and former JPMorgan Chase & Co. banker, referring to the famed speculative bubble that ended in disaster in the 1630s. Rathi’s response made cryptocurrencies sound like mosquitoes in a malarial swamp—in his words, “a vector for serious organized crime and money laundering.” What’s more, he told the Treasury Committee, “anyone who invests in them must be ready to lose all their money.” Digital currencies’ swoon in May vindicated his concerns.
Over the past two years the FCA has effectively banned Binance, the biggest crypto exchange, from the UK; denied permission for so-called crypto ATMs; and made its standards for doing business so stringent that most digital currency companies can’t operate in the country.
On crypto the FCA may have an enforcement edge over the US, according to Eugene Soltes, a Harvard Business School professor who studies regulation. “In the US we have an alphabet soup of regulators,” he says. “We’re trying to figure out still who is the regulator, not how we should regulate them. The FCA already has one up.”Read More: Crypto Goes Shopping for a Regulator It Can Push Around
Academics and business executives tend to see Rathi’s approach as similar to that of another energetic regulator: Gary Gensler, chair of the US Securities and Exchange Commission. Richard Gnodde, a London-based executive who oversees Goldman Sachs’s businesses outside of North America, says the agency under Rathi could end up a world leader in crafting rules for crypto. “There are a number of regulatory centers in the world competing for this, and the UK is in the game, but we’ve got to keep moving and keep moving fast,” he said at an April conference in London.
No doubt there’s risk for London, a world financial center that’s second only to New York. Bankers are already relocating to the Continent after Brexit, the withdrawal of the UK from the European Union. Christian Faes, co-founder and executive chairman of LendInvest Plc, a London-based mortgage technology company, says he’s fed up with UK regulation. Recently he chose the US as the location of a new venture, a so-called Bitcoin mine, where coders mint digital tokens. “The FCA are very anti-crypto, and it feels like they are very happy for that to be the message,” says Faes, who chairs the Fintech Founders group in London. “The UK regulators are basically saying, ‘Don’t come and try and build those businesses here.’”
Rathi Grew up in Barrow-in-Furness, a former shipbuilding town on the coast in northwest England. His father, a doctor and magistrate, was from Madhya Pradesh in central India; his mother, who worked on and off while raising the family, came from Rajasthan in the north. He’s told others that his father’s practice, which treated poor patients, sensitized him to the needs of protecting the financially vulnerable from predatory businesses.
Before turning 12, Rathi became a regional tennis champion. Tall and lean, with only a few gray hairs, he still plays twice a week. He attended Oxford University, where he studied politics, philosophy, and economics and earned a “first class” degree, which represents the highest honors. In his 20s he worked as a private secretary for Prime Ministers Tony Blair and Gordon Brown.
In 2008, Rathi joined the Treasury’s financial stability unit, where he negotiated with the EU over bank bailouts during the financial crisis. There he caught the eye of Xavier Rolet, then head of London Stock Exchange Group Plc, who hired him in 2014 as chief of staff. “He was one of the fastest-promoted, youngest, and most talented people in the Treasury,” Rolet says. A year later, Rathi became CEO of the company unit in charge of the exchange.
But government beckoned again. In 2020 he beat 59 other candidates to lead the FCA, succeeding Andrew Bailey, now governor of the Bank of England. At the time, the agency was reeling from the 2019 collapse of London Capital & Finance Plc, which exposed retail “mini-bond” investors to $300 million in losses. Elizabeth Gloster, a former judge who issued a report into the scandal, found a sluggish investigative culture at the FCA, with inadequate training of staff to root out fraud. Mel Stride, a Conservative lawmaker and chair of the House of Commons’ Treasury Committee, called the collapse “one of the largest conduct regulatory failures in decades.”
Early one morning in May, about 30 protesters gathered in front of FCA headquarters. Representing a union that’s become one of Rathi’s primary antagonists, they were a decidedly white-collar crew dressed in khaki trousers, suits, and puffer jackets. “What do we want? A voice. When do we want it? Now,” they chanted. “Hey, hey, FCA. Much more work and much less pay.”
Their beef: Before the Covid-19 pandemic, FCA employees got quasi-automatic bonuses of as much as 12% a year, on top of their salaries. Rathi, who’s paid £455,000 annually, scrapped the bonuses and offered performance-based salary increases and raises to the lowest-paid front-line workers, who make as little as £23,000 annually.
The union, called Unite, says his proposal amounts to a “punishing package” of pay cuts. In February a staff survey found that 56% of 1,852 respondents were considering leaving the agency because of the changes. About 300 FCA staffers have voted to strike over pay and working conditions.
The dispute demonstrated the challenge facing Rathi as he tries to remake the agency while keeping within its £640 million budget. To make up for limited staffing, he’s counting on artificial intelligence algorithms to identify troublesome businesses. For reinforcements he’s given senior roles to finance veterans who’ve worked for companies such as BlackRock, the world’s biggest money manager; Goldman Sachs; and Dutch insurer Aegon.
Rathi is also experimenting. He’s expressed high hopes for the FCA’s “regulatory sandbox,” where he lets companies test new products with less red tape. The businesses can assess their market, while the agency sorts out consumer safeguards. Tomato Pay, a UK software company that helps small businesses manage invoices on a smartphone, played in the sandbox before entering the world of financial adults; Spanish financial giant Banco Santander SA has used the startup’s payment services in a now-completed pilot and says it is reviewing the outcome.
The FCA has also held what it calls TechSprints, which bring together regulators from around the world to address financial crime and other issues. With crypto, Rathi has insisted companies prove their businesses aren’t being used for money laundering—a tough bar that’s kept many out of the UK.
He’s using the TechSprints to address—and one day, perhaps, resolve—conflicts with fintech companies chafing at his rules. In May, following one sprint, Rathi and his agency’s top brass met with about 100 executives from companies that were eager for guidance on which digital tokens could be listed legally on exchanges, according to a person who attended the summit but wasn’t authorized to speak publicly about it.
Suggesting how much Rathi is shaking up the FCA, a former senior executive at the agency describes him as a “Dalek,” one of the Earth-invading robot-mutants from the TV show Doctor Who. Rathi has been known to send emails to top aides from 5:30 a.m. to 11 p.m., though he’s told others he’s cut back lately because of the demands of his family life. (He’s married with three young children.)
In an April email, he stressed to his lieutenants that their work will grow only more urgent. Unemployment may spike amid rising interest rates and the war in Ukraine, he predicted. “Millions of consumers will depend on us performing our best,” Rathi wrote. “Sadly, in these circumstances, scammers tend to intensify their activity, and consumers will be relying on us to tackle them assertively.” —With Jonathan Browning
Shaw and Nicolle report on finance and cryptocurrencies for Bloomberg in London.
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