The FCA: Delivering on its growth and competitiveness objective?

The Financial Conduct Authority (FCA) and its CEO, Nikhil Rathi, remain under significant pressure from industry and politicians to demonstrate delivery against its secondary international competitiveness and growth objective (SICGO). It recently published a report on SICGO, reflecting on the first year of its new secondary objective. Recent reforms such as the listings review show that the FCA is taking this seriously, but this isn’t without controversy. As the FCA seeks to balance its primary and secondary objectives, further trade-offs will be needed.  

This blog looks at the challenges associated with the secondary objective, the direction of travel the FCA is likely to take and how firms can strike the right balance on competitiveness when engaging with politicians and the FCA.  

Is SICGO really at the heart of the FCA? 

Readers of the report could be forgiven for thinking that the new growth and international competitiveness secondary objective is on par with its primary objectives. However, the secondary objective is subordinate to its existing primary objectives to promote consumer protection, competition, and market integrity.  

The FCA considers its primary objectives as a conduit to achieving its secondary objective, but this is an overly simplistic approach. For example, Consumer Duty, which is focused on consumer protection, is linked to delivering high standards to help promote competition – which it believes will contribute to the competitiveness of UK financial services. However, firms argue that the uncertainty around the FCA’s Consumer Duty expectations hampers firms’ ability to innovate, which can, in turn, undermine competitiveness.  

The FCA continually makes trade-offs as it develops new policies between its primary objectives, so this isn’t a new challenge. The difficulty comes as the FCA is under pressure to deliver on all of its objectives, with external observers unwilling to accept a greater risk of failures leading to consumer harm at the expense of competitiveness. Recent trade-offs are not without controversy. Major changes have come so far in wholesale markets, and the FCA is likely to receive greater resistance on anything that erodes consumer protection – a tension that the new Government will also have to contend with. The recent ‘name and shame’ proposals received significant criticism from industry and politicians, claiming they hamper competitiveness.  

In order to embed SICGO within the organisation, the FCA has put tools in place: requiring SICGO to be explicitly considered as part of policy development and placing it at the core of any cost-benefit analysis. However, as the FCA knows all too well, delivering cultural change to put SICGO “at the heart of its work” will be tricky to deliver in an organisation of 5,000 people, many of whom are focused on its primary objectives.  

How is the FCA responding to external pressure?  

Demonstrating the benefits of its secondary objective is a difficult job for the FCA - it takes time for benefits to feed through to markets and end users. In the meantime, the FCA wants to show that it is listening and willing to engage with firms. Alongside the SICGO report, the FCA has published a Call for Input (CFI) asking firms what and how retail conduct rules could be simplified or removed, particularly in light of the Consumer Duty.  

The retail review offers firms a timely opportunity to highlight areas of potential duplication, which, in turn, could help lower the costs of complying with regulation, making the UK a more attractive place for financial services firms to be based. While the CFI’s focus is on retail rules, the FCA invites views on wider reforms that it should consider further down the line. The CFI could also be viewed as a mechanism for the FCA to try to head off the new Labour Government’s commitment – detailed in its financial services review – to streamline the FCA’s regulatory handbook.  

The FCA is also initiating a discussion on risk appetite. Rathi has called for a ‘mature debate’ about risk appetite and for people not to be afraid of failure; he has consistently explained why the FCA is not a ‘zero failure regulator.’ The FCA is under pressure to allow more risk in the system, while also knowing it will receive blame when things do go wrong. This weighs on the regulator’s mind as it looks to loosen some rules. By seeking input from the industry and opening out the discussion on risk, it hopes that the Government and/or industry will provide some cover when things do go wrong. 

What does this mean for firms and how can they best engage and influence the FCA? 

The most recent publications, such as the CFI on retail conduct rules, payment optionality for investment research and public offer and admission to trading regime are clearly part of the FCA’s push to meet its SICGO objective. The political pressure remains on the FCA as its new Government puts growth at the heart of its plans.  

In order to influence financial services policy, we would advise firms to: 

• Tailor messages to your audience – senior policymakers and regulators will be more open to big-picture messaging around growth and competitiveness, but the working-level focus will remain on primary objectives. 

• Consider the interplay between the roles of the regulators, policymakers and politicians to ensure the most effective engagement.  

• Be specific and evidence based – regulators will want to know how potential reforms can contribute to growth but also how they will impact its primary duties and deliver better outcomes.  

Flint’s financial services team includes consultants with first-hand experience in decision-making at the FCA. We can help support you in ensuring effective engagement with regulators, policymakers, and Government to ensure good outcomes.

This blog was written by manager Bhavini Parmar and director Becky Young. Bhavini advises clients on competition, policy and regulatory issues with a focus on financial services and digital markets. Becky advises clients on competition and regulatory matters across a range of sectors including financial services, digital markets and telecoms.