Why shake-up may put financial watchdog at odds with ministers who expect a ‘light touch’

Chief Nikhil Rathi wants a more assertive regulator to protect consumers, which may fall foul of the chancellor’s call for an FCA that promotes the City’s international competitiveness, writes James Moore

The FCA is giving its managers more power (Rex)

Watch out fraudsters, scam artists and shiny suited pension thieves. Britain’s financial cops have put in for some shooters and the chief super’s granted their request. The Money Sweeney is hitting the streets!

OK, OK, that’s not quite how the Financial Conduct Authority’s press release puts it. After going through a hundred sets of hyper-cautious eyes before sign-off, the headline read: “FCA reforms decision-making to tackle consumer harm.”

You at the back, stifle that yawn!

While the headline might suggest that the announcement is about as interesting as spending a Friday night watching recordings of past snooker championships, the shooters are being delivered. Sort of.

FCA chief Nikhil Rathi wants the watchdog to be more assertive, and well he might given the previous incidences of it getting egg all over its face on issues involving consumer protection before he took on the top job.

So he’s proposing to give its senior managers more power. They’ll be able to slap bans on rogue firms, start civil or criminal proceedings off their own bat, rule on authorisations or approvals and limit what regulated businesses can do.

These things previously tended to get kicked up to the Regulatory Decisions Committee, which is a rather strange organisation. It’s a committee of the FCA board, which is semi independent from the rest of the watchdog. The chair is always an employee, true, but it also has external members drawn from business, consumer and financial services backgrounds.

The FCA also likes to stress that it is “an administrative, not a judicial body”. Said body will still make the final call on the big, contentious cases, such as investigations of dodgy investment banks and whether or not to fine them £100m or more.

But our shiny suited pension thief, bent upon lifting a hefty chunk of Jane Smith’s savings when she walks into his high street office? In theory, he should find himself on the financial naughty step before the funds of too many like her are transferred into his bank account if the reforms work as intended.

“Our new streamlined decision-making process will allow us to be more assertive in stopping harm,” declared Emily Shepperd, the FCA’s executive director of authorisations.

Here’s the problem: if you work for any regulatory agency, whether it’s the FCA, the Prudential Regulation Authority, Ofcom, Ofgem or Ofwat, your first action upon being assigned a seat at a hot-desk will be to submit your application to the CYAA. That’s the regulators’ Cover Your Arse Association.

Regulation is, more often than not, a political hot potato. The actions of regulators are scrutinised, and sometimes second-guessed, by innumerable lobbyists and the powerful firms they oversee which are run by the sort of people who get their calls taken by ministers; ministers who often find it convenient to blame regulators for their own failings; ministers who currently want financial regulators to be, shall we say, “light touch”, to help a City of London left battered and bruised by their Brexit.

The boss apparently freeing up FCA staff to go into battle on behalf of consumers sounds good. But it’s a strange fit with chancellor Rishi Sunak’s call for regulation that is “more agile and focused on driving growth” and his telling the FCA (and the PRA) to facilitate “the international competitiveness of the UK economy”.

True, the FCA wears two hats. It oversees both the retail financial services sold to you and me, and the wholesale financial markets and banks that operate in the City of London. These reforms are clearly aimed at the former.

But it’s worth remembering that while the financial crisis was born in the wholesale markets, it soon infected the retail ones. They’re more closely linked than it might sometimes seem.

There’s surely a cultural problem for an organisation that on the one hand promises to be more assertive, while it is being told to get fitted for a brand new pair of kid gloves at the same time.

That CYAA is likely to urge the FCA’s managers to tread very carefully when it comes to the use of their new powers.