FCA warns against regulatory 'race to bottom' in growth push

FINANCIAL REGULATOR has cautioned against compromising regulatory standards while attempting to boost economic growth, revealing the delicate balancing act facing Britain's financial oversight.

In a frank discussion with MPs, the Financial Conduct Authority (FCA) leadership highlighted the challenges of their expanded mandate to promote business competitiveness alongside consumer protection, reported the Times.

FCA chief executive Nikhil Rathi stressed that embracing a more growth-oriented approach will inevitably involve increased risk.

"We need collective understanding that pursuing economic expansion means some initiatives might not succeed," he told the Treasury committee.

The warning comes after chancellor Rachel Reeves explicitly instructed the FCA to help firms "compete, innovate and grow" while maintaining market integrity. This new directive signals a significant shift in regulatory philosophy.

FCA chairman Ashley Alder was particularly pointed about avoiding a regulatory "race to the bottom". Drawing lessons from the 2008 financial crisis, he stressed the importance of maintaining robust international regulatory standards.

The timing of these discussions was important, with London's financial landscape facing challenges. Construction equipment firm Ashtead announced plans to relocate its stock market listing to New York, citing it as the "natural long-term venue" - a move symbolic of ongoing concerns about UK market attractiveness.

Rathi candidly acknowledged the inherent tensions in this new approach. "There's a spectrum of risk tolerance," he explained, referencing recent listing rule changes that deliberately create more space for entrepreneurial risk-taking.

In a letter to the chancellor, the FCA leadership pledged to advocate for global regulatory cooperation while recognising they might need to collaborate with a smaller group of like-minded jurisdictions on certain issues. They specifically highlighted potential divergences in areas like green finance and cryptocurrency regulation.

According to reports, the watchdog is exploring a more nuanced, "outcomes-based" approach that focuses on broader expectations of fair treatment rather than prescriptive rules.

Dame Meg Hillier, the committee chairwoman, aptly characterised the situation as an "inflection point" - where consumer protection and economic growth objectives intersect.

Critically, the government has signalled its willingness to accept potential failures as part of the growth strategy. Rathi noted this was the first time a minister had explicitly acknowledged that delivering growth requires societywide risk-taking.

The FCA bosses pointed out that they want to encourage innovation without compromising the fundamental protections that prevent financial misconduct.