The CEO of the Financial Conduct Authority (FCA) has set out his vision of a more modern and single-minded approach to financial regulation in the UK, but also one that collaborates with international partners, especially the US.

Nikhil Rathi achieved this difficult balancing act in a speech to Washington DC thinktank the Peterson Institute for International Economics last week.

In it he talked of greater dialogue between the US and UK to achieve consistent outcomes; it is inevitable that walking away from both the EU and the Single Market would force the UK closer to its biggest national economic partner.

“Having departed from the EU, we now have a vital opportunity to adapt our regulatory system to respond to today’s challenges and to bolster the global reach of our wholesale markets,” he explained.

“And while we have the same shared values and desire to have free and safe markets – well regulated – the way our legal arrangements and remits are organised can vary widely. Therefore, intensive dialogue is hugely valuable to help ensure we deliver consistent outcomes and common goals.”

Rathi also mentioned Singapore as a financial and regulatory partner for the UK, echoing recent comments by Cabinet ministers.

Speaking of the last financial crisis as recession looms, he continued, “As a result of that crisis, regulation changed significantly. Tougher, more robust standards. […] And the FCA, reconstituted after the Global Financial Crisis, has been at the forefront of many of these.”

However, he added, “While we should never forget the lessons of past crises – that a different type of regulation was required – recent years have shown us that a different type of regulator is required.”

The FCA is that organisation, he claimed. “We are redesigning our operational platform so that we can better adapt and collaborate, to address the threats, mitigate the shocks, and embrace opportunities. Not just address issues after significant harm or risk has become embedded.

The FCA is investing heavily in data analytics to support its decision-making. “This is helping us to take a more proactive stance and, crucially, spot harm and intervene more quickly and more broadly,” he said.

“Last year we moved some of our core systems to the cloud. This enabled us to transfer over 50,000 firms and tens of thousands of users to a new regulatory data platform.

“Using our data lake, we aim to more swiftly identify, connect, and react to firm and market issues.”

The FCA now scans 100,000 websites every day for scams targeting UK consumers, taking down hundreds every year, he said.

“There is and must remain a laser focus on the quality of data coming in, in the first place, and this is an area where we are holding firms increasingly to account.

“We are examining what potential systemic risks are posed by our financial services sector relying upon the resilience of services provided by a small number of critical third parties – including cloud providers.”

The FCA will shortly publish a joint discussion paper with the Bank of England setting out a range of potential new measures. In this work cross-border cooperation will again be key, he said.

“We are also embarking on a new approach to digital regulation in the UK through our Digital Regulators Cooperation Forum, bringing us together with our communications, privacy, and competition regulators.”

Crypto is the key

Rathi said that the US and UK will deepen ties on crypto-asset regulation and market developments, including in relation to stablecoins and the exploration of central bank digital currencies (CBDCs).

“In the past, innovative firms would have been pleading for less regulation. Now they understand and appreciate that rules are there to help provide certainty,” he explained.

Rathi’s comments came as the crypto market remains generally down after its rout in the Spring, with commentators pointing at the growing split between speculative tokens that attract gamblers and coins that may have greater utility in the new financial sector.

• In related news, challenger banks are not doing enough to tackle suspicious activities. That’s according to an FCA review, carried out across last year, which found rising numbers of suspicious activity reports (SARs) in the sector.

Despite some evidence of good practice, challenger banks are not verifying customers to the required level of compliance, the FCA warned.

Responding to the review this week, Dr Henry Balani, Global Head of Industry and Regulatory Affairs for AML and KYC specialist Encompass Corporation, said, “Challenger banks lead with technology as part of their digital innovation remit, which can result in regulatory requirements playing second fiddle.

“They must ensure the same standards are met as those of other regulated banks when tackling the rising tide of financial crime.”