FCA's Letter To The Prime Minister Outlining Its Strategies To Bolster The Growth Of The UK's Economy

The Government has announced plans to enhance economic growth by overhauling the current regulatory system, which is seen as a barrier to investment and innovation. In response to economic growth figures in November that fell short of expectations, the Chancellor called on the regulators to expedite the Government's growth agenda for the financial sector. In this edition, we discuss the response from the Financial Conduct Authority (FCA) to the Government setting out its strategies to bolster the growth of the UK's economy.

On 16th January, the FCA published letter from its Chief Executive, Nikhil Rathi, to Keir Starmer, providing insights into the FCA's strategies to bolster the growth of the UK's economy. This letter serves as an insight into the FCA's future direction, which firms will need to closely follow.

Background – the Catalyst

This traces back to November 2024, when Rachel Reeves, the Chancellor of the Exchequer, in her inaugural Mansion House speech, challenged regulators to modernise and enhance the financial services sector to foster economic growth and competitiveness.

This was immediately followed by remit letters to the FCA and the PRA where Ms. Reeves urged the regulators to seek ways to boost innovation within the financial services sector and, specifically, for the FCA, to empower consumers to make educated decisions, even when opting for higher risk options.

In response to economic growth figures in November that fell short of expectations, Reeves convened a meeting with the regulators to expedite the government's growth agenda for the financial sector. She advocated for a "pro-growth agenda" and a regulatory "mindset shift" to prioritise growth over excessive risk aversion.

The FCA's Response

The FCA's letter to Starmer outlines ambitious reforms, demonstrating a readiness to embrace risk and optimise resource allocation to support growth. Initiatives include:

Reducing the regulatory burden:

• Easing mortgage lending and advice rules, scrapping outdated guidance, and streamlining anti-money laundering measures by relaxing know your customer requirements on small transactions.
• The FCA also proposes to remove the Consumer Duty Board Champion requirement, in addition to suggesting that future consultations focus on the sufficiency of existing Consumer Duty rather than introducing new regulations.

Motor Commission and Redress:

• Pending a Supreme Court decision, the FCA aims to clarify motor finance redress processes, coordinating closely with the Financial Ombudsman Service to streamline consumer redress mechanisms.

Digital Innovation:

• The FCA plans to implement the National Payments Vision by 2025, introduce new payment methods under open banking, and leverage the Data (Use and Access) Bill to advance open finance. Proposals also include removing the £100 contactless payment limit and setting new digital service standards.

Enhancing Authorisation Processes:

• The FCA intends to improve support for startups and growing firms by offering dedicated case officers, increasing supervision for early and high-growth entities, and extending pre-application support.
• The regulator also plans to signal its approval intentions more frequently to assist startups in securing funding.

It will be interesting to see if the FCA goes ahead with all these proposals and what impact they will have in fostering the growth agenda. For example, while the FCA's proposals signal a significant shift towards growth facilitation, it is noteworthy that the removal of the Consumer Duty Board Champion, although not mandated by the Consumer Duty rules, does not absolve governing bodies of their obligations to fulfil Consumer Duty requirements.