As the UK government asks regulators to help grow the economy and take more risk, the market needs to be ready for “more things to go wrong,” according to Nikhil Rathi, the chief of the UK Financial Conduct Authority. In an exclusive interview with MLex, Rathi said the regulator is trying to boost growth and fund managers can invest in the defense industry — just don't expect the watchdog to write new rules for artificial intelligence.
The UK market must be ready for “more things to go wrong” as the government has asked financial watchdogs to take more risks and push for growth, the chief of the UK Financial Conduct Authority Nikhil Rathi told MLex in an interview. Since the new Labour government came to power, the watchdog has come under pressure to cut red tape, remove unnecessary burdens for the industry and allow for more risks in the market.
“As we make these far-reaching adjustments, we are just adjusting the level of risk in the system, and one must be ready for a few more things to go wrong,” Rathi said.
His term as FCA chief is coming to an end in September. He has been at the helm of the top banking regulator since 2020 after serving as chief executive of the London Stock Exchange plc and as director for financial services at the finance ministry.
He has repeatedly asked the government to discuss failures in the system that will result from the pro-growth approach.
The government does not intend to provide metrics for failure for now, but Rathi told MLex that the relationship is a “strong collaborative” one and that the government’s agenda is “clear.”
He is expecting, however, that risks will increase in several areas. For instance, the FCA is easing the prospectus regulation, increasing the threshold for triggering a prospectus for further issuances from 20 percent of existing fungible securities to 75 percent.
Underwriting committees within investment banks need to recalibrate and understand “how the risk is being rebalanced,” Rathi said.
The retail side will also face risks, including in crypto investments.
“Anybody who wishes to put their money in crypto products must be ready to lose everything, and they should only put money in that they can afford to lose,” he said.
Finance minister Rachel Reeves met with regulators on Tuesday as she released a plan, including changes for the agencies to implement over the coming year.
The planned measures for the financial watchdog include easing mortgage lending, simplifying financial advice and removing the 100-pound contactless payments limit.
Rathi told MLex that he is confident these measures can be in place within the next year without specifying which ones could provide “tangible growth.”
The FCA is doing a “range of things” to collectively boost economic growth, including updating listing and prospectus rules, transforming financial advice, as well as reviewing pension funds rules, he said.
— Outcomes-based —
While some officials have hinted that the current pro-growth narrative recalls the push against over-regulation ahead of the global financial crisis in 2008, Rathi told MLex that the UK is in a “totally different place.”
“Since then, there's been a vast range of steps taken to strengthen the regulatory architecture,” he said. “Conduct standard and sharing of information are in a totally different position,” he added, explaining that this allows the regulator to eliminate unnecessary rules and focus on an outcomes-based approach.
The FCA has committed to boosting growth by scrapping some policies from its agenda. It recently abandoned plans to boost diversity and inclusion and its proposal to “name and shame” companies under investigation.
The watchdog is now considering discarding a proposal to introduce notice periods for investors to redeem liquidity from property funds, he said.
Meanwhile, other areas will continue to be supervised through an outcomes-based approach to avoid introducing detailed prescriptive rules.
On artificial intelligence, Rathi said that the market shouldn't expect the FCA “to rush quickly to write new rules in this area,” as the FCA will continue to monitor innovation in the market before taking any further steps.
“One of the most significant use cases of AI in financial services is to tackle financial crime, and we want firms to be able to do that because the serious organized criminals are using this technology, and we want there to be significant defenses against that,” Rathi said.
Another area where the industry is not set to see more binding rules is sustainable finance and environmental, social and governance standards.
On sustainability disclosures, the FCA stands ready to follow the direction of government which is yet to endorse international standards that will then be applied to UK companies.
Beyond that, it has recently implemented a labelling regime, is working to bring ESG rating providers under its regulatory remit and is considering requiring transition plans from regulated financial services.
The UK has a tradition of a “comply or explain” approach, which Rathi said is welcomed by companies and investors on the domestic market.
He said rules should allow “for appropriate proportionality and flexibility, and then investors can make the decisions they wish to make based on the information they have,” he said.
Given the momentum around investing in the country's military industry, the industry hinted that clarification of ESG rules around defense investment would be welcomed. On the other side of the channel, the European Commission said it is considering amending the rules to clarify them.
The FCA said in a recent statement that the defense sector complies with ESG standards. Rathi told MLex there’s no plan to clarify the rules on the UK side.
“We don't think there's anything in our rules that inhibits fund managers or other financial services institutions from investing in or providing services to the defense industry, and many do already,” he said.
— International partnerships —
The UK's challenge to spur its economic growth could be heightened by the uncertainty over financial regulation in the US following the election of President Donald Trump.
But Rathi said that the FCA maintains “close ties” with all its regulatory counterparts.
“We, at the FCA, in terms of market supervisors, are probably the biggest exporter of data of just about any supervisor in the world, because of the hub nature of the UK market. So that means it's incumbent on us to maintain all of those relationships. I think that's continuing in the normal way,” he said.
Rathi spoke to MLex ahead of an annual gathering of industry representatives and officials to discuss policy and regulatory options to mobilize investment and enhance competitiveness*.
While the EU and UK continue to collaborate in the context of bilateral engagements and a regulatory forum taking place twice a year, Rathi told MLex that there’s not a plan yet for a more formal engagement between the two, although the watchdog is open to options.
As he met with his Brussels counterparts, he said that the spirit of the discussions was about “how we can continue to make sure we are cooperating well together.”
“We're, of course, very much open to ideas as to how we can keep building that cooperation,” he said.
* Forum Europe Annual European Financial Services Conference 2025, Brussels, March 18, 2025
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