Reeves will tell Britain’s financial watchdog to prove it will support growth

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Chancellor Rachel Reeves will next month issue a formal edict to the City of London regulator to prove it is serious about its duty to support growth.

According to government officials, Reeves will send a formal “remission” letter to the Financial Conduct Authority around his October 30 budget period.

In his letter, Reeves will tell the regulator that he must demonstrate that he is acting to promote the expansion of the UK’s financial services sector as the chancellor seeks to boost Britain’s growth rate.

The previous Tory government last year gave the FCA a second mandate – to prioritize growth, which the new Labor administration has promised to continue.

Officials said the FCA had been a “constant source of frustration” for ministers, which amounted to the complexity of the regulator’s 10,000-page regulations and some of its decisions. “They need a rocket,” said one.

The watchdog insists it already embraces its legally binding “secondary objective” of supporting growth and competitiveness and wants to work with ministers.

FCA chief executive Nikhil Rathi told reporters on Thursday that he had “already done a lot” to promote growth and was “always keen to do more”.

An FCA spokesman said it had already “delivered a range of measures to support competitiveness and growth” and was “looking forward” to receiving a letter “outlining the government’s policy priorities”.

Reeves said last month that he was pushing regulators to demonstrate that they are serious about the competitiveness of the financial services sector.

By law, at least once in a parliament, the chancellor must set out a remit to regulators about the government’s economic policies.

Treasury ministers have been consulting financial services firms on the UK regulatory landscape and share concerns that the FCA’s regulation is “complicated, outdated and reduces competitiveness”, according to a person briefed on the discussions.

One flashpoint, which first emerged under the Conservative government, was over the FCA’s plan to “name and shame” companies under investigation more frequently and at a much earlier stage.

The regulator pledged this week to “step up its commitment” to the new regime and be “mindful of all our objectives”, including supporting growth.

Another recent clash has come over plans by the Payment Systems Regulator, an independent subsidiary of the FCA, to introduce a mandatory bank compensation scheme for customers affected by online fraud.

A compensation limit was initially set by the PSR at £415,000, but was later reduced to £85,000 after pressure from ministers and fintech start-ups, who feared a major financial impact.

Rathi, who joined the FCA in 2020 after leading the London Stock Exchange for five years, said one of his most “broad” policy reforms to support growth was this year’s overhaul of the rules for London-listed companies to increase their flexibility in areas such as dual-class share structures.

He also cited recent proposals to make it easier for companies to raise capital by raising the threshold at which they must issue prospectus documents for secondary issues of shares; new powers to ban underperforming pension funds from taking on new business; and a recent call for suggestions to reduce and simplify FCA regulation.

Regulation has expanded massively since Brexit, as it inherited many of the laws passed by the UK government to transpose EU financial services directives.

It is in the midst of a multi-year process to rewrite, simplify or ditch many of those rules, such as the cap on bankers’ bonuses, which was scrapped last year.

City chiefs are also concerned about the lack of new listings by London businesses.

However, the latest ranking of international financial centers by Z/Yen showed that the UK capital remained in second place, although it closed the gap on the leader, New York.

FCA is hosting an international capital markets conference on October 8 in London, with major industry players flying in from the US.

More than 22 overseas regulators will attend to discuss the balance between rules and risk.

The regulator’s duty to support growth is likely to feature prominently in its new three-year strategy it is expected to present early next year.