“Strong and prompt enforcement” under Nikhil Rathi, new Chief Executive of the FCA

“Strong and prompt enforcement”

The first substantive question asked by Mel Stride MP, the Chair of the Committee, in the 22 July oral evidence session was about Mr Rathi’s stated focus on both “a more preventative approach to consumer harms” and “strong and prompt enforcement”. When asked how he intends to meet both those objectives Mr Rathi said:

• “First, a strong data and technology strategy, with strong analytics underpinning that”.
• “Secondly…a culture of collaboration, sharing information and breaking down silos, ensuring that strategic decision making is paramount between supervision, enforcement and competition and policy domains”.
• “Thirdly, and very importantly, diversity - diversity in all its dimensions”.

He added later in his evidence that he would like the FCA to be defined as tough, assertive, thoughtful, decisive and working at pace with agility and hyperactivity.

Even before the arrival of Mr Rathi as Chief Executive, this week the FCA is making clear that the dual priorities of a preventative approach to consumer harm and strong enforcement may dovetail with the publication on 29 July of draft FCA Guidance for firms on the fair treatment of vulnerable customers. The FCA states that it wants to ensure that the fair treatment of vulnerable consumers is properly embedded by firms in their culture, policies and processes, and that any finalised guidance will help the FCA hold firms to account. Christopher Woolard, interim Chief Executive at the FCA, said in the accompanying press release: “While many firms do excellent work to support their vulnerable customers, we will not hesitate to step in where others do not”.

Looking at best practice from elsewhere in the world to speed up the enforcement process

Back to Mr Rathi’s evidence on 22 July. It was pointed out that in the past the Committee has found the FCA to be slow to tackle issues. Mr Rathi accepted that enforcement is one area where this criticism comes up. Acknowledging the importance of prompt and speedy enforcement, he said that one problem is the large amounts of data that need to be processed. Mr Rathi commented in his evidence: “The question is: are there ways of looking at best practice from elsewhere in the world so that we can speed those things up?”. An area to watch for developments.

Addressing “challenges” with how economic crime is currently handled

When asked if economic crime will be a priority for him, Mr Rathi acknowledged “challenges” in how economic crime is handled at the moment, and said that recent findings^[2] of the Complaints Commissioner concern him. He recognises that there are issues in terms of the resources allocated to fraud and how complex cases should be taken on by the FCA, National Economic Crime Centre and SFO. His general feeling is that the level of financial resources is right, but that there are questions around the prioritisation of those resources.

“Holding firms to account with respect to the conduct that is expected from the Senior Managers Regime”

Mr Rathi did not speak in any detail on the Senior Managers Regime, and nothing he said suggested a change of direction. He commented on how the regime “puts responsibility right at the heart of the way in which firms must act, and responsibility at the senior management level” adding “It is early days, but I would certainly expect us to be holding firms to account with respect to the conduct that is expected from the senior managers regime”.

“Groupthink is a big challenge in financial services”

Diversity both within the FCA and in financial institutions was discussed at length. He believes that the FCA has a role to support a more diverse financial services sector. The Women in Finance Charter is one important initiative, but more broadly he has an expectation that, over the coming years, the boards and senior leadership of major financial institutions will be working hard to deliver diversity and change culture. “If we are not seeing that progress happening, then at some point it becomes a supervisory matter, and it may even become a matter that we would need to deal with in how we decide whether to approve an appointment or not.”

Challenging “excessive risk aversion” in the FCA

One of the last comments Mr Rathi made in giving evidence was that he has the impression from early conversations that there may be “a bit of a culture of risk aversion where everything has to go through committees and get decided at more senior levels”. He would like to address whether there is an opportunity to enable senior leaders in the FCA to make decisions more quickly. He noted that the FCA has a very strong and effective legal team and that decision makers need to use legal advice in a sensible way. He concluded however: “What we cannot do is circumvent due process, particularly when taking important enforcement decisions, even if that means that they will take a degree of time”.

And what of Covid-19?

The pandemic was discussed less in Mr Rathi’s 90 minutes of evidence than one might expect. He spoke of course about the extraordinary situation of millions of consumers facing difficult circumstances and the “intensive and detailed dialogue” with financial institutions which will be required to adjust gradually the special measures, such as payment holidays and forbearance, which have been put in place.

He also spoke on how he is going to be very vigilant, coming out of the pandemic, about the impact of what has happened in the last six months on competition, particularly in retail financial services.

Enforcement in the context of the pandemic was not much explored, with one exception: unlawful activity by firms operating on the margins of the FCA perimeter. Given what we know already, it was unsurprising to hear Mr Rathi single out such firms. Here also he does not want the FCA to have a risk-averse approach: “I would not want us to be saying, ‘We are not going to challenge it, because it is 50:50 whether it is within our legal boundary.’ We need to be clear that, if it is obvious that consumer harm is being done, we need to be proactive in finding ways to tackle it and deal with it”.

_{[1] Mr Rathi is currently the Chief Executive of London Stock Exchange plc. From September 2009 to April 2014, he was Director of the Financial Services Group at HM Treasury. Mr Rathi has already had close dealings with the FCA, having sat on its Markets Practitioner Panel since 2015.}

_{[2] See page 20 of the Complaints Commissioner Annual Report published on 16 July 2020.}