Some feedback after the FCA Chief has a chat with Fairer Finance. Whilst the FCA might not favour new regulations, the current government might have different ideas. Here’s the word;
In a wide-ranging and notably frank interview, Financial Conduct Authority (FCA) Chief Executive Nikhil Rathi has confirmed a fundamental shift in the regulator’s approach, moving away from writing new rules in favour of using the Consumer Duty and supervisory tools to address market failures.
Speaking as the inaugural guest on the Fairer Finance podcast, Rathi acknowledged that “not every problem is going to be solved quickly by doing big interventions, more rules, bans, guidance,” going onto say “I think that there’s a whole range of influences that are informing our willingness to write lots of new rules…. we’re moving to an outcomes-based approach, and that will mean less rules in the future because we think the Consumer Duty will do a lot of the work for us.”
Treasury influence on transparency
In a moment of candour about political pressure, Rathi revealed: “The Treasury, I think, weren’t pretty secret about their view that they weren’t a big fan of transparency, about our actions when it came to firms. They were very persuaded by some of the lobbying they received on that topic. Nonetheless, we are stepping up the way in which we communicate through our enforcement watch.”
The admission came in response to a question about the FCA’s use of Voluntary Requirements (VREQs) – which enable the regulator to secure changes from firms without public announcement or enforcement.
FCA steps back from “distributional questions”
In what Fairer Finance identifies as a repositioning, Rathi suggested that cross-subsidies and distributional fairness in products like credit cards and premium finance are “not within our mandate to decide on,” placing responsibility instead with the Treasury and Government.
“What is not within our mandate to decide on is some of the distributional questions that you’re pointing towards,” Rathi said when challenged about business models where financially vulnerable customers subsidise better-off consumers getting 0% credit cards or those able to pay insurance premiums upfront.
Rathi went on to say: “…there can be some areas of our work which intersect with social policy. And the issue that certain products may be more expensive for certain parts of society is not going to be directly something a regulator deals with. It becomes something that becomes a matter for government.”
James Daley, managing director of consumer group Fairer Finance, said: “This was a remarkably candid interview, and credit to Nikhil for being so open about the pressures the FCA is under and the trade-offs they’re making.
“We are of course disappointed to see confirmation that the FCA is stepping back from tackling problems with new regulation. While the Consumer Duty provides a useful framework for the FCA to tackle poor conduct on a firm-by-firm basis, there are a number of wider market failures that won’t be addressed without new rules or much clearer guidance.
“Nikhil’s comments will also be hard reading for those who are campaigning to eliminate the poverty premium. While there are certainly some social policy issues where the FCA may need the Government to take the lead, there are a number of areas that are within the FCA’s remit to address. In particular, the credit card market continues to rely on unfair cross-subsidies which mean that the least financially resilient subsidise the better off. These business models arguably breach the FCA’s fair value rules – but it looks unlikely the FCA will address them in the current political climate.”
Motor Finance Redress Scheme looks set to be amended
Rathi confirmed that the final motor finance redress scheme – described as “an enormous redress event, second only to PPI” – will differ from the consultation following industry lobbying, though he insisted the FCA will act “forcefully” where “the law has been broken.”
On the final rules for the scheme which are expected to be later this month, Rathi said “…is it going to be exactly and precisely as we consulted on? No, of course it won’t be because we will listen to the feedback we’ve received and where it’s evidence-based, we will adjust our position.”
Mortgage market: acknowledging the trade-offs
On loosened mortgage lending rules, Rathi was explicit about the risks: “Over the cycle, over an interest rate cycle, that might mean a modest amount of additional distress if interest rates rise significantly. You can’t do both, but there are benefits and there are costs of any policy shift.”
The changes have made an average £30,000 more available for mortgages, with 85% of the market responding and a “huge increase in first-time buyers last year.” Rathi expects “tens of thousands and potentially hundreds of thousands over the life of this parliament” to benefit.
On later life lending, Rathi cited Fairer Finance research showing “over half the population in retirement will need to access some of their housing wealth to get the living standards” they expect. He went on “But it’s also not good for society that people are retiring with incomes that are insufficient for the living standards they expect. And they’ve got housing wealth that’s locked up that they could access.”
Protection Market Study likely to follow Premium Finance approach
Asked whether the Protection Market Study will follow the Premium Finance Study’s firm-by-firm Consumer Duty approach rather than market-wide interventions, Rathi said: “Our prevailing approach will be evidence-based… we have the Consumer Duty that gives us a tool to work with those firms where we see outlier behaviour.”
On premium finance, despite it being previously described by the FCA’s Matt Brewis as “a tax on the poor,” Rathi argued that a market-wide intervention could “end up reducing availability of that product or putting up prices that actually make it harder for the people who need it most.”
James Daley added: “What’s clear from this interview is that the regulatory winds have changed over the last 18 months. The FCA is under pressure from the Treasury to prioritise growth and to deal with market failure and misconduct through supervisory conversations behind closed doors. As Dame Meg Hillier pointed out last week, the Chancellor has had only one meeting with a consumer group since taking office – compared to dozens of meetings with banks, insurers and asset managers. And it’s clear that this emphasis from Treasury is also following through to the way its regulator acts.”
Other key remarks from Nikhil Rathi:
- Enforcement: 40 enforcement outcomes in 2024 vs 30 in 2023. Six Consumer Duty cases now underway.
- Financial crime: Record number of criminal prosecutions; 84% of crypto firms applying for money laundering registration rejected
- Financial Ombudsman: 12 months without a CEO, 6 months without a chair – Rathi downplayed concerns, praised interim leadership
- Targeted support: Launches April 2026 for pensions/investments; Rathi said: “We’re focusing on the initial markets for the 6th of April. We’ll see how it all works. We’re seeing a whole range of providers coming in and then we’ll look at where we may want to go with this in the future.”
Listen to the full interview
The complete interview with Nikhil Rathi is available now on the Fairer Finance podcast, available on Spotify, Apple Podcasts and all major podcast platforms.
Listen here: https://www.fairerfinance.com/insights/podcast
For more information about Fairer Finance, visit https://www.fairerfinance.com/.
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