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Four challenges facing new FCA boss Nikhil Rathi

When Nikhil Rathi starts his new job as boss of the UK’s Financial Conduct Authority this autumn, he will be hoping to do so from a desk at the watchdog’s east London headquarters. That would mean the coronavirus lockdown had been further eased — and the regulatory focus shifted to supervising recovery.

But by then there will be other demands on his time, as he joins the organisation just months before Britain must decide whether it will maintain equivalence with EU financial regulations, or set its own rules when the Brexit transition period ends next year.

Meanwhile, the two-thirds of FCA initiatives that have been delayed by coronavirus — covering everything from consumer protection to climate risk — must be put back on track.

Here are Mr Rathi’s biggest challenges:

Covid-19 debt burden

In announcing Mr Rathi’s appointment, FCA chair Charles Randell thanked stand-in boss Mr Woolard for “steering the FCA through its initial response to Covid-19 with great energy and skill”. But it will arguably require even greater skill to navigate the secondary response.

With nearly 2m UK consumers and close to 1m businesses adding to their debt burden to get through lockdown, Mr Rathi cannot let the 59,000 financial firms he regulates go straight back to business as usual. Only last week, Mr Randell told banks that they would need an entirely new way to deal with personal and business debt, as the pandemic pushes more borrowers into arrears or default.

It will fall to Mr Rathi to shape this framework and ensure that lenders are not seen to profit from the pandemic as some did after the financial crisis of 2008. This will involve shaping a new approach to treating bank customers in financial difficulty — including business customers currently outside the FCA’s remit.

“The Covid-19 pandemic has prompted the publication of an unprecedented series of measures aimed at protecting consumers in financial distress and the FCA’s expectations of firms’ current treatment of customers are high,” said Julia Dixon, a partner with the financial regulations group at law firm Linklaters.

Post-Brexit regulation

Mr Rathi will have just a few short months before the UK’s regulatory relationship with the EU is either codified in a trade deal or the UK leaves the Brexit transition without an agreement. Already, financial services groups want him to use his position to push for an agreement on equivalence — which would allow UK companies’ access to EU markets to continue, provided its rules on financial services were similar.

“Within the fund management industry, clarity surrounding ongoing regulations, particularly when it comes to equivalence with Europe post-Brexit, should be an immediate priority,” said Mikkel Bates, regulations manager at financial information group FE fundinfo. “We hope that Mr Rathi will use his influence and experience in the forthcoming negotiations to ensure the UK’s equivalence is assured.”

If the UK government chooses to diverge from EU regulations, Mr Rathi will have to ensure that any new domestic rules do not lose the City of London more EU business than it can gain from elsewhere. He must also make sure the City does not damage its reputation as a global financial centre — which will be a difficult balancing act, according to Nick Bayley, head of UK regulatory consulting at Duff & Phelps. “This government needs to make Brexit a success and one of the easier ways it potentially could do that is through deregulation,” he pointed out. “That approach is likely to conflict with the FCA’s instincts, which are to protect the UK markets and UK investors from any dilution of standards.”

Consumer protection

Prior to the Covid-19 pandemic, the regulator’s failures to protect small savers from a series of financial scandals attracted widespread criticism. Prominent political campaigner Gina Miller, who is also co-founder of the investment manager SCM Private, accused former FCA boss Andrew Bailey of being “asleep at the wheel” for not preventing the multimillion-pound collapses of Woodford Investment Management, run by former star stockpicker Neil Woodford, and London Capital & Finance, the high-risk mini-bond issuer.

Mr Rathi can now secure “several quick wins” by taking a far tougher stance on punishing firms, according to Ms Miller. “The most significant will be cultural change that sends a clear message to the industry that enforcement will now be the default option rather than the last option,” she said.

There are also hopes that Mr Rathi will be able to address the limitations on FCA’s powers that have been blamed for its failing to protect consumers. “Time and again the FCA has tripped over the ‘regulatory perimeter’, the boundary marking what it does and does not regulate . . . Nikhil should use his superb Treasury contacts to sort this soonest,” said Simon Morris, partner at law firm CMS

Financial technology

As the UK has grown into a hub for financial technology companies, the FCA has led the way in new approaches to regulating the sector. A recent report by lobby group TheCityUK praised its “pioneering” efforts and regulatory “sandbox” approach: allowing fintechs to experiment with technology and data in a safe environment, under supervision.

But as fintechs grow and look to operate across borders, Mr Rathi will need to oversee the evolution of the FCA’s approach — and co-operate with global counterparts — to maintain the UK’s position.

“Together, we face the global challenges of stimulating a post-pandemic economic recovery, tackling climate change, and the rise of technology,” said Catherine McGuinness, policy chair of the City of London Corporation. “Nikhil’s depth of experience of domestic and international regulatory policymaking will therefore be vitally important as we plot the path ahead.”

Role at heart of Treasury and financial services

‘The kind of things I was able to do and experience and witness were extraordinary’ © PA

Described as low-key and “methodical”, Nikhil Rathi has spent more than a decade representing the interests of UK financial services around the world. He also had a little-appreciated role at the heart of the 2008 financial crisis.

For the past five years he has been chief executive of the London Stock Exchange, the UK’s primary venue for companies to raise capital and trade shares. His role has largely focused on forging the LSE’s links with big emerging markets like India and China — such as the scheme that connects the exchange with its counterpart in Shanghai.

“He is very methodical and serious,” said one person who has sat across the negotiating table from Mr Rathi. “The FCA job requires someone who can manage the retail markets. Nikhil’s real challenge will not be dealing with Brussels but angry pensioners.”

Prior to joining the LSE, Mr Rathi spent 11 years at the Treasury, where he served as director of the Financial Services Group and the UK representative on the EU Financial Services Committee.

From 2005-2008, he served as private secretary to both Tony Blair and Gordon Brown. He was also head of the Treasury’s Financial Stability Unit during the 2008 financial crisis, overseeing a number of the government’s interventions such as the recapitalisation of Royal Bank of Scotland and the winding up of Bradford & Bingley building society.

He later told the in-house magazine of the Chartered Institute for Securities & Investment, the body for finance professionals: “The kind of things I was able to do and experience and witness were extraordinary.”

Mr Rathi grew up in the industrial town of Barrow-in-Furness in Cumbria, where his father was a local magistrate. He later got a degree in philosophy, politics and economics from Oxford university.

Philip Stafford

This article was first published at

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The Markets Today