Britain’s Financial Watchdog Signals Shift Toward Risk-Taking to Support Economic Growth

The Financial Conduct Authority (FCA), Britain’s finance regulator, informed the government on Friday that it would adopt a more risk-tolerant approach to aid in driving economic growth. However, the FCA warned that this shift would likely result in increased failures and harm to consumers and businesses.

In a letter addressed to Prime Minister Keir Starmer and Finance Minister Rachel Reeves, FCA Chief Executive Nikhil Rathi outlined plans to support the government’s growth ambitions. These include easing access to mortgages, reducing regulatory burdens, and promoting digital innovation.

Reeves has urged regulators to focus on removing barriers to economic growth, pushing for a regulatory environment that fosters investment and innovation. She has also called for cultural changes within regulatory bodies to prioritize economic expansion over an “excessive” focus on managing risks.

“To achieve the deep reforms necessary, your acceptance that we will take greater risks and rigorously prioritise resources is crucial,” Rathi emphasized in his letter.

The FCA chief noted that greater risk-taking would inherently lead to more failures and called on politicians and other stakeholders to understand and accept this trade-off. “We will not stop all harm when making risk-based choices about the cases and intelligence we pursue, and we increasingly deploy technology to make those choices with speed and at scale. Metrics for tolerable failures within the overall system could help to support this,” Rathi wrote.

The government’s push to cut red tape coincides with expectations that the incoming Trump administration in the United States will ease financial regulations. However, Bank of England Deputy Governor Sam Woods recently cautioned against engaging in a “race to the bottom” on financial regulation. The Bank of England (BoE) also announced on Friday that it would postpone implementing stricter global bank capital rules until 2027.

The FCA’s proposals for reform aim to stimulate capital investment, foster digital innovation, and ease regulatory pressures. In the mortgage market, the regulator plans to simplify rules on responsible lending and advice, aiming to increase homeownership while balancing access to lending with default rates.

More broadly, the FCA will examine the proportionality of reporting requirements for certain firms. Rathi suggested additional cost-cutting measures, stating, “We could go even further and, with government support, reduce costs of anti-money laundering measures, relaxing ‘know your customer’ requirements on small transactions.”

As part of its digital reform agenda, the FCA is considering lifting the current £100 ($122) limit on contactless card payments, a move designed to provide greater flexibility for businesses and consumers.

This shift in regulatory philosophy signals a major change in Britain’s financial landscape as it seeks to balance innovation and growth with the challenges of increased risk exposure.

By fLEXI tEAM