In a wide-ranging interview, the FCA's 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.”
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 approach revealed
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."
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.
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."
Targeted support
Finally, targeted support, which launches in April for pensions and 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.”
