The
era of “predictable volatility” in financial markets demands a
sweeping overhaul of regulatory approaches, declared Nikhil Rathi, Chief
Executive of the UK’s Financial Conduct Authority (FCA), in a speech at the regulator’s
International Capital Markets Conference.

FCA Chief Calls for
Regulatory Overhaul amid “Predictable Volatility”

“The
goal of regulation shouldn’t just be to step in when things go wrong, or
respond to a crisis,” Rahti stated,
emphasizing the need for a paradigm shift in regulatory approach, moving from
reactive to proactive measures. “We want to deliberately create an environment
that helps firms compete, and grow.”

The FCA
chief highlighted several key areas for reform, including nurturing market
liquidity, embracing technological advancements, and adopting a new mindset
towards risk. He argued that current regulations, often designed for large
global banks, can limit smaller firms’ ability to contribute to market
liquidity.

“We’re
exploring how adjustments could encourage wholesale trading and improve market
liquidity,” Rathi explained, suggesting that such changes could reduce
barriers to entry for specialized trading firms that don’t hold retail
deposits.

In a nod to
the rapidly evolving technological landscape, Rathi stressed the importance of
investing in infrastructure and adopting new technologies. He pointed to the
move towards T+1
settlement and the potential of tokenization to enhance liquidity and open
up new forms of investment.

The speech
also touched on the increasing interconnectedness of global financial systems,
with Rathi citing recent market events to illustrate how incidents in one
country can rapidly impact others. He called for deeper market engagement to
understand and manage these systemic risks.

The UK’s Market Watchdog
Seeks Feedback on Easing Financial Rules

Three
months after the FCA initiated a review to improve its financial services
regulations, the agency is making strides towards fostering innovation, cutting
costs, and easing regulatory pressures on businesses. This effort aims to
bolster economic growth and strengthen the UK’s financial markets.

The review
was set in motion following the introduction of the Consumer Duty, a measure
designed to ensure that businesses provide positive outcomes for consumers when
they purchase financial products and services. Now, the FCA is reaching out to
industry stakeholders to pinpoint rules that may be redundant or overlap with
the new duty, with the goal of simplifying them.

By
streamlining regulations, the FCA hopes to reduce operational costs for firms
and encourage a more robust risk appetite, which is crucial for growth. Beyond
this comprehensive rule review, the agency is also exploring ways to simplify
regulations in the commercial insurance sector, a market that exceeds £15.5
billion in value within the UK.