PRA and FCA speeches recap the regulators’ work to deliver growth and enhance competitiveness, and outline some key upcoming policy work.
By Rob Moulton, Nicola Higgs, Becky Critchley, and Charlotte Collins
On 17 October 2024, the PRA and the FCA both published speeches given by their Chief Executives at the Annual City Banquet. Although the speeches cover different topics on the regulators’ policymaking agendas, both focus on how the regulators will further their new secondary objective to facilitate international competitiveness and growth. This objective is coming under increasing scrutiny under the new government given its growth agenda, and the regulators clearly feel the pressure to support this plan.
Both speeches give a helpful flavour of the regulators’ key priorities at the moment, and how they will use the new objective in their upcoming policy work.
PRA on the Defensive
The PRA speech by Sam Woods has a distinctly defensive tone, emphasising that the PRA is “strongly committed” to the new objective, but that it is approaching this “in a careful, balanced way”. His speech is one of a regulator on a mission to change the narrative: “if you want to argue that the PRA is simply not doing much on competitiveness and growth, you are just straightforwardly wrong”.
Mr Woods is keen to stress that the PRA welcomes the new objective and has a balanced attitude to risk, but is also mindful about not wanting to create a bonfire of regulation. He does, however, take the view that regulation cannot be ever-expanding. Therefore, the PRA will aim to review existing regulation, largely as part of its work restating inherited EU regulation in its Rulebook, to see if some areas can be adjusted to ensure regulation is more efficient and less burdensome, without harming the PRA’s primary objectives: “while I don’t see a case for a fundamental re-calibration of the core planks of our regime, I do see plenty of scope for revising unhelpful regulations in a pro-growth fashion”. Mr Woods is cautiously optimistic on this point: “It is possible, just possible, that the UK can find a sweet spot in financial regulation in the coming period: consolidating the gains for financial stability since the financial crisis while making regulation more efficient, evidence-based and effective in support of competitiveness and growth. That is what we should aim for”.
One area in which the PRA plans to make such changes is its remuneration rules. Mr Woods mentions the recently announced consultation on amending the remuneration framework, which is expected shortly. He provides further important details around the PRA’s plans, including a proposal to reduce deferral periods for higher-paid Senior Managers from seven years to five. The PRA is also proposing to allow vesting on a pro-rata basis from year one for such individuals, rather than only after three years. In line with Mr Woods’ rhetoric, this sounds like a targeted adjustment to an area in which the PRA sees scope for change, while maintaining the remaining framework. Separately, Mr Woods states that the PRA will bring forward proposals to streamline some of the administrative aspects of the Senior Managers and Certification Regime (SMCR). This statement accords with expectations from the tone of the original consultation that the regulators are planning some tweaks to the SMCR, but not a fundamental change in approach.
FCA’s Growth Mission
The FCA speech on the other hand, takes a more humble approach: “We recognise that the jury is out on whether the FCA is helping to achieve growth … We clearly have more to do”. Typical of the FCA, it is taking a very academic approach to this issue by publishing a paper reviewing literature on the links between financial regulation and growth.
While the FCA is amenable to aiding growth and competitiveness, Nikhil Rathi remains steadfast on the FCA’s proposals to announce enforcement investigations. His position suggests that, while the FCA is aiming to make the proposals more palatable, it still considers they are necessary (“our current approach doesn’t work”) and, despite the controversy and pushback the FCA’s proposals have created, does not seem to believe that they would impact competitiveness. Mr Rathi also uses his speech to emphasise how the FCA’s enforcement work has a positive effect on growth and competitiveness.
Mr Rathi then highlights the role that industry has to play in enhancing growth, citing technological advancements as an area in which industry funding and leadership can make the necessary progress without requiring government or regulatory action. However, he is also keen to stress the importance of work the FCA has undertaken to facilitate innovation, such as the use of regulatory sandboxes.
Like the PRA, the FCA is resolute that it is open and willing to taking appropriate risks to help enhance growth, such as its ambitious reforms to primary markets rules, and considering streamlining the Handbook to pivot towards a more outcomes-focused approach. Mr Rathi emphasises that more opportunity will bring more risk, but the FCA is happy to have a more open conversation about its risk appetite.
Government Agenda
What remains clear from these speeches is that the regulators’ impact on competitiveness and growth is still difficult to measure and quantify. The regulators are undoubtedly keen to set out their own perspectives pending the outcome of the ongoing inquiry by the Financial Services Regulation Committee, which is analysing how the regulators have implemented their new objective so far. By no coincidence, both warn that furthering the new objective will impact their risk appetites, almost as if to caution the government of the implied trade-off in order to protect themselves from future criticism.
It will be interesting to see how the Chancellor responds in her Mansion House speech next month, which should provide a clearer steer on the government’s vision for the financial services industry and its expectations of the regulators.