News, Regulation & Supervision

FCA chief pushes back on proposals to cut supervisory powers

By Ellesheva Kissin
Image via Mercury Bloomberg

Stripping financial crime from the Financial Conduct Authority’s oversight would be “disproportionately disruptive”, the UK regulator’s chief has told a parliamentary committee.

A new financial crime supervisor to replace the FCA was one of four options of increasing severity outlined in a June 2023 Treasury consultation, aimed at tackling sub-par supervision.

The FCA currently oversees financial crime alongside a patchwork of other bodies — but one ‘nuclear’ course of action the Treasury has consulted on is whether to split up the financial watchdog altogether.

In a passionate defence, FCA CEO Nikhil Rathi warned the Treasury Select Committee against the “cost and risk” of removing financial crime from its remit, saying that it would force the FCA to transfer its anti-money laundering expertise to the new body.

His comments, published on January 30, come amid the UK’s ongoing battle against criminals and sanctioned firms taking advantage of weak, fragmented supervision. The National Crime Agency estimates that money laundering in the UK is worth more than £100bn per year.

The ‘nuclear option’

The select committee, which will publish its recommendations by the summer of this year, specifically questioned Rathi on this so-called ‘nuclear option’. 

In his first public display of opposition to the creation of a new watchdog in a letter to MPs, Rathi wrote: “This model would create friction in the wider economic system, given the difficulties for existing supervisors to fully divest themselves of AML oversight and would likely present operational difficulties for regulated firms.”

The Treasury had consulted the City on reforming AML supervision, an area of regulation long made difficult by an overlapping network of bodies. 

Three statutory supervisors, the FCA, HMRC and the Gambling Commission oversee financial crime, alongside 22 professional body supervisors — private bodies that supervise legal and accountancy firms.

Inconsistencies in the way firms are supervised were highlighted by the Financial Action Task Force, the international standard-setter, in a 2018 report on the UK’s regime. 

But Rathi suggested the FCA, which has been long criticised for being too slow in tackling regulatory risks, would not give up its financial crime oversight lightly. 

He said the supervisor “would likely seek to retain [its ‘whole-firm’ approach to supervision] if it were to cease being the sector’s AML supervisor, given the imperative to maintain UK financial stability.”

Rathi argued further that the Treasury should opt instead for a different solution, where one body would oversee all the current professional body supervisors. That option is “most likely to improve the effectiveness of supervision … in a proportionate way,” he said.

It would simplify the current system and address potential conflicts of interest between many of the professional body supervisors’ regulatory and representative functions, he added.

Who would be affected by FCA change?

Compliance teams at banks would only be affected under this nuclear option. Reacting to the initial consultation last year, Matt Long, global head of financial crime solutions at HSBC-backed Quantexa, said centralised oversight is necessary to tackle money laundering and would bring the UK closer in line with the rest of the world.

“This is a more comprehensive approach to getting a more targeted and singular approach to supervision. This is a global shift and it’s great to see the UK part of that.”

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