Taking part in a “race to the bottom” against the U.S. or other jurisdictions on deregulation would be a dangerous thing, the chair of the Financial Conduct Authority warned.
In response to a question on a divergence among regulatory stances in the U.K., Europe and the U.S. following the election of Donald Trump as president, FCA Chair Ashley Alder acknowledged the U.K.’s position as a leader in terms of international standards. Moving away from those standards is not something that should be encouraged, he said during a wide-ranging discussion at a Treasury Select Committee appearance about the work of the U.K. financial regulator.
“Because we’ve seen the advantages that can arise from … influencing and embedding international standards in the U.K. is not something we should be abandoning,” Alder said. “As regulators, we often talk about or use the phrase ‘race to the bottom,’ and from my … and the organization’s point of view, there are clear dangers in indulging in any sort of race to the bottom around a deregulatory agenda, for obvious reasons that go right back” to the global financial crisis.
Alder said there’s “a lot to be said around pursuing agreements” based on the international standards on which the U.K. bases its own financial regulation with Singapore, Hong Kong, Japan and Europe, “but also I think the reality is that, once the leadership of our counterpart agencies in the U.S. take up their roles, my experience … in the last Republican administration in the U.S. is that, by and large, the level of participation around global issues and global risks is quite encouraging in practice.”
It will still be important for the U.K. to be “on the front foot in relation to our ability and our ambition to engage with the U.S. … But the key point for us is we need to persist in our leadership role in relation to international standards,” Alder said.
FCA representatives were also quizzed on the potential risks that come with deregulation and the push by the U.K. government to encourage growth.
Alder and FCA CEO Nikhil Rathi acknowledged the so-called trade-offs between the relaxation of rules and growth.
Questioned about Chancellor of the Exchequer Rachel Reeves’ claim in her inaugural Mansion House speech that regulation has eliminated risk taking, Rathi said: “I think that, post-financial crisis, there was obviously a huge agenda around the world to reset regulation right across the financial system … and that’s because risk hadn’t been managed effectively before 2008, and we saw the consequences of that around the world,” he said. “I think that we haven’t eliminated all risk taking, but there’s a spectrum here as to how far you wish to go.”
The FCA has led a process over the past 18 months or so to align the U.K.’s listings rules with “competitor jurisdictions,” for example — a move to encourage more businesses to list in the U.K. The move was met with concern from pension funds in particular, which were worried about reduced investor protections.
“All the way through that, we have said very openly that this will mean more things will go wrong over time. I don’t know when, but some time in the next few years, one or two more things will go wrong, but that is necessary to shift the risk appetite that the economy needs for growth. I think the test will come when those things do happen, and what the tolerance is here in Parliament for some of those situations when they crystallize,” Rathi added.
