New FCA boss will need to focus on protecting consumers during difficult economic times

By Gareth Jones, Newgate Public Affairs

Yesterday, Chancellor Rishi Sunak confirmed that Nikhil Rathi, the current head of the London Stock Exchange’s UK division, is to become the new permanent CEO of the Financial Conduct Authority (FCA). He is expected to take up the role in the autumn, taking over from interim boss Christopher Woolard who has been in charge since the previous CEO, Andrew Bailey left the FCA to become Governor of the Bank of England in March.

Mr Rathi’s appointment was notable for a number of reasons. Firstly, as someone of British-Asian background, he represents the first black, Asian or minority ethnic (BAME) individual to lead Britain’s financial regulator (the FCA or its predecessor, the FSA). The announcement came amid increased scrutiny of the lack of BAME leadership in finance – coinciding with a Business in the Community report revealing that less than 2% of top management roles are held by black employees – a point that he indicated he would address in his official statement, by committing to making the FCA “an even more diverse organisation.”

Secondly, whilst only 40 years old, Mr Rathi has had considerable experience in handling some of the toughest challenges in overseeing financial markets. He was the top official in HM Treasury's financial stability unit during the financial crisis, overseeing the £46 billion recapitalisation of RBS. At the LSE, he played a key role in strengthening UK's financial services relationships abroad and encouraging more foreign securities to list in London, with much of his work taking place against the backdrop of Brexit. These experiences should stand him in good stead as he takes up his post in a few months’ time. Heading up the UK’s financial regulator – with its multiple objectives of ensuring the integrity of the UK financial system, protecting consumers and promoting effective competition – is a tough job at the best of times. However, in the context of a global pandemic and probably the worst recessions in history – along with the pre-existing challenges of managing Brexit, the rise of financial technology and role of financial markets in tackling climate change – Mr Rathi’s in-tray will be on a different scale to his predecessors. 

His immediate challenge will be how he will support consumers and businesses hit by Covid-19 and the subsequent economic crisis, and to manage the significant increases in levels of debt and financial distress experienced by many. By the time Mr Rathi takes up his role in the autumn, the situation is likely to have intensified with the ending of the furlough scheme and an expected rapid rise in unemployment. Short term measures put in place by the FCA, such loan repayment holidays, were necessary but cannot remain indefinitely – yet if financial firms such as banks and other lenders are allowed to return to normal business practices, the impact could be catastrophic with ever more borrowers being pushed into arrears or default. The FCA’s Chairman, Charles Randell, told financial firms last week that we need to reassess our approach to consumer debt, noting that the Regulator cannot allow the current situation to become a replay of the 2008 crisis where many banks and other financial firms were seen as exploitative – and the treatment of consumers and small businesses by lenders caused significant harm and damaged trust in financial services. So far, however, there has been little indication of what that will mean in practice. 

In addition, there is broader concern about the increased risks posed to consumers during these uncertain times through the mis-selling of unsuitable products such as risky investments, poor value pension transfers – or outright scams. Andrew Bailey received considerable criticism over his role in overseeing the high-profile collapses of Woodford Investment Management and London Capital & Finance – and the treatment of their investors who lost out. Mr Rathi will, no doubt, want to avoid the same accusation of being asleep at the wheel once he is in charge, particularly if these instances are seen to be happening at a larger scale.  Indeed, while many other challenges will await the new CEO, his tenure could be defined in its initial months – and his immediate priority will surely be focused on ensuring that his regulator is seen protecting consumers during these difficult times.