Welcome to the Treasury Select Committee on Tuesday 16 December 2025. Today we are examining the work of the Financial Conduct Authority in one of our regular sessions, and we are focused particularly on growth as well as some topical issues before the FCA today. I am delighted to welcome the Chief Executive of the Financial Conduct Authority, Nikhil Rathi. He is joined by the Chair, Ashley Alder, and they are joined by the Deputy Chief Executive, Sarah Pritchard, and Simon Walls, who is the Interim Executive Director for Markets at the FCA. Mr Walls, you are interim. What does that mean and how long are you going to be in the position?

Good question. I think the job is being advertised now, so we will find out.

So this is your job interview, is it? We will bear that in mind. Welcome to your first ever Treasury Select Committee. I mentioned topical issues, and nothing is more topical than the Budget. In particular, this Committee has some serious concerns about the leaking of information around the Budget. Mr Rathi, you very kindly wrote to us on 3 December in response to some concerns we had about the leaks, in a well-crafted letter, I would say, that says that you will be basically reserving your position until the leak inquiry happens. However, that does mean that you are holding off a decision until then. Why are you planning to hold off for the time being? What is the rationale behind that?

We think any leaks are serious, and I know how seriously this Committee and the House take these issues. We have a specific remit around market abuse, and as part of that remit we provide guidance to public bodies, and we also offer training. There are two aspects to what happened about the Budget. There is the work that the OBR has done in light of the disclosure of the economic and fiscal outlook. We have engaged with the OBR, which has been very co-operative in investigating the leak quickly, looking back, looking at what remediation was possible. It has been transparent about what had been done and has also accepted an offer of training from us. We think it is good that the OBR has taken the initiative. You have heard from the Permanent Secretary to the Treasury that an inquiry into the leak is under way at the Cabinet Office, and the Treasury is doing a security review. It is appropriate for us to wait to see what comes out of that, and we will keep you updated.

So you are waiting for them. Is there any situation in which you would jump in before that leak inquiry is complete, given that it is market-sensitive information that we are talking about?

There are allegations; a range of allegations has been made. It is important to stress that our portfolio of work on market abuse tends to focus on where individuals have secured pecuniary gain from insider dealing and other such behaviours, and that is why we have stepped up the number of prosecutions we have done in relation to market abuse in recent years. We have not had any allegations to suggest anything like that has been going on here. What is being talked about here is the disclosure of market-sensitive, potentially inside information, and we will see what happens with the inquiry and whether there is anything further we need to do at that point.

So your focus will be on individuals making financial gain from this?

We look at a range of issues when it comes to market abuse, but the focus of our cases has been where there has been personal gain, because in our strategy we focus our resources on where there is the most serious harm, and that is where we have been particularly active in recent years. However, we do take these issues seriously, and it is right that the Treasury and Cabinet Office do their work. I understand that the Committee is interested in it as well, and we will look at it when the output is with us.

The Financial Times article noted that in the past, “concerns have been raised internally”—in the FCA, internally—“over the handling of market-sensitive issues by the Finance Ministry”, meaning the Treasury. Is that true?

I think we are always concerned when we see market movements in relation to sensitive information that is not disclosed in an orderly manner. We have responsibility around market integrity. It is absolutely normal for a Government, in parliamentary discourse, for issues that will have an impact on the economy and markets to be discussed and debated. We want to focus on making sure that any disclosures are orderly and are made available to the market at large at the same time, so that nobody can selectively gain from any information.

Selective release would be your biggest concern?

That concerns us, and orderliness concerns us as well, which is why we have provided guidance and training to public bodies over the years. We will, I think, coming through this, consider whether we need to update that guidance, learning the lessons of the recent past, to make sure that systems and controls are in the place they should be.

It is interesting that the FT seems remarkably well sourced. It says—again quoting this article—“the FCA was more likely to remind the Treasury of the need to handle sensitive financial information carefully in future rather than take any formal action”. Would you consider renewing your guidance, formal action, or gently reminding the Treasury that it needs to do a better job?

There is a range of things we could do. The guidance, if we update it, will be for everybody. Of course—

Could it include No. 10?

Um, and as I have said already, we have had very good co-operation from the OBR. The OBR board has taken it very seriously and we will provide specific training to the OBR. We could do something general and we could do something specific, as we have done with other Departments in the past. I am also happy to update the Committee on the work we have done with the OBR and the very detailed and granular assessment we did of the market, second by second, minute by minute, in light of the disclosures, so that we could satisfy ourselves that trading had been orderly.

Were you satisfied that trading was orderly?

We were satisfied that once the disclosure happened after 11.35—after the first download, it was available in various media channels—it took a few minutes for the market to digest it. At around 11.40, we saw some buying interest in gilts, responding to probably the executive summary of the economic and fiscal outlook. That turned a little bit around 11.47, and then as the Chancellor got up to make her statement, the markets settled and orderliness resumed through the course of the afternoon. During that period, between the download of economic and fiscal outlook and the Budget statement, liquidity did diminish because I think there was so much trading, but we have not identified anything that suggests that there was insider dealing or anything like that.

Everyone knew at the same time because it was out there?

Exactly.

What about the article in the Financial Times on 13 November? Have you done any analysis of the impact of that before a correction or a position was released by the Government to suggest differently? This was about the removal of the potential increase in income tax.

What we have done with respect to the OBR situation was because there was disclosure of an entire document.

Also, you had a very clear source for that.

We had specific times, and they are all laid out in the OBR’s report, right down to the minutes of different actions. We are the oversight body for the gilts market in the UK. We gather data from futures markets, which are some of the most accessible, tradeable markets, to assess what is happening. We can also cross-reference that with other sources of data We focused on the OBR issue because it was the most acute. It is always open to us to look more closely at other incidents. However, at this point we have not identified trading that would meet the definition of insider dealing or market manipulation.

Thank you for what you have said. It seems to me that you are saying that if the outcome of inquiries is that it is a cock-up rather than a conspiracy, and nobody made money out of it wilfully, then nothing is going to happen. Is that a reasonable summary?

We have dealt with these situations under successive Governments over a number of years when there have been disorderly disclosures of market-sensitive information, or allegedly so. It does not mean that we will do nothing. We obviously have the ability to take action if it is incredibly serious, and that is always available to us. But at the heart of this is making sure the culture, systems and controls in bodies are in the right place.

I think that people would understand the difference between market actors getting personal or institutional financial gain, and the leaking or briefing of information that moved the markets. But if you step back and look at what this says about the UK, this was a massive failure collectively. The head of the OBR resigned over what I would say is the narrow issue of the premature uploading of the document, but clearly the dynamic that everyone can understand between the Treasury and the OBR was unusual in the run-up to the fiscal event. We surely risk a situation where the Treasury does a review, the OBR essentially reviews what happened as well, the FCA waits on the outcome of the Treasury review, and nobody is held accountable and responsible for what was quite a significantly bad event that does not reflect well on UK plc. Do you not think that we ought to be doing something with a bit more clarity about what actually happened? It might be that nobody gained financially from it, but it was clearly a pretty disorderly goings-on.

The point I made in my letter to the Chair said what our remit was. We will obviously deliver our work within our remit. I understand the points you are raising and the broader issues you are talking about, Mr Glen. The point I made was about the manner in which these communications happen and the institutional dynamics. The institutions involved are accountable to Parliament and to this Committee. My point was that it is ultimately about parliamentary accountability and on some of the points that are being raised with us, clearly the Committee has a range of choices available to it—

You are encouraging us to come up with a view of how it all worked and make recommendations. Is that what you are saying?

I would not suggest that it is my job to encourage you to do anything.

We do not need encouragement.

I am just trying to explain what our role is and, of course, it is important that we do not step into something that is properly the role of Parliament and its Committees.

Mr Rathi, you mentioned that you were considering updating the FCA’s guidance to public bodies in light of the events of the last few weeks. Are there particular sections of that guidance that you think need reinforcement? Secondly, in your letter to the Committee, you mentioned providing training. Is this training mandatory?

The training is not mandatory, although clearly we welcome the fact that the OBR has agreed to accept our offer of training. We think that the guidance from a number of years ago may merit reviewing because of digital communications—the pace with which information can now be disseminated. One particular issue that I think we would want to reflect on is the decision that was taken, once the economic and fiscal outlook was out there and had been published in various media channels, for it to have been withdrawn from the website. We could look at that as a case study. It is hard to predict every single case study but, generally speaking, our feeling would be once something is out there and it is accurate it may be better to leave it out there rather than try to withdraw it prematurely. If it was inaccurate, that would be something else.

That is where your guidance is going?

That is one aspect we will look at—learning from what happened in recent weeks, yes.

To sum up on this, if I was a company secretary of a listed company in some merger and acquisition situation, I would have to communicate anything about that at specific times, with specific levels of clarity, in a predictable way: the announcements have to be made before the market opens and so on. These are well understood rules in that context and in the context of things such as company results and so on. Here we have something of a much higher level of materiality—tax decisions and so on. Are you satisfied, stepping back, given the market-sensitive nature of the information concerned, that what has happened over the last few months is satisfactory, or do you think there are gaps that need to be plugged from a legislative and regulatory point of view, Mr Rathi?

We would want any market-sensitive inside information to be disclosed in an orderly manner. But it is also not our job to step into what is vigorous and contentious political discourse. That happens here in the United Kingdom. You could also look at the range of announcements in the United States over the last year around trade policy, economic policy and interest rate policy that have been hugely consequential for markets not just in the United States but around the world. I do not believe our colleagues in the US markets’ regulators are seeking to intervene in those because that is the nature of political debate and political discourse.

They are announcements to the whole world, not leaks to individual journalists.

I would imagine that there is a range of ways in which conjecture and announcements are made public in jurisdictions around the world. That is why we focus on the orderliness of disclosures. Clearly, if there have been leaks of inside information, we would want to look at them and we would take the situation seriously. But I do not think we would be suggesting you have to tighten up legislation or regulation here. It is about all bodies, public or private, having the right systems, controls and culture in place to protect information appropriately.

Mr Alder, as Chair of the FCA, do you want to add anything?

Nikhil made an important point, which is that you would imagine and expect that we would discuss internally what our remit is in this situation. We can see the broader political context but, as Nikhil said, it is fundamentally not our role to make judgments on political discourse, even though it may have an impact on markets. That must be correct. One of the series of incidents around this is to do with apparent leaks, which the Treasury is now looking into. Clearly, those leaks led to—the context is to an FT article. I think it was on 13 November. We have interacted with the Treasury to get an idea of what they are doing, but more particularly what the outcome of that inquiry might look like, and then whether or not that will have an impact on our remit. It may well go to the point that Nikhil raised, which is whether there might be something that we can do about the controls and behaviours around information security in these sensitive situations. The fundamental point is that when a Government publicly communicates its position in advance of a Budget, that is properly a matter for Parliament through its accountability mechanisms.

It comes back to us.

The point is, surely, that if somebody leaks or briefs some information that materially moves the market, while they might not personally gain they have changed market conditions against the rule of the game, which is that you make those decisions known properly to Parliament on Budget day. If nobody is accountable and there are no sanctions for anyone in the markets or anywhere, then we look pretty weak, don’t we?

It is a slippery slope given our remit, and given how we prioritise the action we take around investigations, which, particularly in the context of market abuse, is fundamentally around market participants either insider dealing or otherwise for personal gain. That is effectively what it boils down to as a priority. I think there is a difference between that and what we were referring to earlier on, which is a political context that, as Nikhil said, can often move markets. As I said earlier, there was one aspect of this that I think everybody concerned believes was far from ideal, which was the leaks. That is being looked at and we will look at the outcome of that inquiry.

We obviously have a responsibility here, too. We, as a Committee, are not going to let this one slide past us. We are still on topical issues. We want to touch on motor finance, and Bobby Dean will lead off on this.

Mr Rathi, you will have received a wide range of feedback about the proposed redress scheme for motor finance. Could you summarise the feedback you have had from financial firms, consumer groups, and where the FCA is?

I would reinforce that the central issue here is that the Supreme Court and the High Court have ruled that liabilities exist, and we believe a redress scheme is the best way to address those liabilities in the most efficient and prompt manner to ensure that lenders who have broken the law or the rules compensate their customers promptly and appropriately. It is important to reinforce that. The reason I say that is that some of the representations that we receive are trying perhaps to suggest that the legal position is not as clear as we think it is. That is our focus. We have had a very wide range of responses, over 1,000, to our consultation, which closed last week, including from over 800 individual consumers responding with their views, which we welcome. We have teams looking in very considerable detail at all the feedback we have received. We really appreciate the effort that all sides of this debate have put into giving us that feedback. As you might expect, we see a range of views, and we are open to considering that range of views. Where there is good, strong evidence that might persuade us to adjust what we have proposed so that we get to a fair, proportionate scheme, we will consider that evidence. We have had a lot of evidence around some of the operational aspects of the scheme, how we can better prevent fraud, how we could make the scheme simpler and easier to deliver, perhaps reduce the number of communications with consumers to reduce some of the costs involved and enable a smoother interaction. We are looking at all those things and we are quite open to thinking about how we could improve the proposals. That includes making sure that we are proportionate when it comes to smaller firms, which do not always have the infrastructure that some of the large firms have to implement a redress scheme at scale. We have received feedback on some of the questions around whether there had or had not been adequate disclosure, and obviously the liability rests on whether disclosure had been appropriate and in line with the law. In particular, we have been looking at some of the evidence that has been provided about some of the lenders who serve motor manufacturers and their sales of new cars, so-called captive lenders. Some have been giving us quite detailed evidence that suggests there had been disclosure of the relationship, which is something we are going to consider quite carefully as well. Those are some examples. Also, various points have been made to us around anomalies, and in anything of this scale—we are trying to do something for potentially 14 million agreements—judgments in the round will always have to be made but that might bring out one or two anomalies. We are looking at what we can do around some of those; for example, cases where 0% interest was charged. We are hearing arguments that actually there is no case for compensation in those cases. We are looking closely at that as well. Those are some of the examples I can share with you.

Thank you. Can I go to a specific bit of feedback about the methodology for redress, and in particular the 17% APR adjustment proposal? Is it correct when people assert that this proposal came about based on a sample of the years 2019 to 2021?

We have set out the methodology, including the independent statistical analysis that we commissioned, including from academics, and we felt that was a robust sampling mechanism to seek to establish what the appropriate difference would be.

Is it as Mr Dean described?

That is one aspect of the methodology. I think where you are going with your question is that we have had feedback, including from consumer representatives who would like to go back further. Of course, we have had feedback from the firms’ side saying something different, and we have had a lot of economic consultancies give us evidence.

Could you respond specifically to two elements of feedback about that sample date? One is that that was a period where DCAs were generally in decline because the FCA had already made some indications about there being problems in that area. Secondly, that period includes the covid years. Could you respond to criticism of that being a good sample to use, considering that you are saying that a redress scheme needs to go back to 2007?

I would be reluctant today, given that the consultation closed at 5 pm on Friday, to respond to every single point that has been raised with us. I recognise that you are very well briefed on one particular angle that is being pursued by some of the consumer law firms. We will look very carefully at what they have suggested to us and at some of the methodological points that they are making. We put the consultation out in considerable detail so we could have an open consultation, and we drew on independent statistical support as we did that, and we will consider the feedback that comes through. What we asked for, and we asked for this throughout the consultation and in the statements we made as the consultation was running, is where respondents have given us feedback saying that they believe that we have not done something quite right, we have invited them to give us alternatives, because one way or another we have to figure this out. “While you might say this or that does not work, what is your alternative?” That is the point that I would make to the consumer law firms but also to the lenders, who have been very focused on things they don’t like. They also need to help us to find solutions if that is the case.

I will ask one final broader question rather than get into the specifics. Because you have a specific figure that is one size fits all, would the application of that methodology not let the worst offenders off the hook, the people who are going to be the most divergent from that 17% figure?

We were very open about that in the consultation. There are different categories where we have proposed different types of redress. For the very high commission, it is commission plus interest back, and we think that is the right thing to do. We have proposed the hybrid methodology as a generalised methodology for most of the other arrangements, subject to some technical details. There is a choice for us here between simplicity and operational complexity. When you are doing something at this scale, and we are talking millions, potentially tens of millions, every time you add in a new adjustment, a new exemption, a new calculation approach, a new specificity for every single agreement—and remember that this is going all the way back to 2007—that brings complexity and cost and will impact the speed and pace of redress. I would accept that that methodology is not going to be absolutely perfect for everybody. Consumers will always have the right to go to court if they wish to get their case specifically examined, with all the evidence from both sides. But in doing a scheme of this scale, we have to make some judgments.

I don’t believe your question is insider information, so I don’t think it engages our market abuse regime, although you may think differently. I am not sure I would agree with the premise of your question that the courts are always awarding full redress because I am not sure what you mean by full redress. One of the challenges we had, and one of the reasons we intervened at the start of 2024, was that there were thousands of cases in county courts and they were disagreeing with each other. Some were awarding larger amounts; some were awarding smaller amounts. They were using different methodologies. It went into the High Court, the Court of Appeal, and ultimately the Supreme Court. Broadly speaking, most of these cases are now on hold, waiting, I think, for the next steps that we will set out. The Supreme Court said that there is a range of factors. The High Court also confirmed that non-disclosure was an issue and that we will need to take account not just of the commission plus interest but the other issues that we have to consider under legislation, including estimates of loss or harm, and that is what we are trying to do.

You raise an important point, and that is a feature of the representations that we have received from consumer bodies in the consultation. We are going to take an independent, fair and proportionate approach. That is our job, and I do believe this Committee also can assist us as an objective body, helping to balance all the different interests here. That is why I said in my last appearance before the Committee that we would like to work with you to garner your support for our work here, because we think all this is important to make sure that the public do have confidence in any scheme that comes forward. We have proposed that this is a scheme that firms will lead in operationalising, because they have the data and the systems, they ultimately have to pay the compensation, and therefore they will be able to get the money out promptly.

We have proposed a scheme where firms must contact consumers who are affected and give them the necessary information. Furthermore, in the scheme that we have proposed—and we are listening to the feedback around it—if you are concerned that a lender has not complied with the rules of the redress scheme, once we finalise those in the coming months, you will have the ability to ask the Financial Ombudsman Service to look at your case free of charge. That is another point I would make: free of charge. You do not need to use a claims management company or a law firm that might take a percentage of any compensation you are owed. The scheme we are putting in place is free. The access to the Financial Ombudsman Service will be free, including for the cohorts of consumer that you have described, Dame Siobhain.

Thank you, Dame Siobhain, for your interest in this topic and congratulations on your campaign in Mitcham and Morden. The way you ran that campaign I think has become a matter of legend. I think you took LINK on a bus to measure the average time it takes to get to a cash machine and persuaded them to change their assessment outcome, and that highlights an important point. LINK makes an assessment; it has done 1,300 assessments since the access to cash regime came in place. One in five have led to recommendations of some sort. Interested parties, including Members of Parliament, have the ability to appeal, as you did, within 28 days of that assessment if you feel that it is not reflecting what is happening in your constituency or your community, and in a few cases, like in your case, they have made adjustments. We now have the 200th banking hub opening later this week in Billericay, and the Government set a target for 350. The legislation asked us to focus on access to cash. The debate around in-person banking services, and other things, was debated quite extensively and Parliament settled on a position. That is the regime that we are implementing. We are going to review how that regime is working in quarter 4 next year and publish that in the middle of 2027. Regarding the broader point you are making around what customers want, it is interesting how the commercial decisions are starting to change. You are starting to see more of the major financial institutions seeking to make a virtue of the fact that they are going to keep branches open for a certain period. That is a shift from where we have been since 2014.

Can you name them? We are thinking Nationwide.

HSBC has made an announcement recently. I am always nervous about naming specific firms because there are a load of smaller institutions. A couple of weeks ago we were in Rochdale as a team and mutuals are very present in their communities and offering more services. When I was there, the Newcastle and Manchester Building Society had just opened a branch in central Manchester to provide services, including on a weekend, to a community that was otherwise not getting access. I would underline that it is not just the big institutions.

We are mindful of that. At the same time, we must remain within the remit that Parliament set for us around what the definition of access to cash was. It was intensively debated here. There were more amendments on this topic in that particular piece of legislation than on any other topic. The settled position was that there can be a range of ways that access to cash can be provided.

That was debated and it will depend on the circumstances. Sometimes it is a post office counter, sometimes it is a banking hub, or a branch, or a deposit solution for small businesses. There is a range of different solutions, which is why LINK has been asked to do a detailed community-based assessment in each case. In some areas, for example, particularly rural areas—I visited Cornwall and Northern Ireland.

I enjoy getting out and about, but nothing is more enjoyable than coming here. We have heard there are very specific issues around rurality, which sometimes require solutions that go beyond in-person solutions because, particularly for vulnerable customers who are not able to get out of their homes easily, the in-person is not going to solve their issue on its own. That is why there is a range of things that you have to look at.

It sounds like we need to get the Economic Secretary and another campaign from Dame Siobhain is obviously under way. Before we go to John Grady and funeral expenses, I just want to highlight to anyone watching that as a Committee we do not take up any individual cases. That is not our remit. We cannot help with individual cases. We are here to look at the wider picture.

Mr Rathi, the Government’s financial inclusion strategy emphasises the importance of trust in financial services for vulnerable consumers, and it will go nowhere unless that trust is enhanced. There are many people in Britain who have paid thousands of pounds for funeral protection plans that have been withdrawn by Maiden Life, leaving those vulnerable consumers absolutely petrified about how their families will pay for funerals. In working-class communities, as you see in my constituency, the fear of a pauper’s funeral is something that runs very deep. There are many people in Britain who are heartbroken by this. Many consumers have paid out much more than the sum covered by the insurance. Does this meet the value for money criteria of a consumer duty?

I will pass that to Sarah to answer.

We do recognise the importance of financial inclusion and are very happy to be part of the Government’s Financial Inclusion Committee. As you say, consumers rely on protection in the event of a funeral or other need for expenses. The situation that you are talking about here, the renewable insurance product offered by Cmutual, was not a regulated funeral plan. It was a group life insurance product that was removed from the market in 2009 but continues to be offered through credit unions to their members. As a group life insurance product, it could be withdrawn at 30 days’ notice and there was no cash element, so in the event that it was cancelled there was no cash payout. In this situation, Maiden Life, the underwriter, has withdrawn the underwriting for that product. Maiden Life told Cmutual back in 2024 of its intention to do so as part of a broader strategic review of its offerings. Our focus here is twofold: first, to make sure that the individuals impacted have good, clear communications by their credit unions; and secondly, while this is a commercial decision to withdraw a product that could be withdrawn at 30 days’ notice, we are supportive of any commercial attempts to offer alternative protection or products. There is an alternative cover that has been sought for those who are under 70 that will be available from next year, but you are quite right that there is a group of people who are older than that, for whom no alternative cover has been identified at the moment.

There are very many people who bought this product with the understanding that it would pay out no matter when they died. I wonder whether that engages a breach of a consumer duty from a point of view of the nature of the communications to those consumers. Those are vulnerable consumers and they have not understood, on one view, the product that they have been sold, which must suggest an element of appalling communication.

Whilst Maiden Life have offered the product, they have paid out the majority of claims—over 90% of those claims made have been paid out while the product was underwritten. We are looking at whether there has been any breach of our regulation. I cannot go into greater detail today but am more than happy to keep you updated. That is a different issue to the second issue—how your constituents can be supported in circumstances where, as I understand it at the moment, there will be an alternative for those who are under 70, but for those over 70 that will be a commercial decision. We are happy to be a part of those discussions if there are any concerns around regulatory issues going forward.

My understanding of a consumer duty, Ms Pritchard, is that firms have to tailor their communications to the consumer characteristics. Is that something you are looking at here, and the FCA is paying wider attention to at the moment?

Absolutely. Consumer understanding is a central part of our consumer duty that, as you know, sets our landmark consumer protection regime. We would expect firms to be communicating, regardless of the situation, in a simple, understandable way with vulnerable consumers. In particular in this case, we would look to make sure that people are understanding from their credit unions—there are 71 credit unions affected—that they have good communications and that they understand the situation.

Is it something you are looking at from the point of view of an investigation as to whether that requirement has been met in the overall marketing of this product?

As I said, we will be looking back at whether there have been any regulatory breaches. As it was a product that could be withdrawn at 30 days’ notice, the decision to remove it was a commercial one. Yes, we will look at whether there has been any breach of our regulation.

When will you have any answers on this? What is the timeframe?

I am happy to keep you updated.

If you could write to us that would be very helpful, because, as Mr Grady said, a lot of people are affected. We set up today’s session to talk about growth and, as ever, we have spent a lot of time talking about topical issues. Mr Rathi, you recently wrote to the Prime Minister on 10 December highlighting what progress you had made on the 50 growth measures that you set out in January in your response to the Treasury’s letter of about this time last year. In that year, it is an opportunity for us, off the back of your letter, to probe you on how all that is going.

Mr Rathi, at the end of your letter to the Prime Minister and Chancellor on your update regarding your approach to growth, you mention a couple of things that may be helpful for the Government to provide. You write that faster legislation would help us maintain the pace for reform; for example, the much-needed modernisation of the Consumer Credit Act. Has legislation been proceeding at a slower pace than you expected?

I am really glad that we are able to talk about this issue. As you said, Chair, the Prime Minister wrote to me and other regulators at midday on Christmas Eve last year, so we will wait and see what happens next week. We have tried to get ahead of it this year by talking about what we have been doing and what we are planning next year. I saw some of the Liaison Committee yesterday, and a big emphasis has been pace. We can see in the OBR’s productivity estimates and the economic and fiscal outlook just how significant some of the issues are that we are facing. We, as the largest economic regulator in the United Kingdom, entirely realise the role we have to play in leaning in and addressing what we can and playing a leadership role in what we can. We have been moving at pace, and you can see that in everything we have done this year and are continuing to do, including this week. We are dependent on a number of others in the system, including the Treasury and Parliament, for a number of things. I talked about this last time: whether it is the Consumer Credit Act, digital ID, buy-now-pay-later, or some of the transition from the EU acquis into our domestic acquis, these things can run for years and years in a market that is moving very fast. We all need to collectively look at whether we can move faster.

Has that impetus to move faster not been met so far?

I hope that you can see that we are really moving as fast as we can, whether that is on mortgages or wholesale market reforms. What we have seen in the debate on our political economy has been a lot of focus on what our regulators should do, and I understand that. We are seeking to lead and lean in. Pace and timetables, perhaps even statutory timetables for where the Treasury may be able to move quicker, may be no bad thing, because we often have to wait.

So, you are often waiting for the Treasury to act on these issues?

Whether it is the Treasury or the Government more broadly or, I say respectfully, Parliament as well, in terms of the time it takes for measures to make their way through the obviously entirely appropriate democratic process. As far back as 2017 we were talking about reform of the Consumer Credit Act. An announcement was made by the Treasury in 2022 that it was going to be reviewed. We are now about to go into 2026. Mr Dean and Dame Siobhain asked me about motor finance. At the heart of that issue are some of the provisions in the Consumer Credit Act and the way in which that is framed for a market that existed many years ago. If we are going to try to get ahead of these issues in the future and move into a more digitalised environment, we need to address some of that underlying statute.

Mr Alder, when we spoke to you in March we asked about the aggregate impact of all these different measures. There are 50 pro-growth measures that the FCA set out, and you have been very busy coming forth on all those different areas. In aggregate, we wanted to get a sense of how much growth impact there could be. In March you said it was too early to put any numbers on this. Has the FCA done any modelling or quantitative estimates of the total impact on growth since then?

It is very difficult to precisely determine what the growth impact might be around the collection of measures that we are pursuing. I don’t think that is the point at this stage. In our five-year strategy that we published in March we set out two sorts of metrics: activity, which people tend to be more comfortable with because they are easier to measure, things like speeds of authorisations and similar; and, more importantly, outcome metrics under each of our headings. What we have discussed very recently within the board and with the executive is the degree to which the organisation is able to measure progress against those outcome measures. That goes directly to things like, for example, the competitiveness of the UK financial services sector measured internationally. At the moment, what we are looking at is developing some leading indicators that would give us a much better fix on how that is going and how that is likely to go in the future. That is what we are doing. As you have asked the question, I have totted up what we have been doing in very recent weeks, within the last week, in relation to speed. On 8 December, we set out our final rules on consumer composite investments. That was a really major change around the way that consumers interact with financial services around communications. We set out final rules on targeted support on 11 December. On 15 December we came out with our proposals and a way forward on mortgages. Yesterday there was an announcement around the legislation on crypto and a regime. It is massively active at the moment. The point I wanted to make was that there is a huge amount in train at the moment around the whole topic. Landing this operationally so far as the industry is concerned—the industry getting their arms around all this—and for us is going to be the challenge for next year. I am confident that we can do it, but there is a lot coming downstream. Implementation and operationalisation can achieve the underlying purpose. The final thing I would say around this is that, as has been mentioned previously, the consumer duty and the way we operate our gateway is going to have to do some quite heavy lifting in this context when it comes to a question that was raised right at the beginning of this Parliament, which was: what are the trade-offs and what is the relationship between consumer protection and the growth agenda?

Just on that point, Mr Rathi, I wanted to pick up on the mortgage announcements that you made yesterday in terms of making mortgages more accessible to first-time buyers. You were very clear when you spoke to us in September about the trade-off between relaxing affordability, which might improve circumstances for young people like my brother, for example, who are trying to get on the housing ladder right now, and then on the other hand the small number of people who might be more likely to fall into distress situations and be vulnerable to interest rate increases in the future. In terms of your most recent changes to mortgage accessibility and affordability requirements, have you made a quantitative estimate of how many more first-time buyers this will help on to the market versus how many people might then fall into mortgage distress?

To your earlier question, the discussion paper we published this week, annex 2, sets out in detail how we see the transmission channel between the changes we are making, or discussing, on mortgages and growth. Whether that is giving confidence to house builders and developers to start new projects because they know the financing will be there for their potential customers, to enabling mobility, to enabling consumers to live their lives more effectively, to supporting competition innovation in the mortgage market, it is hard to get very precise point GDP estimates of what impact that has. This is all about the system as a whole. We have made significant changes this year. In February, changing our supervisory statement has already had an impact. We saw 85% of the market respond pretty quickly to that. The average availability of credit went up by around £30,000. We still think that is with appropriate guardrails. We are seeing a higher portion of higher loan to income mortgages than may have been the case previously, given some of the work we have done with the Bank of England and the PRA. We have also made remortgaging easier. We are seeing first-time buyer approvals up significantly, year on year. The changes we are discussing now are: do we want to go further? Society has transformed dramatically in the last 15 to 20 years. Our labour market has changed dramatically, we have more self-employed people, and we see younger self-employed people are more likely to rent. We are looking at ways in which rental evidence can complement affordability assessments. We are opening up the discussion into interest only. Could you start with part and part interest only—part interest only, part repayment—to enable some people to get on to the ladder and then, as their income improves over their working life, they can move to a traditional mortgage repayment product? We also want to get into and really embrace the question of later life lending. On some estimates, we have tens of billions, hundreds of billions, of wealth locked in housing when people retire. They may not rely on the defined benefit pensions that were available 20 years ago. They have defined contribution pensions that may not give them the living standards they want, and if they cannot unlock their housing wealth in a sensible, careful way, they will not get the living standards they want in retirement. It is hard for me to give you an absolute estimate as to what may go wrong, because it depends on interest rates, which I am not able to predict. What we can do is give you some sense of scenarios over different cycles. What we are seeing at the moment—and we have much better data, we have the consumer duty and rigorous supervision around this—is arrears remain fairly low. The conduct has improved in this market, and it is important for us to respond to that and respond to the societal shifts.

I appreciate that it is difficult to give estimates of the future, and the MPC cannot do that either. The thing I wanted to get at is whether, in your own minds, there is a trade-off between tolerable harm and the amount of people who might be helped. Would that trade-off help guide the way that you see regulation in this market?

There is a choice. For example, UK Finance put estimates out along the lines of for every 100 additional mortgages you might, in certain scenarios, see 0.5 to 1, over its lifetime, fall into some distress or difficulty. It could be higher in other scenarios, but that is the analysis we need to consider. That is why, before we started this—being able to explain this and engage with the Committee on this is so important. We are moving fast, we are moving some quite bold and radical changes, but we want to do that in an open way so that we are all going into this with our eyes open as to what the risks may be, including to yours and your colleagues’ constituents in coming years. The benefit to tens, if not hundreds, of thousands of first-time buyers and retirees is being able to live their lives differently and being able to move quicker. We should not forget about those benefits and focus on only those that may, sadly, fall into distress.

How much do you factor in financial inclusion as one of your key drivers of growth? WPI Economics and Fair4All Finance have found that increasing access to credit, savings and insurance could add £6.5 billion to UK GDP. I know you said you are part of the Financial Inclusion Committee. Do you think about that financial inclusion agenda as a growth driver as well as being something that is good in itself?

Absolutely. When I spoke at StepChange in Leeds last year, I did a speech specifically on how financial inclusion contributes to growth and that resilience of consumers. The ability to access savings and products is fundamental for them navigating their financial lives effectively. We must also think about financial inclusion in the context of digital inclusion, because that hugely impacts the extent to which vulnerable consumers are included as well. Sarah has been involved with the Financial Inclusion Committee.

I would just add that Ashley and Nikhil talked about the importance of our metrics that we track under our strategy. One of the metrics that we track under helping consumers navigate their financial lives is an increase in product holdings held by consumers, and we are looking at consumers in the round, so day-to-day accounts; pensions in accumulation; general insurance and any savings account. Through the focus of all our consumer duty work, which we have been embedding hard over the last few years, we have been looking at two firms to show us what they have been doing in terms of data and monitoring. One of the first pieces of work that we did in terms of good practice/poor practice was also looking at vulnerability and how firms are treating vulnerable customers. Yes, it is for those reasons that tracking access to particular products is one of our metrics under our strategy.

Are you able to attach economic value to the outcomes that you are able to track through those metrics?

It is a much broader and more difficult question to track the direct impacts between regulation and growth, but what we do talk about, and we talk about this internally to our colleagues, is the importance of looking at our strategy in the round. We fundamentally believe that a growing economy will benefit consumers. We talk about wanting to help consumers navigate their financial lives, recognising that people’s needs are different and are different now compared to in the past and at different periods in their life. We do believe that for financial inclusion, consumer access to products will help drive growth, but that direct correlation between regulation and growth, in terms of an evidence base, is difficult to demonstrate.

In your letter about next year, you talked about open finance, and I appreciate you said you will set out your plan later on, but I would like to ask you when we can expect to see more news on open finance and what it could include.

I had good news for you at 10 o’clock this morning; we have published something.

You were here so we have not seen anything. You can tell us then.

We can update you live on the latest steps here.

I can give you that good news. You will have seen this morning that there was an announcement that before the end of 2025, which is obviously weeks away, the UK Payments Initiative, the new company formed by 31 firms to enable variable recurring payments, will be up and running, and we are hoping that will see the beginning of variable recurring payments in the first quarter of 2026.

Would you explain that to people who might not be on top of what that means in basic English rather than finance English?

They are more flexible recurring payments that enable consumers to make bill payments, such as utilities, on a different basis to direct debits. The world has shifted. The way that people are paid has shifted. There are many people who are self-employed or work through the gig economy. This should be a particular benefit to those consumers, and we are really pleased to see that this company that has been formed by the 31 providers is now set up and running and has set a commitment to deliver those first payments in the first quarter of next year.

I would also make a connection between what Mr Dickson and Ms Yang asked and your question, which is open banking could be hugely beneficial to enabling more people, including from underserved groups, to access mortgage and credit, because you are able to use tools to scan their financial backgrounds. It may be that even if there has been some adverse credit, which in today’s system would count against you, you could look at other sources of evidence that gives them access to credit or smaller amounts of money, and for SMEs as well. That is part of the announcements we made on mortgages. These things will all join up and we want to make sure the system is focusing, and it will.

Do you have any worries about leaks? We have talked about leaks and the integrity of data, because there is that other concern that with open banking you have a lot more people who can potentially see your intimate financial information.

Yes, it is a concern.

How are you watching that? As a regulator, what safeguards have you put in place?

Operation and cyber resilience are fundamental. The nature of the threats we are dealing with is more complicated and heterogeneous than in the past. That all needs to be invested in. At the same time, some of these infrastructures, and legacy infrastructures, can offer better protection. It is not all a one-way discussion. Mr Walls is going to talk a little bit about the work we are doing with specific and operational resilience in cyber.

Yes, I am happy to. The question was particularly focused on open banking, and it clearly is core that people have trust that the information they have shared can only be accessed by the right people. Would you like me to talk to operational resilience more broadly?

Yes, because if people do not have confidence in that, there is an impact on the growth agenda.

The point is very clear that it is integral that for open banking to work people need to trust that they can provide that data to others in a secure fashion.

Are you confident that you have the measures in place to oversee the sector?

It is integral to the design, and we need to make sure that both we and the systems, and any third parties involved—it is fundamental to that regime. It is the main area that we focus on.

If one firm had a risk, presumably they are required to alert you to that very quickly under the normal regime you have. Are there any other safeguards you have added in? If one failure happens in this area, that destroys confidence in the whole open banking system, doesn’t it?

There are customer consent mechanisms as well, and I know that this Committee has taken an interest in this. We would like to see a prompt activation of the critical third parties regime so we, the Bank of England and PRA can properly oversee some of the significant third party infrastructures that major financial services now rely on. I know you have an inquiry on AI and financial services under way. The rapid evolution of AI is causing us all to think and rethink some of the paradigms of regulation, including how customer consent might work in a world where technology is changing. That is before we even start talking about quantum.

The customer consent can be a quick pop-up. I am not sure that everybody is actually alert to what they are opening themselves up to.

It can appear in many forms. Increasingly, customer consent can now be overridden with new forms of technology, and with quantum cryptography authentication can potentially be overridden as well. That is why we are doing a very dedicated piece of work on the future of consumer protection in a rapidly evolving AI landscape, so we can think about how our regime, particularly the consumer duty, can match what is happening technologically.

You mentioned third parties. It made me think about the potential bottleneck for growth in this space of open finance and open banking, because of Apple and Google’s control of mobile phone technologies, near face NFCs and the App Store. Is that something the Government need to tackle around the regulatory issue with Apple and Android’s particular control over the mobile phone market?

We did a detailed piece of work last year on digital wallets, and we highlighted that as an area that we are monitoring closely. The EU has done some work in this area, and the CMA has considered these issues as well. There is a tension here because there is potentially huge convenience to customers, as well as some of the risks that you describe. To the point I made earlier about some of the paradigms of regulation that you have to think about, sometimes you are seeing huge network effects that also offer benefits and convenience as well as some of the risks you describe. We are going to have to think about how we navigate those. I cannot promise you right now that we have all the answers to it; it is moving so fast.

You are quite right to say that at the moment financial advice comes at a cost, and fewer than one in 10 people receive regulated financial advice. We know that, alongside that, 7 million people have over £10,000 of investible assets in cash. More than half of them say they have not thought about investing, and when you ask them why, they say they need greater help, support and guidance in making decisions. That is exactly why, just last week, we set out quite radical proposals for a brand-new regulated offering, called targeted support, that would enable firms that would be specifically authorised by us to make suggestions to groups of consumers based upon something that will be suitable for a group of consumers, rather than suitable for an individual consumer. An example of that is somebody who may have a significant amount of cash sitting in their bank account. Our data shows that people do not understand the risk that that cash erodes in value over time. A firm might say, currently, under the rules, “Have you thought about investing?” but cannot go any further. Under the new regulated framework for targeted support, a firm would be able to ask some basic questions and make a recommendation of a specific product that might put that consumer, alongside a group of consumers, in a better position than if they do not act. Another example is they could be in an expensive ISA fund and the bank would be able to suggest one that comes at a lower cost. Fundamentally, that is about enabling consumers to have greater confidence to invest in the mainstream. We do see consumers jump from cash to crypto, and Ashley talked last week about the package of reforms that we have been working on. We talk about wanting to see a greater culture of retail investment in the UK. Critically, it is about making sure that consumers can make informed decisions, supported by good quality information. The other work that we did—consumer composite investments was the name of our rule set, but that is about jargon-free disclosure to consumers rather than the pages and pages that you get at the moment, helping consumers making good decisions.

Targeted support is not yet live. We hope that it will come into force in April. It is dependent upon a statutory instrument that the Treasury has now laid out. We are getting ready. We opened a pre-application support service back in August so that we could be ready quickly when firms are able to be authorised by us, when that statutory instrument goes live. I hope that some consumers will start to see some targeted support offerings in April.

I want to turn to international competitiveness. The first thing I would observe from all the different conversations I have had with the stakeholders I got to know when I was Economic Secretary is that they say quite a lot of progress has been made in terms of what you have done with authorisations, and simplification of guidance. That is very welcome. What I want to turn to is the obligation you have on international competitiveness in a world that is changing rapidly. We saw yesterday the op-ed in the FT and Ana Botín from Santander talking about the consensus that exists to reduce regulation, and obviously what is happening with the Basel 3.1 endgame in the US. Could you explain how you are reacting to the fact that the world is changing rapidly? If UK financial services is going to be truly competitive in that rapidly changing world, we are going to have to move even more quickly. How would you respond to that?

Two of the metrics in the strategy we published in March this year go right to that international competitiveness dimension that you have mentioned. First, we are tracking the position of the United Kingdom, specifically the financial centres—London, Edinburgh, Glasgow—in the international indices. Last year we narrowed the gap to one point on New York and we are second. The factors that go into that assessment are much broader than regulation. They are tax, skills, infrastructure. There is a whole set of issues that contribute to that. Our work and strategy is one part of a broader UK strategy. Secondly, we are monitoring the level of exports. We have about £26.4 billion of financial services exports that contributes a very significant part of the services trade surplus of the UK. We are watching that to make sure that we have a proportionate and accessible environment for cross-border business. So much of it is around our speed clarity service that we provide to international investors. We have talked about authorisations work. We have put somebody on the ground in Asia Pacific, a senior colleague, and that has been very well received. We are looking at that in other parts of the world as well. We are doing some work on the consumer duty to think about the international business, to make sure that we are proportionate. We also have an advantage, which is our outcomes-based regulation in the UK and our ability to move fast. If we can get our rules and legislation in sync, that gives us an opportunity to stay ahead. Mr Walls may have a bit more to say because he is right in the heart of this.

There is no doubt there is a competition on wholesale markets. We have world-leading derivative markets, debt instruments, some commodity markets, FX, the biggest market by a factor of two. We are in a competition with the established centres and many others who are seeking to come to that business. What we have shown over the last 18 months is our delivery, and Ashley outlined the whole pace of things. Many of them will still come in next year and will benefit the market for years to come. Also, our mindset: we have shown a willingness to revise rules at pace, to listen and have a tight feedback loop into changing things. We made it easier to list on equity markets and that is beginning to bear fruit in the last quarter: more listings this year than in any year since 2021, more than double the amounts raised this year than last. We made it easier to run your business when you are listed. Fifty significant transactions have happened since we changed the rules that would have required a shareholder vote but no longer do. We are making it easier to raise capital when listed. Coming in, in January, there are new prospectus rules. There is a whole range of reforms across all the asset classes and different types of execution that put us in a good shape. It shows that we are agile and willing to compete for business, but there is no complacency.

That is a very good list of things that I welcome, and some of those have been in gestation for a while. What do firms tell you that they still need you to do more rapidly that you have not done yet?

There was a whole range of feedback and we really are out there listening to firms and speaking with trade bodies. The main feedback is on the listing side; it is no longer about regulation. There are lots of other factors and, as I say, it is a global competition and we really are competing with the US and other centres, but regulation—

When you say it is no longer about regulation, are there particular things that you are hearing that they believe have changed?

On our side, talking about regulation, we had higher governance standards in the UK for listings, particularly around voting shares. Interestingly, speaking to the industry, the buy side said that they liked and valued higher governance standards; but when we looked at the market, the revealed decisions by the buy side were that they are happy to invest in other markets.

They said one thing and did another?

Yes. We understood the impact, and of course things evolve and with many growth companies now, the founder is central and wants to maintain voting influence. We made that change and it is beginning to bear fruit.

The one area I would say we probably get the most focus is the senior managers regime—how fast can we make the adjustments? We have made some adjustments. It is hard-wired into legislation, so we obviously need to wait for the Treasury to implement and for Parliament to consider the scope of individuals who are subject to that regime, because that is something that is a little bit different. We also should bear in mind that that scope, as well as our outcomes-based regulation, is what enables us to move very fast on technology. That is the other area where we hear people want us to go faster. We have set out a road map for tokenisation. The fund management industry has welcomed that. Everyone would like us to go even faster. We have tried to make sure that within the existing framework we can incorporate what needs to be done. This goes a little bit to the point where we are balancing risk, not just on the consumer side but on the wholesale side, as we allow some of these innovations in, as we experiment. We cannot guarantee there will not be bumps in the road, because we are dealing with new technology. It is important that we engage with you on the risks of innovation and it is something we think there is huge opportunity in, but there may be other things. Finally, one of the biggest pain points is data and the amount of data we collect, and the interface with us on data. We have reduced burdens for 36,000 firms. We have set out proposals around transaction reporting that we think will save tens of millions of pounds, but I would also underline—not least because of the conversation we had at the start around the gilts market—there are going to be some limits where the FCA does not want to go beyond. We need data to do our job. We need data to make sure we can ensure integrity of markets. We need oversight of our sovereign debt markets. So, some of the requests we are getting we aren’t going to meet.

You don’t need data that you do nothing with.

We don’t need data that we do nothing with, but there are some areas—for example, some hedge funds and others are asking us to please remove the requirement for them to submit data to us. We have not accepted that request. We recognise that you are talking to a lot of these trade bodies, but we have said that we are not accepting that request because it would mean that we lose oversight of 56% of some of the fixed-income markets in the United Kingdom. That would make our job of ensuring market integrity much tougher. That job that we do is for the entire system, not just one segment of the system.

You have said a few times this morning, Mr Rathi, that you are waiting on legislation. Do you think it is a good idea that each time Parliament goes back to the legislation and changes it? Would you prefer to have a wider remit so that you could be more responsive to developments?

We all need to be ready to innovate in the way that we do things: legislation, regulation, supervisory statements. One of the infrastructures that Parliament has agreed to and put in place is the digital security sandbox. That allows us and the Bank of England to experiment for up to five years. That is how we have launched the intermittent trading venue that has been approved.

This is a good answer, but I was just wondering about my specific question there. Would you prefer to have a more flexible remit rather than keep waiting for the Government to change things?

Where I was going with that was that the Treasury then has the power to waive underlying bits of legislation, if after five years it is proven to have worked, without having to go through primary legislation. That is a more flexible approach that has conventionally been accepted by Parliament as a way of making rules. That additional flexibility is an example of what we need to do, and it is also why we have very deliberately taken the decision not to make new rules for AI, but to rely on the consumer duty, senior managers regime, market integrity regime. The frontier of this technology is moving every three or six months. The legislative cycle simply cannot match that.

Three years.

Yes. When people ask for legislation on AI, look what has happened in the EU. They legislated, and just when it was about to become effective they had to pause elements of it because it was out of date. As you think about your inquiry, that is something for you to consider.

Can I get your view, Mr Rathi, on the EU and US against London and the UK? Where do you see the driver of innovation in regulation, and what is your characterisation of what you see across those different significant competitive landscapes for the UK?

We are one of the most internationally interconnected global financial services markets in the world. In the last few weeks and months we have attracted some very significant talent from the United States, Canada and Singapore to come and work at the FCA—senior colleagues who bring that international and innovation experience from other markets into our thinking and our work. The regulatory modernisation agenda, as it is now described, is taking root in the United States and increasingly in the EU. I would imagine the US G20 presidency is going to focus on this at the turn of the year. They are moving very fast and they have a mindset that I would say is to narrow the scope of regulation, but they also rely heavily on their court system and litigation. That is not the culture we have here. By contrast, the EU is seeking to embrace simplification and modernisation, but because so much is hard-coded into detailed rules it takes years even to simplify and modernise. We are somewhere in the middle on all that. That gives us some opportunity. We do sometimes face a bit of tension. If I take sustainability as an issue right now, the UK Government have a position, the UK Parliament has a position, probably more aligned with the EU, probably a bit less aligned with the US. We have some choices to make in the coming year around some of that regulation.

Tolerance of harm is a topic that obviously arouses strong reactions. You have called previously for an open and honest debate within the Government about tolerable harm and failure. We have previously discussed in sessions earlier this year the whole issue of metrics for that. Where do you think we are on that matter? It seems to me that it is perfectly reasonable, from your point of view, to get us politicians to own the outcomes that we license you to enable, but are we any clearer on what that looks like?

We have not advanced too much since we last met.

What do we need to do to advance, then?

There is a good alignment in terms of the overall direction we are going in on risk and importance of growth. There is more detailed analytical work we need to do on the actual drivers, as Ms Pritchard described. What we have asked for is, we have competitiveness and operational metrics, but could the Government think about risk metrics as well, to help us operate within a landscape that there is broad comfort with in our political system? I don’t think that has advanced too much. I will give you some examples. This touches on our work in both wholesale markets and consumer markets, so it is not a tension between the two. Financial crime and market integrity. We put out an enormous package yesterday around crypto markets, including alignment with international standards where we have been very active in shaping those standards. We can see some of the opportunities around this technology. We can see the consumer demand for it. It is also one of the highest risks on the national money laundering risk register. It is going to be very hard to deepen those markets here without also recognising that there is a risk on the other side. Those are the issues we need to articulate.

What does it mean in terms of increased risk appetite? How does somebody watching this grasp what you are saying, what it means for what you are prepared to enable?

Some of the things I have talked about, and Ms Yang talked about earlier on consumer markets, is the level of arrears and repossessions versus the number of people who get access to mortgages—first-time buyers and others. One of the metrics we used in our last strategy, which we continue to monitor, is the level of the compensation levy. It is at a 10-year low. We have brought it down. You will remember, Mr Glen, a few years ago there was a huge concern around how high it was. That is one metric for failure in the system. We don’t want to encourage failure, but we have to accept that if we loosen the gateway and allow more firms in, allow more innovation and allow consumers to do things they may not have done before, that might fall on the compensation system. Would it be acceptable if that went from £300 million to £500 million because of that overall recalibration of risk in the system? Likewise, on market abuse, market integrity and financial crime, we have a very robust approach here in the UK but some of the cross-border choices we face, for example in crypto markets, will potentially move to a regime where we are allowing in firms from jurisdictions that may not have the same market integrity and financial crime standards we have. That is done for market access and international trade reasons as part of a broader discussion. Those are all choices we need to talk about and accept those risks, if that is the direction we go in.

Dame Harriet Baldwin was late because she had an important meeting.

I had a policing matter to discuss with the Ministers. I know that you will have covered some of what I am going to ask you about, but I am going to try to elicit some new information. In terms of the Leeds Reforms, I know you have covered progress that you have made on things like the provisional licences, consumer duty, and senior managers certification review. Are there any other highlights that you want to draw to the Committee’s attention in terms of the things that the FCA is responsible for progressing from the Leeds Reforms?

One of the things discussed as part of the Leeds Reforms was a sense from some participants that the consumer duty had, in some fashion, imposed too far on wholesale markets. We are really pleased to make it clear that the consumer duty only applies where a participant has a material impact on a consumer. We have set out four things that we would do, and a really important one happened last Monday, to add to the list of things you mentioned, Ashley. Last Monday we talked about client classification, where we have sought to provide a brighter line between retail markets and professional markets, with the intent that, in this case, we have said there is a normal test and we made it less prescriptive than the one we had from the EU. We also said that if they have more than 10 million, there is a much heavier presumption that someone can be professional. We have in mind there a wholesale firm that does not intend to deal with retail customers at all, just giving them peace of mind so that we can be proportionate in the way that we oversee wholesale markets as a whole. That was an important step and I think well received.

You have completed all the workstreams that you needed to complete for the Leeds Reforms at the FCA and now you are waiting for legislation; is that correct?

I think we are on track. On the letter sent to the Prime Minister last week there was an annex. There is a section showing all the completed actions for the Leeds Reforms and the Mansion House Reforms that we have completed. There are some that will run into 2026. For example, the new regime for ESG ratings has just come into force. We put the consultations out yesterday for the crypto work. The regime itself will not come into force until 2027, in some respects. That requires legislation to be passed. We have tried to give a fairly comprehensive account of everything we have done and everything that is in train and how we are going to deliver.

Through the growth letter that we sent out in January, plus the Leeds Reforms, there are several aspects. One is: can we make sure that where there are rules involved we inform those quickly? We have talked about many examples of that today. There is also a real focus on us working differently. There is a whole bunch of reforms around differing offerings to the market—for example, the scale-up unit, the pre-application support service—that we have extended so that we can talk to people who are thinking about authorisation in particular sectors; the OfI:FS, which is the concierge service. There are many examples of new offerings to help smaller firms scale up, as well as us working differently so that we can accelerate through policy sprints and various different ways of working. There are three elements of the change that we have tried to drive this year: perform at pace; work differently; offer some different offerings. Going forward, that will remain as part of our approach to regulation.

Is the provisional licence up and running?

No, there is legislation. The Treasury is consulting on that. At the moment, the threshold conditions are in law.

It would be quite helpful to know what parts we need to go through in Parliament, in a letter afterwards.

I was going to bring that up.

Turning to the senior managers certification regime, I wanted to ask Mr Alder the following hypothetical examples. There is a senior manager in a firm who makes a public statement to the market, and it subsequently turns out that that partial statement was an incomplete picture of the state of the firm at that time. Sometime later, a selective story finds its way into the Financial Times, and the next morning someone at that firm then has to correct that story by selective briefing to selective journalists. What would you do to that senior manager if that happened in the private sector?

I can see the broader context, which we did discuss earlier. You are absolutely right, when it comes to market participants, we had a discussion earlier on about our proper remit in the context of wider political discourse, which is a phrase we used in Nikhil’s letter to the Chair. In that circumstance, with a senior manager or other, clearly we would look at the way in which our rules apply to that incident and then work out, in that context, within our remit and looking at the way in which we approach market abuse, insider dealing and similar aspects of our regime, whether or not we would take action. The point we made earlier—

Harriett has been appraised.

Essentially, I think we were saying that when we look at something similar happening in a political context, as a regulator we need to be very clear around our remit, particularly when it comes to political discourse.

If it were a private sector actor, you would have to investigate it for market abuse, would you not?

Depending on the circumstances, we could well do that.

In terms of the other matters that the FCA is responsible for progressing at the moment, I am particularly interested in the provisional licence framework and how you would deal with the situation where something went wrong for someone who had a provisional licence. Subsequently, we have quite a lot of challenger banks that have full licences and from time to time things go wrong with them. How well do you feel the system is working for those who are really trying to break into the still quite substantial oligopoly that we have in the banking sector in the UK?

We have seen increasing levels of competition and the number of current accounts that are held by the largest players has reduced as a percentage of the overall. It used to be 1% for the challengers; it is now around 8%.

Of main accounts?

There is a separate question around what is your main account and what is your secondary account. Consumer preferences tend to suggest they like to hold on to a main account at one of the larger institutions. Open banking and open finance has been an important catalyst for a range of different services and fintechs to come, also because they have been hot on the heels of some of the incumbents and they have stimulated digital innovation to offer better services to their customers. Going to the broader growth agenda here, the evidence, as Ms Pritchard has said, is mixed in terms of how regulators can influence growth. To the extent that there is strong evidence it is around innovation and innovation contributing to productivity. We have an enormous range of services for different types of firms: AI live testing, with around 31 firms now; a supercharged sandbox with Nvidia, the first regulator to do that; early and high growth oversight, with several hundred firms coming through with dedicated supervisors so they can migrate from growth to scale up more easily; innovation and digital sandboxes; and many more. That is what we are trying to do—to be as accessible and supportive as possible pending any further legislation.

The angle of my question was, when things go wrong in that phase how do people get themselves out of that and back on their growth trajectory again?

We have said very clearly that we are not going to go after every technical breach. In terms of our supervision and enforcement focus, particularly enforcement focus, it is for egregious harms, and we have various supervision tools available. We tend to give firms time. When you look at the range of enforcement cases we have put out on financial crime, including with respect to challenger banks—and we publish the decision notices—we have tended to give the firms a year or so to sort themselves out. Where they have told us they have sorted themselves out but on further investigation they have not, that is when we have come in with the big stick, the big fine and the big enforcement outcome. We will tend to try to give people time, but we also have a job to do if they don’t respond well enough to that time.

It seems that you have been very energetic in the last year, and if the Prime Minister’s team is watching this, they will be ticking off what they wrote to you on Christmas Eve last year. You have also repeatedly referred to things that the Treasury needs to do. There needs to be legislation and other things. What is holding you back? What does the Treasury need to do now? I am giving you a moment, Mr Rathi, to ask for what you need to deliver on those 50 objectives that you set out in your letter in January.

In my letter to the Prime Minister and Chancellor last week, I said that we would like some greater framing on risk metrics and what that means, the rebalancing. That is not legislation. That is the overall architecture that we are operating in.

You said to us a year or so ago that we could change the appetite for risk, but we all have constituents that could get affected by it. So that is really what you are saying? You need Parliament to give you licence to change your—

Where I come at in this is, we are not insisting that Parliament gives us licence. My point is that if we are going to crack this as a country, as a system, we need to think about this together and we need as much consensus as possible. To the extent that the Government and Parliament are willing to engage in this, and willing to have a discussion and, of course, hold us to account, the more likely it is that these things are going to endure and we are going to crack some of the foundational issues that we have in our country, as we saw with the productivity forecast of the OBR. That is the point I am making. We will obviously do whatever Parliament tells us to do and get on with our job as it is today. I am talking about the framing of it. We have made good progress in our work with this Committee and the Treasury on mortgages and advice guidance. It would be great if legislation could go faster on all the things we have talked about: Consumer Credit Act; senior manager regime; digital ID—potentially hugely significant, but we have not talked about that as an issue. It could have a huge impact on financial crime costs, controls and convenience of services. There is work on some of these big data issues on Companies House and Land Registry, which working with some of the things we do in financial regulation could make a very big difference as well.

Yesterday, at the Liaison Committee, the Prime Minister was very frustrated about regulations, regulators and consultations and found that these things were slowing down delivering things. You are a regulator. You have to consult for often very good reason. Where are you at on that? I will not say, do you disagree with the Prime Minister—that is a bit too puerile—but do you get frustrated, too, or do you think you have the balance right?

We have experimented this year with many different ways of working. Sometimes we put out supervisory statements. Ms Pritchard has led the way in engagement papers. We have done a huge amount of different forms of interaction, but ultimately we are bound by the law around consultation and by judicial precedent. To go back to my favourite topic, you saw on motor finance that we put out a timetable for consultation. We wanted to get something to your constituents quickly. We had pushback—particularly from lenders, but not just from lenders—on timetable. Sometimes they say they want us to go fast, but they want us to go fast when they want us to go fast, but not when they don’t want us to go fast. That is a conundrum that we have to deal with. As a country and a system, we need to get better at executing.

On the Consumer Credit Act, it was brought before me four or five years ago when I was Economic Secretary and we still don’t have the legislation. I get what you are asking for, but can you explain to the Committee and those watching what the problem is? Is it technical expertise? Is it the amount of resources? Is there a policy disconnect? Is it that the scale of the transformation of the legislation is so massive? What is it?

It is all the above. These are contentious topics that lead to very vigorous debate in Parliament about how you collaborate. Some of the points here have been aired: the protections for vulnerable consumers, the disclosures, the information versus the freedom for lenders to try new things. There are different views, and you will know the political system better than I do. How do you land on a position that will endure? There has been an awful lot of focus on regulation and what regulators can do. That has been a bit of a political debate, whether it was on listings a couple of years ago—I did a speech back in 2023 before we went on our major set of listing reforms, and in that speech I said, “We are doing our bit but the entire system needs to move, whether it is on pension funds, tax or some of the broader risk culture.” There tended to be a focus that the regulators can solve this, but we cannot do that on our own.

We will be having Ministers in front of us. That is very helpful.

That was very clear; thank you.

Before we move on, we want to talk about mutuals. John Grady and I need to declare. I need to declare that I am a Labour Co-op MP and I should have declared at the beginning that I also have a family member working for a bank.

I should declare that I have a family member who works for a large building society. Just following up on Mr Glen’s question first of all, throughout this hearing we have heard various bits of legislation that need to be changed, and we will come across another one later, I suspect—the Credit Unions Act 1979. Does the FCA have a list of legislation that needs to be altered to promote a growth agenda?

Yes, we do.

Would you be prepared to share that with the Committee?

We share some of our work in the perimeter report, but yes. I am happy to talk about the areas of legislation we would like to see changed. We can follow up. We do have a list of what we call “legislative asks”. I don’t think Santa will give us all of them.

Moving on to building societies and mutuals, policy context is that the Government want to double the size of this sector. What are the main barriers, Mr Rathi, to growth of financial mutuals, from the FCA’s perspective?

We were pleased to launch the report in Rochdale, the home of Rochdale Pioneers and a wonderful museum. We were hosted by Mr Paul Waugh MP. I was glad to do it. Sam Woods, my colleague at the PRA, and the Economic Secretary joined us, and we went to Manchester afterwards for a day out.

Join the FCA, travel the country.

Exactly. We have tens of thousands of firms all around the country. Whenever we go out we want to meet regulated firms. You talk about us being accessible, so we invited all our regulated firms to come and meet us.

All very interesting, but what are the barriers to growth for financial mutuals, Mr Rathi?

Legislation is one. Some of the legislation has taken 17 years and has still not shifted. Secondly, the range of products they can offer. Thirdly, the ability to compete in a world where you have fintechs and their ability to offer shared services at lower cost so they can compete effectively against some of the new entrants. We don’t want to hamper innovation but some of the mutuals find it harder to go there. Mutuals have also raised issues around capital instruments and requirements that are more for the Bank of England and PRA than for us, although we do have some areas of focus there. Those are the things that get raised with us.

What do you see as the benefits for the economy of the people and consumers in growing the mutual sector?

Diversity of financial services, improved competition, serving underserved communities that may not be able to access services elsewhere, and contributing to innovation.

You have set up a mutual societies development unit, which is very exciting. The FCA and PRA have roles here. Can you briefly outline what you are looking to achieve with the way you see people’s remits here?

We are very reluctant to publish a report and let it sit on a shelf, so we announced it. We are setting up this unit. One of the challenges we have had is how to bring all the different interests together on an ongoing basis, not just the mutuals themselves but the regulators, the think-tanks, the customer groups, technology providers. We want to look at the issues we have identified and ask how we get together and crack them.

Who in the FCA is responsible for driving this forward? Who is accountable to you for driving it forward day to day?

At the moment it is led out of our authorisations division, so that is Sheree Howard, who is our Executive Director of Authorisations. The elements of the work cut across every part of the FCA.

Your report links spikes in the registration of co-ops and mutuals with supportive Government legislation and policy. What more should the Government be doing to stimulate the co-op and mutual growth that your report speaks to?

There is legislation pending on the credit union common bond. There is updating companies legislation. The one thing that happens is companies legislation changes, but you need to have separate legislation to update the mutuals legislation, and it never gets to the top of the tree, never gets to the top of the priority list. That has been the case under successive Governments and in a sense has been there for 17 years.

Some of it is under private Members’ Bills, which is inadequate.

That needs to be dealt with.

So you would say that the Treasury should have a companies and a mutuals shadow, mirroring the policy changes in legislation?

The question is, if you would like to achieve doubling the mutuals sector, if it is at the heart of the financial system, as has been described, then when legislative changes are being made to other types of corporate entity, not prioritising legislation for mutuals as well holds them back. Likewise on capital instruments.

Did we not have a private Member’s Bill before that went through Parliament, and then when it came to the regulator it was unimplementable? That is what happened with the private Members’—

Because private Members’ Bills are not a good way of doing it. You are saying that the Treasury needs to back up its words with legislative action?

When I was at the roundtable, that was one of the biggest asks from those around the table.

You have mentioned in response to Mr Grady that it helps to create corporate diversity. You have the new unit; what else are you doing to make sure that you are promoting co-ops? Do you believe that is part of the diversity you need to make the market stronger? Are you passionate about this, or is it something that you have to do because Government have told you to?

I know you were joking about my travels around the country, but I was visiting mutuals before the Government came in with their agenda. Years before the election I would always seek to meet credit unions and building societies when I was in different parts of the country. They are important. We are a regulator for the whole of the United Kingdom. We are a regulator for the whole financial system. That means all types of institutions that are regulated by us, not just the largest corporate entities. We are passionate about this, and we want to see progress. We want to see it delivered. Our pre-application support service that we have introduced for wholesale firms and crypto firms, we are now allowing mutuals in there as well. We have mutuals in our sandboxes. I would underline—this can sometimes be a source of tension because of the very strong support for mutuals within Parliament—they also need to meet standards. We put an enforcement case out against Nationwide at the end of last week, fined it £44 million for egregious failures of its financial crime controls. We will not accept as an explanation, “We have a mutual ethos; therefore we don’t have to meet the standards.”

That was Nationwide, one of the big guys?

That was Nationwide, but we have seen failures of credit unions and others as well.

Turning to credit unions briefly, they have been failing quite a lot. You mentioned the common bond and reform of that. Can you first of all explain how that will make a difference?

One of the challenges in growing is access to capital for any business. There are very tight restrictions in legislation—before you even get to a debate around the legislation—on the forms of capital that mutuals, including credit unions, can access. One of the things they are talking about is, rather than having to issue bonds as an individual institution, could they come together and issue a common bond that provides capital to more than one credit union? That might be more attractive to investors. That is not allowed yet.

So that is one thing. What else are you reforming in the credit union sector that would promote growth? We did a Committee visit to Glasgow and we heard very firmly there for some of those very poorest households the value of a credit union, and we all see that in our constituencies. But they have failed regularly. The one in my constituency or my borough is now London-wide. How big do you think they need to get to be surviving? Is there anything you would like to say about the technology that they can use, because that has been one of the barriers—that they cannot afford to invest in modern IT?

Shared services and technology is one dimension. Can we find models that enable them to share services and not each have to invest on their own—

Cyber-security is a difficult one to sort out.

—because in innovation that can be prohibitive.

Your development unit would be looking at that?

Exactly, yes. Also, the broader product range. Ms Pritchard might want to talk about advice and guidance. We get asked whether they can broaden into financial advice in a careful way. Can they offer other types of services as well? Those are the things we are looking at. Can we ease some of the burdens—and there is always a choice here—on microlending? One of the credit unions I visited was in Toxteth. So, somebody comes, they have known the family for generations, they have an emergency at home and need £100 to deal with it and have nowhere else to go. Do we need to put the same affordability and the same requirements on that as compared to other things? The problem is that we also have fraudsters. This is the choice you have with affordability requirements.

This is tolerable harm.

This is the point. We are open-minded about those types of issues, but we cannot guarantee that if we allowed that it would not go wrong in a certain small number of cases.

I have one follow-up question for your thoughts. One of the things about local credit unions and local mutuals is they get to know their communities, and that is often their unique but really important point of social value. That inherently puts them at a disadvantage to everyone else who operates electronically and in a remote way, which is the point Dame Siobhain was covering earlier. Do we need to find some other mechanism to support credit unions and local mutuals; for example, some additional funding stream to recognise the important social value they provide?

One of the things we were pleased to see as part of the financial inclusion strategy was an allocation of money from dormant assets. Fair4All Finance will take care of £30 million as a credit union transformation fund. We are part of those working groups so that if there are any regulated barriers that firms find, we really want to hear from people. In terms of regulation, what we do hear sometimes is the complexity of regulation can be difficult for smaller market participants, for credit unions. One of the things that we have been really conscious of through the consumer duty—and just in the last week we have set out some details in what we call a tidying-up consultation paper—was recognising that small firms might have additional needs. We are asking for views about whether it would be helpful to pilot some small firm guides and, if so, what would be useful in what format. My request is that the door is open. We really do want to see a thriving financial services market that encompasses the whole range.

To summarise this chapter of evidence more generally, the legislation governing mutuals, things like the Industrial and Provident Societies Act, the Credit Unions Act 1979 and so on, is all antiquated and needs thorough modernisation. Until we do that, we are not going to get the progress we would all like to see. Is that right?

You will get progress, but you will not get anything like the pace and innovation that you would like to see.

Exactly.

Thank you very much indeed. I thank our witnesses very much. Before this meeting we seemingly had Christmas presents from the FCA to the sector, possibly, I suspect, trying to head off another late pre-Christmas letter from No. 10 or No. 11. Mr Rathi, you have also laid out your wish list for presents from the Government in terms of legislation and through that, quite rightly, you have communicated to Parliament and Government the things that you need in order to deliver on some of the things that you are trying to do. I wish you all a restful festive season, if it is for you. I thank our witnesses from the Financial Conduct Authority. The transcript of this session will be available on the website in the next couple of days. Thank you to our colleagues at Hansard and thank you to our colleagues at Bow Tie for the broadcasting.