Financial Conduct Authority (FCA) Chief Executive Nikhil Rathi has signalled a fundamental shift in the regulator’s approach. Speaking as the inaugural guest on the newly launched Fairer Finance podcast, Rathi confirmed the FCA is moving away from writing new rules in favour of using the existing Consumer Duty and supervisory tools to address market failures.

In what has been described as a “remarkably candid interview,” Rathi acknowledged that “not every problem is going to be solved quickly by doing big interventions, more rules, bans, guidance”.

He elaborated: “I think that there’s a whole range of influences that are informing our willingness to write lots of new rules…. we’re moving to an outcomes-based approach, and that will mean less rules in the future because we think the Consumer Duty will do a lot of the work for us”.

Treasury pressure and transparency

During the interview, Rathi offered a frank admission regarding political pressure, specifically concerning the FCA’s use of Voluntary Requirements (VREQs). VREQs allow the regulator to secure operational changes from firms without making public announcements or taking formal enforcement action.

“The Treasury, I think, weren’t pretty secret about their view that they weren’t a big fan of transparency, about our actions when it came to firms,” Rathi revealed. “They were very persuaded by some of the lobbying they received on that topic. Nonetheless, we are stepping up the way in which we communicate through our enforcement watch”.

Stepping back from “distributional questions”

The interview also highlighted a repositioning by the FCA regarding cross-subsidies and distributional fairness in products like credit cards and premium finance. Rathi suggested these issues are “not within our mandate to decide on,” placing the responsibility firmly with the Government and the Treasury.

When challenged about business models where financially vulnerable customers essentially subsidise better-off consumers (such as those getting 0% credit cards or paying insurance premiums upfront), Rathi responded: “What is not within our mandate to decide on is some of the distributional questions that you’re pointing towards. …there can be some areas of our work which intersect with social policy. And the issue that certain products may be more expensive for certain parts of society is not going to be directly something a regulator deals with. It becomes something that becomes a matter for government”.

James Daley, managing director of the consumer group Fairer Finance, expressed concern over the FCA’s changing stance.

“This was a remarkably candid interview, and credit to Nikhil for being so open about the pressures the FCA is under and the trade-offs they’re making,” Daley said. However, he added: “We are of course disappointed to see confirmation that the FCA is stepping back from tackling problems with new regulation. While the Consumer Duty provides a useful framework for the FCA to tackle poor conduct on a firm-by-firm basis, there are a number of wider market failures that won’t be addressed without new rules or much clearer guidance”.

Daley also pointed to the broader political climate, noting: “The FCA is under pressure from the Treasury to prioritise growth and to deal with market failure and misconduct through supervisory conversations behind closed doors. As Dame Meg Hillier pointed out last week, the Chancellor has had only one meeting with a consumer group since taking office – compared to dozens of meetings with banks, insurers and asset managers. And it’s clear that this emphasis from Treasury is also following through to the way its regulator acts”.

Other key takeaways from the interview:

• Motor Finance Redress Scheme: Rathi confirmed the final scheme will differ from the initial consultation following industry lobbying, though he insisted the FCA will act “forcefully” where the law has been broken. Final rules are expected later this month.
• Mortgage Rules: Acknowledging the risks of loosened mortgage lending rules, Rathi noted they have made an average of £30,000 more available for mortgages, leading to a “huge increase in first-time buyers last year”. However, he admitted this could lead to “a modest amount of additional distress if interest rates rise significantly”.
• Targeted Support: A new initiative for pensions and investments will launch in April 2026. “We’ll see how it all works,” Rathi said, noting that the FCA will observe provider engagement before deciding on future directions.
• Enforcement and Financial Crime: The FCA reported 40 enforcement outcomes in 2024 (up from 30 in 2023), with six Consumer Duty cases currently underway. Additionally, 84% of crypto firms applying for money laundering registration were rejected.

The full interview is available on the Fairer Finance podcast.