Despite volatility on markets, FCA boss says that is NOT a repeat of 2008

Britain’s top financial enforcer knows a financial meltdown when he sees one. In 2008, a youthful Nikhil Rathi, then working in Downing Street, was a member of the financial stability group that helped steer Prime Minister Gordon Brown, Britain and the City of London through the seismic shock of the Great Financial Crisis.

Despite warnings from the Bank of England and others of exuberant equity values, boosted by an artificial intelligence boom in technology stocks, Rathi, 46, doesn’t think investors and the country are in for a similar tsunami.

‘I wouldn’t say this is a repeat of 2008,’ Rathi tells me at the Financial Conduct Authority’s glass and steel headquarters in the heart of the Stratford Olympic Park redevelopment in East London.

‘I was very involved in financial stability then and I don’t think what we are seeing is on that scale,’ he adds.

‘There has been extraordinary volatility, extraordinary volumes across a range of asset classes. Broadly speaking the infrastructure has held up well and coped.

‘Markets have been choppy, but fundamentally orderly.’

Rathi succeeded Andrew Bailey, now governor of the Bank of England, as chief executive of the Financial Conduct Authority (FCA) in 2020, having been CEO of the London Stock Exchange for five years before that.

He has an enormous enforcement role covering 51,000 firms, ranging from the grandest names such as Barclays and Goldman Sachs, to backstreet brokers offering car finance and insurance.

He is also responsible for maintaining the integrity, resilience, and transparency of the markets.

The FCA is doing a lot of work around private credit exposures, the shadow banking sector that is often out of sight of regulators.

Among other things, the watchdog is looking at transparency and conflicts of interest. By way of an example of the FCA’s work in this area, he asks: ‘Is a private credit manager also sitting in the investment committee?’

Rathi adds that the scale of the problem must be kept in context. He says: ‘You are talking of several hundreds of millions of banking risks compared to many trillions of banking assets.’ There is plenty for the Oxford-educated philosophy, politics and economics graduate to sink his teeth into at present. The FCA has found itself dragged into the assault on the investment trust sector by American activist investor Boaz Weinstein of Saba Capital.

It has also been tasked with devising the compensation scheme for the 12.1 million motorists who were mis-sold car finance.

And recently it launched an investigation into the collapse of Market Financial Solutions, the Mayfair mortgage lender whose failure has had implications far and wide, and left banks such as Barclays and HSBC nursing losses in the hundreds of millions.

Nearly six years into the job, Rathi recognises that in his position criticism is unavoidable. Nonetheless, he is clearly irritated by the bashing the FCA has taken for a perceived failure to provide protection to Britain’s £269 billion investment trust sector, to which retail savers are heavily exposed.

He regards investment trusts, which allow UK investors exposure to American start-ups and flotations such as Elon Musk’s SpaceX, ‘as a real success story for the UK’ and takes credit for weaning the industry off intrusive European rule-making.

But he is frustrated that an industry under siege is not using the full force of the law to defend itself from raiders such as Weinstein. He says of investment trusts: ‘The boards have the power, if they feel a vote called is vexatious, to apply to the courts. This is a matter of law.

‘Any shareholder at an annual general meeting is free to vote for or against the board. It wouldn’t be right for us to interfere in those shareholder processes as uncomfortable as it may be.’

The FCA, he believes, deserves some credit for encouraging platforms, such as Bestinvest, to make it easier for retail shareholders to have a say. But the mammoth consumer issue troubling the financial enforcer at present is motor insurance compensation.

It has been striving for a streamlined process that avoids the prolonged delays and uncertainties that characterised the Payment Protection Insurance scandal, which by 2019 had become the most costly compensation payout in history at a cost of £38 billion.

Legal challenges to the FCA’s proposed motor finance plan, which would provide payouts of £830 for the average consumer, mean the watchdog’s pledge that the first money transfers could be on their way this autumn have retreated into the distance, much to Rathi’s annoyance.

‘We are seeing a delay of at least six months, if not materially longer,’ he says, adding that he is particularly exercised by the window it is providing for claims management firms to rush in to try and grab a slice of compensation from consumers. ‘There are 800 adverts that we see as problematic and have taken down.’

He also points to widespread malpractice in the form of ‘aggressive marketing, scam texts, social media ads where you click a box and find yourself signed up to a legal process with threats of exit fees’. On Thursday the FCA launched a big investigation into claims management firms to try to clamp down on these practices.

Our conversation turns to the Government’s growth drive, which since Rachel Reeves arrived at the Treasury in July 2024 has involved a big effort to push regulators to prioritise expanding the economy when making decisions.

It has also included big changes at fellow watchdog the Competition and Markets Authority, which in February saw former Amazon executive Doug Gurr confirmed as its chairman.

So far Rathi has managed to alleviate pressure from ministers by driving reforms.

‘I have always worked well with the Chancellor,’ he volunteers, adding that the secondary growth objective is ‘liberating’. There are some 50 changes under way. Among those cited are reforms of mortgage standards, which he says have resulted in 30,000 mortgages ‘being offered to potential borrowers last year with a significant increase in first-time buyers‘.

One issue where he and the Chancellor may have differences is on pension fund reforms. He acknowledges ‘there is lively debate’ over whether it is right for the Chancellor to require private sector pension funds to invest a proportion of their funds in certain assets such as private credit and equity funds after the House of Lords sought to block the idea.

But Rathi says he is not going to wade too far into the debate.

‘I don’t really think it would be appropriate for regulators to be directing where trustees or investment managers are allocating their portfolios. That’s not our role,’ he says.

Nor, presumably, is it a role for his erstwhile colleagues at His Majesty’s Treasury.