The era of “predictable volatility” in financial markets demands a sweeping overhaul of regulatory approaches, declared Nikhil Rathi, Chief Executive of the UK's Financial Conduct Authority (FCA), in a speech at the regulator’s International Capital Markets Conference.

FCA Chief Calls for Regulatory Overhaul amid “Predictable Volatility”

“The goal of regulation shouldn't just be to step in when things go wrong, or respond to a crisis,” Rahti stated. He emphasized the need for a paradigm shift in regulatory approach, moving from reactive to proactive measures. “We want to deliberately create an environment that helps firms compete, and grow.”

The FCA chief highlighted several key areas for reform, including nurturing market liquidity, embracing technological advancements, and adopting a new mindset towards risk. He argued that current regulations, often designed for large global banks, can limit smaller firms' ability to contribute to market liquidity.

“We're exploring how adjustments could encourage wholesale trading and improve market liquidity,” Rathi explained. He suggested that such changes could reduce barriers to entry for specialized trading firms that don't hold retail deposits.

In a nod to the rapidly evolving technological landscape, Rathi stressed the importance of investing in infrastructure and adopting new technologies. He pointed to the move towards T+1 settlement and the potential of tokenization Tokenization Tokenization represents the process of substituting a sensitive data element with a non-sensitive equivalent, i.e. token, which bears no extrinsic or exploitable meaning or value. In essence, the rights to the ownership of an asset are converted into a digital token. Tokenization can be used to own an entire unit of an asset. For example, one token that represents the ownership of a piece of real estate or to split ownership of a single unity of an asset such as 200,000 tokens, each one represen Tokenization represents the process of substituting a sensitive data element with a non-sensitive equivalent, i.e. token, which bears no extrinsic or exploitable meaning or value. In essence, the rights to the ownership of an asset are converted into a digital token. Tokenization can be used to own an entire unit of an asset. For example, one token that represents the ownership of a piece of real estate or to split ownership of a single unity of an asset such as 200,000 tokens, each one represen Read this Term to enhance liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term and open up new forms of investment.

The speech also touched on the increasing interconnectedness of global financial systems. Rathi cited recent market events to illustrate how incidents in one country can rapidly impact others. He called for deeper market engagement to understand and manage these systemic risks.

The UK’s Market Watchdog Seeks Feedback on Easing Financial Rules

Three months after the FCA initiated a review to improve its financial services regulations, the agency is making strides towards fostering innovation, cutting costs, and easing regulatory pressures on businesses. This effort aims to bolster economic growth and strengthen the UK's financial markets.

The review was set in motion following the introduction of the Consumer Duty, a measure designed to ensure that businesses provide positive outcomes for consumers when they purchase financial products and services. Now, the FCA is reaching out to industry stakeholders to pinpoint rules that may be redundant or overlap with the new duty. The goal is to simplify them.

By streamlining regulations, the FCA hopes to reduce operational costs for firms and encourage a more robust risk appetite, which is crucial for growth. Beyond this comprehensive rule review, the agency is also exploring ways to simplify regulations in the commercial insurance sector, a market that exceeds £15.5 billion in value within the UK.