Last week the UK’s FCA once again defended its policies and its commitment to support economic growth in the country in the face of mounting pressure on the regulator to do more to achieve targets set by the government.

In a pithy statement, the watchdog simply reiterated that growth was at the heart of its new five-year strategy, whilst also accepting that there was “more to do to understand the role of regulation in unlocking growth in the wider economy.”

The latest declaration was made in the same week a parliamentary report criticized the agency for clinging to a risk-based approach that hindered international competitiveness and economic growth.

In its report, the UK’s House of Lords Financial Regulation Committee said it had observed “long-standing issues that limit or introduce unnecessary frictions to financial services firms’ ability to grow, innovate, and compete and that discourage new entrants both domestic and foreign.”

The FCA responded by reminding everyone that the UK was already “the largest net exporter of financial services in the world and London is the world’s second largest financial services centre, closing the gap on New York.”

And specifically on growth, the regulator said it had already “made it easier for companies to list, supported greater home ownership, set out a roadmap for crypto regulation,” and was “reimagining financial advice and guidance to boost investments.”

But this is not the first time the watchdog has had to defend itself against criticism from parliament and the government in the recent past. And, as things stand, it certainly won’t be the last.

In October last year, Prime Minister Keir Starmer publicly reprimanded the FCA during an International Investment Summit in London, and promised to rip up any regulatory bureaucracy that hindered growth.

A month later in November, a group of parliamentarians and peers questioned the integrity of the FCA in a report that called the regulator “dishonest and incompetent.”

What about consumer protection?

Amidst all of this it is easy to forget that the primary objective of the FCA is to ensure that rules are being followed by financial market participants, and that the UK’s consumers are provided with adequate protection. These objectives are not always easy to reconcile with a growth imperative.

In January this year, and amid growing calls to do more on economic growth, the FCA put the ball back in the politicians’ court by asking parliament to define what ‘an acceptable level of harm to consumers’ might be.

CEO Nikhil Rathi told the same House of Lords financial regulation committee: “On mortgages, [what] if there are more defaults if we relax [rules]? One or two things are going to go wrong here and not everybody is going to play completely by the rule book, and is there acceptance of that?”

That question still remains largely unanswered. In the meantime, and against the expectations of at least some commentators, Rathi has been reappointed as CEO for a second term by the Treasury.

There have been efforts to build bridges and ease the tension between the two sides. In January, the governor of the Bank of England (BoE) told MPs financial stability was the foundation of economic growth and foreign investment, and that there could be no trade-off between the two.

But the government is on the front foot. Last week, Sarah Pritchard was appointed as Deputy Chief Executive to Nikhil Rathi “to manage growing remit, support growth and drive reform.”

Rob Mason, director of regulatory intelligence at Global Relay, called it an “interesting directive and appointment reflecting both the expanded remit to include payments and crypto, and also the growth and reform agendas more generally.”

“It may be that the Treasury here (and also in the US) are leaning on their financial regulators to do more to promote their respective national economies,” he told GRIP.

What needs to change?

And going back to the most recent statement, as far as the FCA is concerned change is already happening. The regulator says it is engaging in debates on informed risk-taking and is committed to being more predictable and proportionate.

“This year we’ve begun stripping out data requests, retired outdated supervisory documents, introduced a new private stock market, pared back our insurance rulebook and are working on redress reforms to give consumers and firms greater certainty.”

But that may not be enough to put an end to attacks from critics, and experts believe that: “The FCA needs to consider the entire financial ecosystem to support growth effectively.”

According to Parvez Khan of IPK European Strategy: “The depth and quality of publicly traded markets, retail consumer appetite for investing in UK companies, and private markets supporting early stage and growth sectors are interconnected.”

“Deregulating aspects of the primary markets regime will not bring listings to London unless UK authorities understand and harness the potential of private markets,” Khan told GRIP.

At the same time, there is a risk that too much focus on deregulation and growth could distract UK regulators from their primary objectives such as financial stability and consumer protection.

According to Global Relay’s Director of Regulatory Intelligence Rob Mason: “Some simplification of rulebooks is a positive directive but requires a delicate balance. Too little is not meaningful, while too much may result in investors losing confidence.”

The FCA has said all stakeholders should capitalize on the UK market’s current strengths “by working together across Government, Parliament, industry, and society more broadly, to seize the opportunities ahead.”

And the government has also expressed willingness to work with the regulators to achieve set targets, especially around economic growth.

The objective itself is clear. And, to certain extent, given the commitment expressed on both sides, it’s not about whether they can work together to achieve it.

It’s about whether this work can be accomplished at a pace that the government will accept, and at the same time one that will not compromise the diverging or even opposing objectives that the regulator is also tasked with.