The Financial Conduct Authority needs to evolve and be ready to rethink some of its rules and regulatory approaches, according to Nikhil Rathi, chief executive of the FCA.
In a speech at Stepchange Connected 2024, Rathi discussed how financial inclusion could catalyse productivity and growth.
He said while regulation could not insulate consumers from economic stress he hoped the FCA had helped mitigate the worst impacts.
“That is where the consumer duty comes in. Unabashedly focused on good consumer outcomes.
“Putting the onus on firms to communicate well and be proactive, innovative and data-driven responsive to vulnerable customers’ needs. Providing protections that enable consumers to take responsibility for their decisions,” he added.
With the duty fully in force, Rathi thought it was time to consider whether there were rules the FCA should review to reduce burdens and duplication, delivering good outcomes while maintaining appropriate protection.
“Acknowledging tensions between the prescription previously necessary, and what a fast-digitising financial services market now requires,” he noted.
Financial Inclusion
Rathi said the regulator needed to “go further” and look at fixing the foundations of the economy and financial system that made the FCA’s intervention necessary.
He explained: “Published research suggests a causal link - it appears both ways - between improving financial inclusion and economic growth. To date, this research has been limited and focussed on developing economies.
“But improving financial inclusion and capability can help mitigate barriers to, and possibly catalyse, growth. Links between over-indebtedness and mental health can impair productivity at work or even leave people unable to work.”
Other evidence suggested economic growth and wealth creation could in turn bolster financial inclusion.
“So there appears to be a link between higher economic growth and increasing financial inclusion, with gaps in our understanding of how that link works and its direction,” Rathi added.
He highlighted that a “change in mindset” was needed, focusing not just on products but on what customers actually needed and putting systems in place that delivered those.
“So to sustain a growing economy, and if we want a step change in financial inclusion, we will need to adapt too.
“That will require a willingness to take more risk and to experiment, accepting that not every idea will work and a determination from everyone with a part to play to improve outcomes,” Rathi explained.
Financial literacy
To incite financial inclusion, Rathi felt this involved tackling the root causes of financial exclusion which included low levels of financial literacy.
He said: “Without a sustained commitment to financial and digital literacy alongside numeracy, we face an uphill battle.
“Effective financial education needs to begin early. Potentially even at primary level, as the Select Committee called for, and should now be considered in the government’s curriculum review.
“With its financial literacy levels, it is no surprise that Singapore scores as highly as it does on financial inclusion, showing an economic dividend.
“So as one commentator said this week, we simply cannot afford a lost generation. But that’s not to say financial education begins and ends in the classroom.”
