The UK FCA’s “Risk Appetite” Has Just Changed – Willing to Take More Risk for Possible Growth

The UK FCA dispatched a letter to the British PM, declaring “A New Approach to Ensure Regulators and Regulations Support Growth”.

In the letter, the FCA states it is willing to take a more risky regulatory approach, in order to assist financial growth. “To achieve the deep reforms necessary, your acceptance that we will take greater risks and rigorously prioritise resources is crucial”, the FCA states at the beginning of the letter.

Towards the end of the letter, the FCA states that it will, in-effect, use technology (AI?) to try and mitigate the risk derived from this approach: “We will not stop all harm when making risk-based choices about the cases and intelligence we pursue, and we increasingly deploy technology to make those choices with speed and at scale”.

In the letter, the FCA, among other things:

• On a policy level, declares “Growth will be a cornerstone of our strategy, through to 2030”.
• Emphasises it had already planned to “reduce conduct requirements” in certain matters, “streamline regulatory requirements” in others, and “avoid additional regulations for AI by relying on existing frameworks”.
• States the UK needs a financial services digital infrastructure plan, and that the FCA is willing to embrace “a digital first approach”.
• Working on removing unnecessary regulation such as“remove the need for a Consumer Duty Board Champion”.

With specific regard to client onboarding / KYC / AML, the FCA:

• Government action in regard to “digital identity authentication/verification could unlock huge gains”
• Companies House data – “enhancing the quality of the Companies House database would reduce costs for business”.
• Relax KYC requirements on small transactions – “We could go even further and, with Government support, reduce costs of anti-money laundering measures, relaxing know your customer requirements on small transactions.

Other measures include:

• Improving license application process.
• Preventing major FCA-led consumer redress – “We can never rule out firms having to pay redress for serious misconduct. However, through proactive management of issues, and improved coordination with the Financial Ombudsman Service, we aim to prevent further significant FCA-led consumer redress exercises”.

This is an interesting development, especially in light of other markets such as the US and the UAE, where attempts to simplify regulation and support growth are also made. It will be interesting to follow the application of this approach, of course, on our side, especially when it comes to the KYC related issues.