Treasury Committee
Tuesday 13th October 2026
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09:49
Julie Minns
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Julie Minns
Order, order! Welcome to the Treasury Select Committee on Wednesday. On Tuesday the 13th of October 2026. Today, we are delighted to have the Financial Conduct Authority in front of us. We have regular sessions, of course, with the FCA. And today we're looking at their work particularly. They're one of the pillars of their review and their plan, their forward plan, which is being a smarter regulator. And I'm pleased to welcome, as ever, Nikhil Rathi, who's the chief executive of the Financial Conduct Authority.
And today he's joined by on his right, on my left, Jessica Russo, who's the chief data, information and intelligence officer at the FCA, and Johan Sikora, who's the chief operating officer at the FCA. Before we go into the main session, though, Mr. Rathi, I just wanted to raise with you some of the the around the challenges that the FCA has had in dealing with whistleblowers and in particular, the FCA has decided to appoint Leah Paterson, who's one of your new non-executive members of the board, to undertake a review of your interactions with the whistleblower Simon Andrews, following his untimely death.
The first question is , why did you appoint somebody internal or a member of the board, rather than use an external person to undertake the review?
And today he's joined by on his right, on my left, Jessica Russo, who's the chief data, information and intelligence officer at the FCA, and Johan Sikora, who's the chief operating officer at the FCA. Before we go into the main session, though, Mr. Rathi, I just wanted to raise with you some of the the around the challenges that the FCA has had in dealing with whistleblowers and in particular, the FCA has decided to appoint Leah Paterson, who's one of your new non-executive members of the board, to undertake a review of your interactions with the whistleblower Simon Andrews, following his untimely death.
The first question is , why did you appoint somebody internal or a member of the board, rather than use an external person to undertake the review?
09:50
Speaker 1
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Speaker 1
It's a terribly sad situation. And I have written to the representative of Mr. Andrews to pass on my condolences and the condolences of the whole organisation. Mr. Andrews was a whistleblower. He had engaged with the FCA and a number of authorities, both in the UK and United States, over a number of years. And when a very sad situation like this happens, I think it is important for us to reflect on how we have communicated and how we have engaged with the individual in question.
And the board is independent of the executive and the independent non-executive directors appointed by the Treasury. Lee Paterson is new to the organisation, having only joined the board on the 1st of October, and she's got relevant experience here, and she will look at the way in which we communicated and if there's any reflections for us. I would also note that whistleblowing work is some of the most sensitive work the FCA undertakes. We receive around 1300 whistleblowing reports every year.
That's well up 20% on the previous year.
And the board is independent of the executive and the independent non-executive directors appointed by the Treasury. Lee Paterson is new to the organisation, having only joined the board on the 1st of October, and she's got relevant experience here, and she will look at the way in which we communicated and if there's any reflections for us. I would also note that whistleblowing work is some of the most sensitive work the FCA undertakes. We receive around 1300 whistleblowing reports every year.
That's well up 20% on the previous year.
09:51
09:51
Speaker 1
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Speaker 1
that's right. Dame Harriet will recall I wrote to this committee back in July 2023 about the Mr. Odey case, which is now concluded before the upper tribunal. I won't get into the details of the case, but in that case I. In that letter I explained how challenging it can be when we are dealing with some very, very serious allegations and we are not always able to speak publicly about the nature of the work we're doing, nor are we necessarily able to communicate with the people who are making those allegations to us.
The nature of the investigations that we are undertaking over recent years, we have established an enhanced feedback mechanism following a pilot where we seek to provide feedback to whistleblowers. 40% of whistleblowing allegations result in some supervisory action. Around 50% informs our wider work. There will always be cases, though, where, having examined the evidence, having considered it carefully, it isn't of the nature where we are going to be able to take regulatory action or sometimes criminal action, which is what people are seeking from us.
The nature of the investigations that we are undertaking over recent years, we have established an enhanced feedback mechanism following a pilot where we seek to provide feedback to whistleblowers. 40% of whistleblowing allegations result in some supervisory action. Around 50% informs our wider work. There will always be cases, though, where, having examined the evidence, having considered it carefully, it isn't of the nature where we are going to be able to take regulatory action or sometimes criminal action, which is what people are seeking from us.
09:52
09:53
Speaker 1
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Speaker 1
It's focused on the interactions with Mr. Andrews, because this is a specific and very sad situation that has occurred. Of course, Lee will speak to a range of colleagues, I'm sure, in the organisation, and she will be reporting to the board and reflecting on if there's anything we can learn more broadly.
09:53
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09:53
Speaker 1
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Speaker 1
Absolutely. And I think I'm glad you have asked me about my colleagues, because as a leadership of the organisation, you have three of the executive team here. We also have a duty of care to our colleagues as well, and they are on the front line, often engaging with some very harrowing testimony from whistleblowers who contact them, and we seek to provide them with support and counselling so that they can conduct their job professionally and diligently, sympathetically and with with compassion.
And sadly, whether it's in our supervision hub, in our whistleblowing team, or indeed more broadly, we we do receive contacts from individuals who are in a situation where they're talking about self-harm. And that's a very delicate and sensitive that's a very delicate, sensitive nature of the work, some of the work we do and and we must make sure we are compassionate with those who are approaching us, but also support our colleagues as well. When sometimes this correspondence can extend for many years.
And sadly, whether it's in our supervision hub, in our whistleblowing team, or indeed more broadly, we we do receive contacts from individuals who are in a situation where they're talking about self-harm. And that's a very delicate and sensitive that's a very delicate, sensitive nature of the work, some of the work we do and and we must make sure we are compassionate with those who are approaching us, but also support our colleagues as well. When sometimes this correspondence can extend for many years.
09:54
Julie Minns
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Julie Minns
Absolutely. And obviously, some of us, we receive that to some extent here in Parliament as well. So we understand that and recognise the staff will no doubt mostly be trying to do their very best in these difficult circumstances. But did the board consider bringing in anybody from outside, either on this particular case or the relationship with Mr. Andrews or more generally, on whistleblowing? Was that something that was discussed at the board?
09:55
Speaker 1
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Speaker 1
So it's the board that has asked for this review, and I think it considered a range of options that that may be appropriate. But I think first and foremost, this is looking at how the organisation has interacted with an individual whistleblower that's formally the responsibility of the board to to conduct that oversight. If Lee would like external support in doing that, then I'm sure that will be made available to her. And she will, of course, be able to speak and I'm sure will speak to a range of external parties as well, who will invite feedback and will make recommendations accordingly.
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09:56
Julie Minns
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Julie Minns
So in full with supporting evidence, will there be. I presume there will be some. There will have to be some redactions of confidential appendices because of named individuals. So is that something that this committee could could have access to the unredacted. Well, except for the names of lower level officials, the normal redactions.
09:56
Speaker 1
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Speaker 1
Yeah. So it's hard for me to confirm that now because this will be a matter for the board and the independent non-executive executive directors as to what is published. And you'll be aware that in any whistleblowing circumstance, there are sometimes very sensitive issues that are being engaged and very sensitive information, including very sensitive personal information. So the board will have to make a judgement as to what is published. But it's certainly the intention, I think, of the board, and Ashley said that actually the chair said that the annual public meeting to ensure the findings are public, with an aim for early in 2027.
And the board will absolutely share that with the the committee and take your further questions at that point.
And the board will absolutely share that with the the committee and take your further questions at that point.
09:57
Julie Minns
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Julie Minns
Okay. So once that's published, is there is there then I mean, the the board still has the option of going for a wider, more independent review if it chose to, if Lee Patterson recommended that is that is that within her remit that she could recommend a further review if she felt she came across something that showed that there needed to be a wider review.
09:57
Speaker 1
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Speaker 1
I think Lee is able to recommend anything that she. She feels appropriate and the board will consider it. And the board has a wide range of of powers and options available to it. Absolutely. As I say, the the work we do on whistleblowing is some of the most significant and sensitive work that we do. Do we? We take every report we receive seriously.
It is engaged with carefully and thoughtfully, and we also have an obligation to look at all evidence we receive objectively and dispassionately. And sometimes after detailed examination, we may not be the appropriate authority to take something forward, or indeed, there may be action that's already been taken in another jurisdiction in relation to specific allegations. And one of the most challenging situations for us, and again, I talked about that particular non-financial misconduct case where the the tribunal has now published its judgment, and it's there and speaks for itself.
So I won't go into the details. But in non-financial misconduct cases in general, for example, sometimes what whistleblowers are seeking from us is with their last resort, they've been to the police. There hasn't been satisfaction there because an investigation hasn't proceeded. They don't feel they've had satisfaction in the employment tribunal. And while we can consider the matters and look at things within our remit, we're not going to be necessarily in those types of cases.
For example, the authority that's going to secure a criminal conviction or indeed an employment outcome. And we sometimes do have to take the careful and difficult decision to draw some correspondence to a close. Sometimes after a number of years. And we know that can generate quite a lot of anger with the individuals concerned. But that's also because we have several, as I say, 1300 cases, and we have to make sure that the resources are devoted to those cases where we do think we can take some action and use our powers.
It is engaged with carefully and thoughtfully, and we also have an obligation to look at all evidence we receive objectively and dispassionately. And sometimes after detailed examination, we may not be the appropriate authority to take something forward, or indeed, there may be action that's already been taken in another jurisdiction in relation to specific allegations. And one of the most challenging situations for us, and again, I talked about that particular non-financial misconduct case where the the tribunal has now published its judgment, and it's there and speaks for itself.
So I won't go into the details. But in non-financial misconduct cases in general, for example, sometimes what whistleblowers are seeking from us is with their last resort, they've been to the police. There hasn't been satisfaction there because an investigation hasn't proceeded. They don't feel they've had satisfaction in the employment tribunal. And while we can consider the matters and look at things within our remit, we're not going to be necessarily in those types of cases.
For example, the authority that's going to secure a criminal conviction or indeed an employment outcome. And we sometimes do have to take the careful and difficult decision to draw some correspondence to a close. Sometimes after a number of years. And we know that can generate quite a lot of anger with the individuals concerned. But that's also because we have several, as I say, 1300 cases, and we have to make sure that the resources are devoted to those cases where we do think we can take some action and use our powers.
09:59
Julie Minns
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Julie Minns
Okay. Thank you very much indeed for that. Before we move into the main session, I also just wanted to ask you about the Dobbs review. This was set up a decade ago following issues with Lloyds Bank 15, 15 years ago. We wrote to Dame Linda recently, and she's written back and published on her website that it's ten years on. There is still no report, though.
She's she's and she's continuing to go through the process that she's going through. So really, after a decade, this was supposed to be a lessons learned report. After a decade, there are no lessons out in the public domain that have been learned. Do you think this is have you got any comments really about this process that was supposed to improve things? And we have had no information about what's gone wrong. A decade since the investigation was set up, 15 years after the events in question.
She's she's and she's continuing to go through the process that she's going through. So really, after a decade, this was supposed to be a lessons learned report. After a decade, there are no lessons out in the public domain that have been learned. Do you think this is have you got any comments really about this process that was supposed to improve things? And we have had no information about what's gone wrong. A decade since the investigation was set up, 15 years after the events in question.
10:00
Speaker 1
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Speaker 1
This was a review that was commissioned by Lloyds Banking Group and the board there. And so it's independent of of the FCA. And in many respects it engages activities which were outside the regulatory perimeter at the time. Nevertheless, we are very interested in the process and in the outcomes of the review. As I understand it, Dame Linda has said to you that the investigation stage is complete and now the report is being finalised, and then there will be a period where Lloyds needs to engage with the with the report before the findings are made public to this committee.
Hopefully during the course of next year. It is clearly disappointing that an exercise like this takes the length of time it does. I don't have anything to add beyond the explanations Dame Linda has given to you as to the nature and complexity of the investigation into that many individual cases, and the time it took to gather the evidence that she sought. Of
Hopefully during the course of next year. It is clearly disappointing that an exercise like this takes the length of time it does. I don't have anything to add beyond the explanations Dame Linda has given to you as to the nature and complexity of the investigation into that many individual cases, and the time it took to gather the evidence that she sought. Of
10:01
Julie Minns
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Julie Minns
course, she didn't have the statutory power to call to compel witnesses. If it had been a section one, six, six, you know, then you would have had more powers. Obviously, you're saying it was outside the perimeter. We understand that, but do you think there are lessons to be learned more widely for the sector about an internal review versus your role as the FCA? I mean, you know, we have got now well, people will have died along the way.
Businesses will have gone. I mean, there isn't there is now any lessons learned won't really apply to the people who were affected in this case. So there's a very unsatisfactory situation. I think you would agree with that. Words in your mouth.
Businesses will have gone. I mean, there isn't there is now any lessons learned won't really apply to the people who were affected in this case. So there's a very unsatisfactory situation. I think you would agree with that. Words in your mouth.
10:01
Speaker 1
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Speaker 1
So whenever these situations arise, one of the challenges we have is there are multiple mechanisms for. For the system to seek to secure answers. And for individuals or firms that are affected to, to secure answers in, in this case, there have been many court cases , and those have worked their way through the system. That can sometimes complicate other processes, because when something is before the court, that necessarily that process necessarily takes precedence.
There have been multiple select committee inquiries in the select committees have had have very wide ranging powers. If you feel you need to access information, there has been some regulatory work and there's been some work by boards and indeed some wider criminal cases related to HBOs in particular and some of the activities here. And I recognise that that multiplicity of processes can, when you add it all up, lead to quite unsatisfactory overall outcome, because each is looking at different things.
And actually that may be an issue which we can come on to when we talk about the smarter regulator pillar and how we ensure institutional effectiveness and answers in situations like this at speed within the system and framework of review and judicial scrutiny, we have.
There have been multiple select committee inquiries in the select committees have had have very wide ranging powers. If you feel you need to access information, there has been some regulatory work and there's been some work by boards and indeed some wider criminal cases related to HBOs in particular and some of the activities here. And I recognise that that multiplicity of processes can, when you add it all up, lead to quite unsatisfactory overall outcome, because each is looking at different things.
And actually that may be an issue which we can come on to when we talk about the smarter regulator pillar and how we ensure institutional effectiveness and answers in situations like this at speed within the system and framework of review and judicial scrutiny, we have.
10:03
10:03
John Glen
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John Glen
Yes. I want to start by talking about on the 24th of March, when you were last. Well, one of the last times you were before the committee, we had a conversation about Palantir, and I asked you about the the effect of excluding Palantir from the process. And you said, we think that we would have a lower quality proof of concept relative to the winning bidder. That's the choice you face. I was wondering if you could update the committee on what your experience has been with Palantir.
We're very mindful of the fact that there has been a lot of public commentary around the effectiveness and availability of alternatives and, crucially, whether you will actually have discretion to remove them in future given the way they are by some deemed to operate and create a function that can't be removed. Would you like to comment on what you've done? And I would acknowledge that you have done a lot since you came into office on the transformation programme, and this is the latest stage of it.
We're very mindful of the fact that there has been a lot of public commentary around the effectiveness and availability of alternatives and, crucially, whether you will actually have discretion to remove them in future given the way they are by some deemed to operate and create a function that can't be removed. Would you like to comment on what you've done? And I would acknowledge that you have done a lot since you came into office on the transformation programme, and this is the latest stage of it.
10:04
Speaker 1
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Speaker 1
I'll turn to Jessica in a minute, who can go into more detail. The opportunities that the UK has in terms of growth and productivity with new technology are enormous, and the financial professional services industry could be right at the forefront of securing those. And we've been leaning in very hard to make sure we can support innovation. What I'd also say to the committee this morning is that the risks to integrity of the financial services system, and I would use a shorthand market integrity are right now as serious as I've ever seen them, driven also by that very same technology that is enabling opportunity by the shift in market structures and 24 over seven trading, digitization, tokenization, enormous cross-border flows of capital.
And then both of those trends are amplified by the activities of networks of financial criminals and money launderers and fraudsters operating across borders. Key to our work to tackle financial crime is our ability to join up intelligence and data that we have within our organisation, and we're not perfect. And whenever things don't work out right at the FCA, normally that issue of joining up data and intelligence is right at the heart of it.
But joining up that data and intelligence with the data and intelligence that we receive from our partner organisations that's available in the public domain and that we can secure from around the world. And that is why we are investing enormously in our data and technology capabilities to be able to match the scale of the risk and the harm on crime, in particular, that we are seeing. And I'll now turn to Jessica, who can talk about the specifics of that proof of concept and where we are in it.
And then both of those trends are amplified by the activities of networks of financial criminals and money launderers and fraudsters operating across borders. Key to our work to tackle financial crime is our ability to join up intelligence and data that we have within our organisation, and we're not perfect. And whenever things don't work out right at the FCA, normally that issue of joining up data and intelligence is right at the heart of it.
But joining up that data and intelligence with the data and intelligence that we receive from our partner organisations that's available in the public domain and that we can secure from around the world. And that is why we are investing enormously in our data and technology capabilities to be able to match the scale of the risk and the harm on crime, in particular, that we are seeing. And I'll now turn to Jessica, who can talk about the specifics of that proof of concept and where we are in it.
10:06
10:06
Speaker 2
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Speaker 2
So as Nikhil set out, we've been investing heavily in our data science and technology and infrastructure engineering departments over the last five years. We've now grown the data , technology and innovation function to over 600 colleagues. It's very important that we understand how much we've invested in data science, and yet how much further there is to go, and in particular, the increase of financial crime is at 14 billion per annum. And so the challenge that we face as a regulator is how much time and energy we want to invest into the creation of our own frontier AI models, and where we have the opportunity to leverage vendors.
And in particular, we have over 100 technology suppliers that we work with. Approximately about 35 of them are tier one, tier two, tier three suppliers. And it's really important to calibrate the the decision around either fragmentation of suppliers across multiple small vendors, as well as the benefits of scale. And in particular, this particular proof of concept was seeking to evaluate the benefits from intelligence at scale, looking at the ability to integrate the data layer with the technology and intelligence layer.
So that proof of concept has now concluded it is finished, and we're reflecting on the lessons that we have learned from that, as well as our wider technology ambitions.
And in particular, we have over 100 technology suppliers that we work with. Approximately about 35 of them are tier one, tier two, tier three suppliers. And it's really important to calibrate the the decision around either fragmentation of suppliers across multiple small vendors, as well as the benefits of scale. And in particular, this particular proof of concept was seeking to evaluate the benefits from intelligence at scale, looking at the ability to integrate the data layer with the technology and intelligence layer.
So that proof of concept has now concluded it is finished, and we're reflecting on the lessons that we have learned from that, as well as our wider technology ambitions.
10:07
John Glen
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John Glen
So could you tell us about what your reflections and instincts are? I mean, have you successfully retained full operational knowledge? What's happened with intellectual property, you know, in terms of running these tools yourself or independently? You know, there's significant public debate about this matter.
10:08
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10:08
Speaker 2
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Speaker 2
In particular, the the concept of sovereign data and the arrangements that we have for our own cloud data is really important. And I believe I gave evidence previously about this matter, the data controls that were established for this particular proof of concept, to make sure that we remained the data controller at all times, as well as the security and encryption keys stayed with the FCA throughout the entire proof of concept, as they would do under any supplier arrangement.
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10:09
Speaker 2
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Speaker 2
If we decided to invest in an intelligence platform, we would, of course, go to procurement and open procurement. Typically, what we do is we warm up the market ahead of any procurement exercise. We outline very specifically what it is that we want to see. We invite firms in to do demos with us. So we have a pre engagement phase, and then we go through a full procurement phase.
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10:09
John Glen
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John Glen
Okay. Could I turn then to the Mills review in July, this was published with seven recommendations, and one of them is about building an AI enabled Agentic supervisory model. Could you tell us about what concrete operational steps you've taken to implement that recognizes only three months ago, but these things are urgent.
10:09
Speaker 2
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Speaker 2
Yes. So becoming an agentic regulator is part of our overall ambition of being a smarter regulator. So as I mentioned already, we've been investing heavily in our data science functions. And as we transition to enabling AI across the organization, we find that in particular, AI handles unstructured text very well and supports our case officers in their decision making. As we consider the various ways in which we can use that for intelligence gathering.
For case optimization, we've been able to look at ways to embed that in authorisation, supervision and enforcement work. As you can imagine, we handle much intelligence and unstructured text, and it really speeds up the case officer's analysis. At this point in time, we remain where the case officer or sometimes called a human in the loop with every decision. Yeah, but our ambition is further than that, to automate wherever we can possible and to intervene at scale and shift left any harms that we can identify at the gateway.
So
For case optimization, we've been able to look at ways to embed that in authorisation, supervision and enforcement work. As you can imagine, we handle much intelligence and unstructured text, and it really speeds up the case officer's analysis. At this point in time, we remain where the case officer or sometimes called a human in the loop with every decision. Yeah, but our ambition is further than that, to automate wherever we can possible and to intervene at scale and shift left any harms that we can identify at the gateway.
So
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Speaker 1
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Speaker 1
Rows of data a week in our market surveillance because we we in the UK are home to some of the largest global markets in the world across a range of asset classes. So one of the first use cases for our agentic tools has been to clean that data, go back potentially identically to, to the firms who are submitting and saying, look, this doesn't reconcile. There seems to be an error here to do that at pace and at speed, potentially also interacting with the firm's own agents and automated platforms so that our people, when they get to it, can get to the highest risk issues significantly faster.
And we use our resources significantly more efficiently.
And we use our resources significantly more efficiently.
10:12
John Glen
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John Glen
Can I can I just ask you further to the Mills review, what assessment have you made of of the from the recommendations, what additional statutory powers you might need versus supervisory action? Because, I mean, we've spoken before, and I'll come on to it later about the sort of legislative blocker that sometimes seems to exist. My words, not yours on from the Treasury. But if you need new powers, have you identified those yet so they can be fed into the system?
10:12
Speaker 1
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Speaker 1
My thinking, our thinking is evolving on this issue. My approach, and I think I touched on it last time when I was with the committee, is I think it's very important we use the powers we have to the fullest extent we can, and that those powers are anchored in fisma around the perimeter. But we have powers under the Enterprise Act, Digital Markets, Consumers and Competition Act, we have money laundering powers, which are being extended under the current bill.
So I'm not going to come here and suggest that we need lots more powers until we've really demonstrated that we've used our powers to the fullest extent and indeed what you will see with us increasingly it later on, Jessica and I will be at the Digital Regulators Cooperation Forum, where the boards are meeting. It's working in tandem with everybody in the system the CMA, Ofcom and Information Commissioner in that context, who all have powers. And sometimes between us, we need to coordinate to make sure that the.
Sometimes we do the work. Another agency uses their powers on the back of our work. The. What I think is as important as powers and there may well be. Then may well need to be discussions around some of the issues around national security, around frontier AI, operational resilience. We are devoting a huge amount of resource into that as part of our overall work on market integrity, where the government decides to draw the line on what is relevant for national security and economic security, national security increasingly intertwined.
We are looking at the questions of AI and advice, and at some point we may need a perimeter shift there, but it's not completely straightforward because there's a particular blurry boundary there which which. And the question of AI and advice goes beyond financial advice. It's also about medical advice. It's about a whole range of other.
So I'm not going to come here and suggest that we need lots more powers until we've really demonstrated that we've used our powers to the fullest extent and indeed what you will see with us increasingly it later on, Jessica and I will be at the Digital Regulators Cooperation Forum, where the boards are meeting. It's working in tandem with everybody in the system the CMA, Ofcom and Information Commissioner in that context, who all have powers. And sometimes between us, we need to coordinate to make sure that the.
Sometimes we do the work. Another agency uses their powers on the back of our work. The. What I think is as important as powers and there may well be. Then may well need to be discussions around some of the issues around national security, around frontier AI, operational resilience. We are devoting a huge amount of resource into that as part of our overall work on market integrity, where the government decides to draw the line on what is relevant for national security and economic security, national security increasingly intertwined.
We are looking at the questions of AI and advice, and at some point we may need a perimeter shift there, but it's not completely straightforward because there's a particular blurry boundary there which which. And the question of AI and advice goes beyond financial advice. It's also about medical advice. It's about a whole range of other.
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Speaker 1
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Speaker 1
sorry. It's a society. It's a societal choice as to how I would say government and Parliament wishes to interact on those issues. And that brings me to the bigger point, which I make, which is more than anything, I think what we need on AI is that societal debate, that parliamentary debate around risk, and where you would like to see us calibrate some of these choices as regulators.
10:14
John Glen
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John Glen
I take your message about risk to every fringe event or opportunity to speak, and I think it's a reasonable one. You know, initiating and getting a conclusion on that debate is also, the last question I have is relating to what you said previously. I think in the March 25th session, you committed to delivering a streamlined single digital interface for regulated firms interacting with the FCA. And of course, many of us colleagues on the committee and Parliament get lobbied by smaller firms, in particular about the costs, bureaucracy, anxiety of a uncertain interface, though well intentioned, causes a lot of cost and additional strain.
Please could you say something about that single digital interface and where you've got to on your aspirations to provide it.
Please could you say something about that single digital interface and where you've got to on your aspirations to provide it.
10:15
Speaker 2
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Speaker 2
To jump in? So we launched the my FCA in March of 2025, and we've had really positive firm feedback. So the intention of this one front door is so that firms can submit both their regular returns to us, as well as their ad hoc collections in one place, see fees or any upcoming submissions, deadlines that are relevant to them. So that is the the the front door for the FCA in terms of its regulatory returns.
Something else. Recently, we've extended the operating hours till midnight every night. That was another request that firms asked from us. We've also streamlined reporting requirements. We've decommissioned eight returns and we've reduced the frequency of some of them from annual to quarterly, etc. and we've also reduced the volume of ad hoc requests by over 3000 year over year. So all in all, we've estimated that we've reduced firms by about 50,000 reporting requirements, and that is about £27 million in firm benefit.
Something else. Recently, we've extended the operating hours till midnight every night. That was another request that firms asked from us. We've also streamlined reporting requirements. We've decommissioned eight returns and we've reduced the frequency of some of them from annual to quarterly, etc. and we've also reduced the volume of ad hoc requests by over 3000 year over year. So all in all, we've estimated that we've reduced firms by about 50,000 reporting requirements, and that is about £27 million in firm benefit.
10:16
Speaker 1
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Speaker 1
We're not done yet. There will be further changes. But I would also underline on this. We also need data to do our job. And I hear sometimes the messages you receive from some of the small firms in your constituencies. But I would also draw to your attention that some of the most significant harms and risks that we have had to intervene against have been sometimes individual financial advisors and small firms, perhaps, who were not so willing to cooperate with us and give us data.
We took 30 enforcement investigations on the British Steel Pension Scheme, problematic advice issue. We have intervened very recently a very significant joint operation with the Met Police a few weeks ago, which involved 800 officers. We have intervened against up to 30 firms, many of which are quite small firms, where potentially we suspect there's very serious organised criminality, or we will see what happens now as that investigation proceeds. So we want to be proportionate, we want to be careful with the admin burden, but we also need to be probing, particularly in this area of money laundering and financial crime, to protect the integrity of the system.
We took 30 enforcement investigations on the British Steel Pension Scheme, problematic advice issue. We have intervened very recently a very significant joint operation with the Met Police a few weeks ago, which involved 800 officers. We have intervened against up to 30 firms, many of which are quite small firms, where potentially we suspect there's very serious organised criminality, or we will see what happens now as that investigation proceeds. So we want to be proportionate, we want to be careful with the admin burden, but we also need to be probing, particularly in this area of money laundering and financial crime, to protect the integrity of the system.
10:17
Julie Minns
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Julie Minns
Before we move on, Miss Rossi, so you just mentioned that you you reduce the number of ad hoc requests. There were a few at 3000 fewer ad hoc requests. Now for firms and the in your report and your report, you talk about an average cost of 3700 per request, but that can vary widely. Why are you measuring requests? Have you got a figure for the highest cost and the lowest cost ones because we've got an average.
But are you prioritizing ones that are the highest cost to businesses.
But are you prioritizing ones that are the highest cost to businesses.
10:18
Speaker 2
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Speaker 2
So every CBA is somewhat unique in in the burden, but we do vet and challenge them very carefully. So every time there is a need to do an ad hoc collection, we check whether we can get outsource information. So for example, for consumer duty, we brought in an external data source called Defaka that helps us analyze that information rather than.
10:18
10:18
Speaker 2
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Speaker 2
Absolutely. If we think there's a disproportionate firm burden, we will push back on that request. We will analyse it. We will look if there's any other way that we can get that information. And we've also increased the length of time that we give firms to respond up to eight weeks, because that was something else that helps to reduce the cost and the burden on firms.
10:19
10:19
10:19
Julie Minns
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Julie Minns
Because, as Mr. Glenn says, we will not be a lot about the disproportionate costs sometimes for firms. And we're not, you know, we'll explain very clearly why you need to still investigate. We're not suggesting you don't, but it would just be helpful to have that if we can, if you can get any information to us. But really in your general reporting, I think it would be quite useful for people to see that. I
10:19
10:19
10:19
Bobby Dean
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Bobby Dean
Yeah. Thank you chair. Miss Russo, you spoke about sort of ambitions for the FCA in terms of using Agentic AI, which I'm sure was probably shared by regulated firms and consumers as well. Could I tease out a kind of a broader risk associated with agenda key that I think a lot of people have, which is the way these models work. They're not necessarily coded line by line, and craft and craft is specifically to do a job, right? So in other pieces of software, there's a whole line of inputs, and we expect the outputs to to be repeated as, as, as, as designed.
Whereas these models are kind of iterated over time. They're almost grown. They kind of have a bit of an internal logic that we don't see all of the workings of. And so it's a danger in pursuing a generic AI of this type and becoming potentially reliant on it in the future, that when these models are updated by the by the core firms, whichever firm you go with that, it kind of creates a mind of its own. And we we start to lose grip on what we initially thought.
We got it, we got those agents to do. And how do you sort of protect yourself against, against that software update coming in and what you thought your agents were doing are suddenly going to be taking a different internal logic in the future.
Whereas these models are kind of iterated over time. They're almost grown. They kind of have a bit of an internal logic that we don't see all of the workings of. And so it's a danger in pursuing a generic AI of this type and becoming potentially reliant on it in the future, that when these models are updated by the by the core firms, whichever firm you go with that, it kind of creates a mind of its own. And we we start to lose grip on what we initially thought.
We got it, we got those agents to do. And how do you sort of protect yourself against, against that software update coming in and what you thought your agents were doing are suddenly going to be taking a different internal logic in the future.
10:20
Speaker 2
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Speaker 2
And that's the most important live debate around the evolution of AI and the idea that the agent can act on your behalf. And so there are really important questions to work through. Some of those that we have started to investigate in our open finance work. So for, for example, as you say, there's a there's a field of study called K A know your agent. Can you authenticate that particular agent? There are risk management frameworks, sometimes called harnesses being evaluated for continuous conditional assurance of an agent.
How do you understand the amount, the consent, the revocation of that consent, the duration of the consent. So all of those things are actively being worked through by industry. We do have, as you know, our AI lab is open and applicants are actively welcome to apply with Agentic solutions. We do have at least three Agentic payment solutions being worked through at the moment in the AI lab. In particular personal planning, for example, personal inventory management, for example, household management of groceries, etc.
payments, food purchases, for example, are some of those. And then other kinds of agentic solutions relate to compliance, continuous compliance checks, for example.
How do you understand the amount, the consent, the revocation of that consent, the duration of the consent. So all of those things are actively being worked through by industry. We do have, as you know, our AI lab is open and applicants are actively welcome to apply with Agentic solutions. We do have at least three Agentic payment solutions being worked through at the moment in the AI lab. In particular personal planning, for example, personal inventory management, for example, household management of groceries, etc.
payments, food purchases, for example, are some of those. And then other kinds of agentic solutions relate to compliance, continuous compliance checks, for example.
10:22
Bobby Dean
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Bobby Dean
I guess the challenge that might come back is, and I like the concept of know your agent, is it possible to know it? I mean, we've seen recent test cases recently where, where the software essentially is trying to evade instruction and escape sandboxes, for example, and, and shown behaviours that look like manipulation. I'm not saying these things are sentient, but but pursued its own internal logic, which obscures to the user what its intentions are. So is it.
Do you feel confident that you're able to know your agents?
Do you feel confident that you're able to know your agents?
10:22
Speaker 2
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Speaker 2
So I think those are really important risks being evaluated by the Frontier Labs. There's a very live debate about the concept of testing and security around the release of frontier AI models, as you know. And then I think many of the applications that firms are adopting in particular are less action oriented or less risk oriented. So, for example, one such use case is security patching. So for example, a firm might identify an agent to continuously monitor for vulnerabilities, identify those patches and deploy them at pace.
So that's an example of an agentic operation which would operate within a security guardrail or harness. And many firms are building those kinds of applications. As you mentioned, there are very serious concerns about frontier AI models, the testing that they deploy on their on their agents, and then the wider adoption by the UK market and the global market. As it
So that's an example of an agentic operation which would operate within a security guardrail or harness. And many firms are building those kinds of applications. As you mentioned, there are very serious concerns about frontier AI models, the testing that they deploy on their on their agents, and then the wider adoption by the UK market and the global market. As it
10:23
Speaker 1
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Speaker 1
stands right now, I don't think we have the assurances that you're asking for. That's one of the reasons why the AI Safety Institute, I think, is very engaged on these issues. It's not just individual agents. What you saw with some of those incidents, for example, the hugging face incident, I don't know if the committee has been briefed on that. It swarms of agents and how the agents interact with each other to perhaps move beyond the protocols that they were established for.
And that requires not only our AI security institutions to be understanding it, but it's cross border, heavily cross-border. And that's why the work in the G20, under the UK's presidency around this is going to be so important, because if there are going to be standards before such models are released, it's only going to work effectively if they are genuinely global and there's deep global cooperation around these models.
And that requires not only our AI security institutions to be understanding it, but it's cross border, heavily cross-border. And that's why the work in the G20, under the UK's presidency around this is going to be so important, because if there are going to be standards before such models are released, it's only going to work effectively if they are genuinely global and there's deep global cooperation around these models.
10:24
Bobby Dean
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Bobby Dean
Can we move on to your own sort of supercharged sandbox? So I know that's been something that the FCA has been testing for for some time now. Could you could you explain to us what's been achieved by that process so far? And also, could you just pick up on the sort of integrity bits of the sandbox as well that we've just been discussing? I mean, how can you have assurances that you won't have anything in your testing environment? Get out.
10:25
Speaker 2
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Speaker 2
So, so in terms of the AI lab and the supercharged sandbox, these are pilot environments where firms can test using synthetic data sets as well as some of their own real world data sets. And we've had a pretty significant uptake and interest in these over about 50% year over year increase in applications into our sandbox. We've run two cohorts thus far. We have learned a lot from those interactions about the good practices and poor practices for AI implementations.
And then alongside that, we have also done supervisory visits that are called AI live testing, where we go on site to firms that invite us to look at the evaluation harnesses, risk management, product development and deployment approaches they've taken internally. And through that effort, we have learned a lot about good and poor practices, which we can share in about a week's time it'll be published. And also, in terms of the sandbox environment, these are very secure environments where it is completely air gapped, both from the FCA and and from any other system.
And the use cases that we tend to test are beneficial type of use cases that support consumer education or real world applications such as compliance, for example.
And then alongside that, we have also done supervisory visits that are called AI live testing, where we go on site to firms that invite us to look at the evaluation harnesses, risk management, product development and deployment approaches they've taken internally. And through that effort, we have learned a lot about good and poor practices, which we can share in about a week's time it'll be published. And also, in terms of the sandbox environment, these are very secure environments where it is completely air gapped, both from the FCA and and from any other system.
And the use cases that we tend to test are beneficial type of use cases that support consumer education or real world applications such as compliance, for example.
10:26
Bobby Dean
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Bobby Dean
And so the latest cohort started start this year, I believe, in January. And we expect an evaluation report of the AI live testing sorry. And we expect an evaluation report early next year. There's some concerns about Pace. I mean if we're if we're testing over the course of a year. But these models are iterating so fast, do we think that we're getting results quick enough to inform live activity on the ground?
10:27
Speaker 2
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Speaker 2
I think so because so the first cohort was at the start of this year in January. The second cohort started in the summer and is and is in flight. And we will have the results of that cohort through the end of the year. The important thing is that this is real testing and it takes time to do real engineering work. These are not conferences. These are development environments where the firm has the opportunity to actually develop and deploy products and test them in a real world scenario, and that does take time to do that testing properly.
10:27
Speaker 1
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Speaker 1
One point I'd make around pace, I think we're going to have to grapple with this with the way in which this technology is moving so fast. I don't think any institution is going to be able to keep up with every single latest development. You know, we just talked about procurement earlier. Those procurement cycles take a certain amount of time just from start to end of procurement. The technology can be different to what you started out with. So likewise for financial services firms, not every single financial services firm is going to adopt the latest model.
What a significant number of firms will be doing is seeking to maximise the benefit from the models that they have already, because that can generate significant benefit and significant productivity enhancements and significant security enhancements. Same for the FCA. We aren't going to be adopting the latest technology every single month. It's not feasible for us to do so, but that doesn't mean we can't still generate huge benefits for our organisation from maximising what we have. And so that that I think is going to be a feature of this work for years, years to come, given this frontier is moving every few weeks.
What a significant number of firms will be doing is seeking to maximise the benefit from the models that they have already, because that can generate significant benefit and significant productivity enhancements and significant security enhancements. Same for the FCA. We aren't going to be adopting the latest technology every single month. It's not feasible for us to do so, but that doesn't mean we can't still generate huge benefits for our organisation from maximising what we have. And so that that I think is going to be a feature of this work for years, years to come, given this frontier is moving every few weeks.
10:29
Bobby Dean
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Bobby Dean
Just a final question. We've spoken before on this committee about the critical third parties regime, and we've had Amazon Web Services, Google Cloud, Microsoft and Oracle, I think added in July. You previously told us that you're going to work with the bank on sort of scenario planning, testing, sort of incident exercises. Have you started this work and can you give us an update?
10:29
Speaker 1
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Speaker 1
Yes, we welcome the designation. A couple of months ago. We are working very intensively with the Bank of England and PRA on on this. Now that we can get up and running, making sure we've got the right frameworks for data sharing with the critical third parties, the frontier AI evolution has intensified the focus on this work, and we're generally getting good cooperation. As always, when there's a new regime in place, there are a couple of teething issues you have to work through with each of the individual firms.
As we get to understand their business models and their different protocols. We're working through those, but we're glad to have the regime up and running now. And, you know, we hope that it will give us the opportunity to expand the range of critical third parties over time, because we started with that, the number that you described. But it won't be the limit, I think, to what we need to.
As we get to understand their business models and their different protocols. We're working through those, but we're glad to have the regime up and running now. And, you know, we hope that it will give us the opportunity to expand the range of critical third parties over time, because we started with that, the number that you described. But it won't be the limit, I think, to what we need to.
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10:30
Speaker 1
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Speaker 1
I think that the the key point I would make is these are not traditional financial services firms. You asked earlier around data. And that's a that's a pain point. Data sharing and reporting is a pain point for small and large financial services firms. And we do seek access to some quite sensitive data, including commercially sensitive data from a range of institutions that we regulate. So we can understand how the market is operating.
And we can understand where there may be conduct issues arising. And I think what you'll see with many of these critical third parties is that they're global institutions, and they will have a certain commercial model that operates in the UK. But actually, the there's significant interdependencies in the way that model manifests itself in the UK with relationships they have outside the UK, and how we get our full understanding of those interconnections is clearly something that is going to be a work in progress is the point I'd make.
And we can understand where there may be conduct issues arising. And I think what you'll see with many of these critical third parties is that they're global institutions, and they will have a certain commercial model that operates in the UK. But actually, the there's significant interdependencies in the way that model manifests itself in the UK with relationships they have outside the UK, and how we get our full understanding of those interconnections is clearly something that is going to be a work in progress is the point I'd make.
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10:31
Jim Dickson
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Jim Dickson
Thank you Dave. Meg, just specifically on the frontier AI and cyber security side of the work that you're currently doing on AI. You wrote to us in July and said that you've been learning from firms that have access to frontier models. Can I ask what you've learned and what you're doing to share those learnings with financial services providers who don't have access to those models, but still might be affected by them?
10:31
Speaker 2
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Speaker 2
So we do have access to Glasswing type protocols for testing and are collaborating across industry on those lessons learned. Those developments do get shared across the industry. For example, if there's an open source code defect or any kind of vulnerability that is identified, those are are shared not by us, but of course, through the Cyber Security Institute and, and onward. So those those are things that I think are active and are functioning well in terms of evaluating the frontier models, of course, the point is pace.
So as those models continue to be deployed at pace, it's keeping up with the the scale of identifying those kinds of vulnerabilities.
So as those models continue to be deployed at pace, it's keeping up with the the scale of identifying those kinds of vulnerabilities.
10:32
Speaker 1
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Speaker 1
The other point I'd make is we have a vast array of firms. We regulate 40,000, another 40 to 50,000 coming in, subject to the legislation on single professional services supervision and money laundering. Not all of them are going to be able to invest in this technology in the way you you've heard from Jessica about some of the largest firms. So the other message we would be giving is cyber insurance is absolutely fundamental, and businesses, large and small must consider their insurance footprint, just as they would think about employer liability insurance and other forms of insurance, and absolutely core a core requirement.
And the cyber insurance market is actually anchored in the UK and Lloyd's of London. It's active, it's open. And the one message I'd give to every small business is you should consider making sure you are insured.
And the cyber insurance market is actually anchored in the UK and Lloyd's of London. It's active, it's open. And the one message I'd give to every small business is you should consider making sure you are insured.
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10:34
Jim Dickson
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Jim Dickson
Obviously, that's yeah, that's clearly an important message. But in an attempt to try to sort of increase resilience so that there is a minimal call on the insurance side of the equation, how do you think firms will behave in terms of sharing intelligence about resilience of the system as a whole, rather than just their own individual operations? And are you encouraging that.
10:36
Speaker 1
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Speaker 1
And in my letter to the committee, I added a sentence in there which noted that we would take a pragmatic view on competition questions, because sometimes on this question of information sharing, there has been a nervousness around some of those concerns. We have concurrent competition powers with the CMA, clearly, where it's an issue of integrity and resilience. We can see the broader interest there. So we've tried to make sure that message is out there as well.
10:36
Jim Dickson
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Jim Dickson
In terms of your relationships with the AI providers, you've obviously told us that you've had an opportunity to meet them and understand the models that they're providing to financial services industry players. What what has that told you about the way in which the AI environment is changing and, and what risks emerge from that?
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10:37
Speaker 2
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Speaker 2
I think the relationship with AI model providers is one where first, they are very eager to support government services, public services in particular. So there is an opportunity, as you can imagine, for these these frontier AI firms, to see that their products and services are helpful, that they do things for medical industry, not just finance, for example. And so there has been a lot of positive signs on that front.
But as you can imagine, it's also important for us to have a varied supplier base. So for our own internal efforts, we work across a number of frontier AI models so that we ourselves do not have concentration risk and can pivot where we need to and have that kind of choice. If there's anything else you want. To
But as you can imagine, it's also important for us to have a varied supplier base. So for our own internal efforts, we work across a number of frontier AI models so that we ourselves do not have concentration risk and can pivot where we need to and have that kind of choice. If there's anything else you want. To
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10:40
Speaker 1
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Speaker 1
So I think we've met all the main. We'll have been in contact with all the key players, but I think the bigger picture question here is, and you'll. You'll have seen this in the Bank of England's latest financial stability report. I mean, the scale of capital investment in AI hyperscalers is extraordinary. We're talking in excess of $2 trillion globally, a combination of debt equity and so-called supplier financing. And the business models of these different institutions are something completely new to anything we've ever seen before.
And there's a lot of work going on internationally to understand the business models, the incentives, and a really open question, including in terms of what you see in the markets and the volatility around some of their securities as to what's the path to monetization of this enormous, I mean, unprecedented level of capital expenditure globally. So I think that's also relevant for us as a macro question to understand what's going to happen. And then there is the individual models and firms.
And there's a lot of work going on internationally to understand the business models, the incentives, and a really open question, including in terms of what you see in the markets and the volatility around some of their securities as to what's the path to monetization of this enormous, I mean, unprecedented level of capital expenditure globally. So I think that's also relevant for us as a macro question to understand what's going to happen. And then there is the individual models and firms.
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10:42
Julie Minns
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Julie Minns
Turning to your annual report. A number of things jump out. One is that the losses and special payments disclosure shows that losses in the past year have increased from 448,000 to 540,000, even though the number of incidents of losses has fallen. So can you just explain, Mr. Sakura, what's caused the increase?
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Speaker 1
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Speaker 1
know the answer to that question, so we'll have to come back to you. You picked up a very, very precise point. I think that must be is that is that probably to do with I listen to the description credit losses where some people haven't paid their Is where some people haven't paid their invoices and we have to write to us on that. Back to you on that one. That's fine. And you also in you promised new metrics to assess this the first year of the new strategy, but you've been measuring it in this report on the old metrics.
So when will you have new metrics to measure the strategy and what will the difference that , you know, firms and others will be able to see, well, how . Will we
So when will you have new metrics to measure the strategy and what will the difference that , you know, firms and others will be able to see, well, how . Will we
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10:44
Speaker 2
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Speaker 2
The efficiency that we are creating. internally and how we are sort of driving what Jessica is. describing the AI journey. And this is very much a work in progress, and we're hoping that by the end of this year, we will have a much more sound amount of data that we can actually support that growth, because there's sort of a multiple sort of very dynamic environment going on at the moment where we're sort of seeing some benefits coming through, but some of them are quite intangible.
So for example, financial crime, we're seeing an uptick in in financial crime. The efforts that we're doing in that area, are they enough or do we need to add . Additional
So for example, financial crime, we're seeing an uptick in in financial crime. The efforts that we're doing in that area, are they enough or do we need to add . Additional
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Speaker 2
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Speaker 2
with all the technology available to you, quite straightforward to do, not confusing. Well, it's subject to always to sort of making sure that we can create that correlation between the underlying data and the fact that it has, because I think in some of the. cases we can influence the outcomes, but in other parts it's more sort of diffuse and saying,
10:47
Speaker 1
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Speaker 1
Is it actually our action that has given the outcome that we are looking to seek? Okay. So we'll keep an eye on that one in future years. And one of the other key issues that really jumped out is the abnormal share price movements issue. So your you, you, last year, 41% of all UK takeover announcements followed. abnormal share price movements, which was a record high. And your data also showed an increase in unusual trading volume ahead of sensitive market announcements.
Now, I mean I raise this with you, Mr. Rathi, about oil prices ahead of President Trump's speeches around the issue. Do you think the FCA should be . Taking
Now, I mean I raise this with you, Mr. Rathi, about oil prices ahead of President Trump's speeches around the issue. Do you think the FCA should be . Taking
10:48
Speaker 3
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Speaker 3
stronger enforcement action to prevent insider trading? We are concerned about that metric. As we explained in the annual report, we changed the basis of calculation. So there isn't a complete like for like comparison with last year, because the new method of evaluation is going to lead to structurally higher, modestly, structurally higher figures than we have seen previously. The underlying point though, is that there is too much. Speculation around these takeovers, which is contributing to abnormal price movements.
Now, some of that may be media speculation, which is inaccurate and leads to a normal price movement. Some of it may be leaking of inside. information and we are taking increasingly assertive action, including with the Takeover Panel, with the sell side institutions, but also the army of. advisers and others who get involved in these. situations and. potentially may have privy to . Information which
Now, some of that may be media speculation, which is inaccurate and leads to a normal price movement. Some of it may be leaking of inside. information and we are taking increasingly assertive action, including with the Takeover Panel, with the sell side institutions, but also the army of. advisers and others who get involved in these. situations and. potentially may have privy to . Information which
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Speaker 3
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Speaker 3
Insider trading information? I think there's jigsawing together information, perhaps I don't. I think that sometimes there may be leaks because a. participant in a corporate finance. transaction considers there may be some tactical. advantage around leaking in terms of securing a better price or securing some commercial advantage. That may not necessarily be insider trading. Insider trading is specific using inside information to secure a private gain from that inside.
information on inside information. I would say we've been taking record numbers of prosecutions and we've had quite a successful run in the criminal courts during the course of this year, with a number of prison sentences and record number of fines in two cases over, I think, 11 million in those two put together. So we are being proactive here. But, you know, there's there is always more to do. And then to to tie this back to what I said at the start around market integrity risk, what we now see.
information on inside information. I would say we've been taking record numbers of prosecutions and we've had quite a successful run in the criminal courts during the course of this year, with a number of prison sentences and record number of fines in two cases over, I think, 11 million in those two put together. So we are being proactive here. But, you know, there's there is always more to do. And then to to tie this back to what I said at the start around market integrity risk, what we now see.
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Speaker 3
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Speaker 3
However good you are, someone who's actually a whistleblower is probably very useful to you. Yeah. And I think I think on most insider trading, it's generally not. simply happening in our jurisdiction. The nature of our markets are you will find that these are criminal activity. And actually, as we speak this morning we'll be saying more about this later. There is a very major operation going on which we have partnered with the police on against some very.
suspected criminal activity in this regard. So we are active on it and we are working increasingly with partners. It's challenging because I think sometimes we're dealing with organised criminal groups who are highly, highly. sophisticated and highly.
suspected criminal activity in this regard. So we are active on it and we are working increasingly with partners. It's challenging because I think sometimes we're dealing with organised criminal groups who are highly, highly. sophisticated and highly.
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10:57
Speaker 4
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Speaker 4
you can give for why that is so low and what you're going to do about it? So, for example, there was a lot of work that went into the creation of the digital assets regime and in particular the crypto regime, which was opened just recently. And I think that it there will. necessarily be a range of views around.
10:57
10:57
Speaker 4
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Speaker 4
But our perspective is not that rubber. stamping innovative firms is the right approach. We want to take a considered and evaluative approach, which is why we have set out a lot of. information for firms that are, for example, crypto. issuers that can now apply and go through our. authorisations gateway. We offer. pre-application support service meetings to help those firms. understand exactly everything that they can do to provide us with the right.
information and to be successful. My perspective is not that it's an innovation barrier. It's about a readiness to . be .
information and to be successful. My perspective is not that it's an innovation barrier. It's about a readiness to . be .
10:59
Speaker 1
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Speaker 1
Authorised and to have the right controls in place. Okay. And just finally, for me, for now, financial Regulators Complaints Commissioner's annual report came out. So it's important, I think, as a committee that we just touch on that as well. And but there was this odd dispute between them and him or them and the FCA. They report that you did not accept three of its 34 recommendations. You reported that you did not accept two.
I'm just puzzled why there was a discrepancy there. Surely . That's
I'm just puzzled why there was a discrepancy there. Surely . That's
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11:01
Harriett Baldwin
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Harriett Baldwin
Glen MP, I think. Harris oh, Dame Harriet yeah. Thank you chair. Everyone's aware that I've got this bee in my bonnet, that the financial advice sector has been virtually regulated out of existence for. 90% of our. constituents can't afford or don't aren't prepared to pay upfront for financial advice. And I'm convinced that a lot of the problems that we see in terms of people taking very low risk in their.
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11:02
Harriett Baldwin
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Harriett Baldwin
People keeping too much cash, people getting scammed. I put this down partly to the fact that financial advice has become a lot less accessible, and I know that you, as a regulator, have tried to address this by bringing in simplified advice and targeted support. And so can you just update the . Committee
11:02
Speaker 3
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Speaker 3
on whether that's actually making any difference? Major issue . We have embarked on bold reforms, also in partnership with the Treasury, around targeted support that's now live. We're encouraged. I think we have over ten firms already authorised. We offered pre-application support. And what's what's interesting about that is the range of different firms that have come through that gateway. So some large retail banks coming back into the market, having previously pulled back from financial advice right through to insurance companies and some fintechs.
And so we will now see which of those services garner the commercial interest of the public in terms of taking up more of these services. We have also sought to make other forms of. advice more accessible, including mortgage advice and making the digital journeys more freely available. We're looking at the work on. pensions as well. So overall, I'd say that the regulatory framework and has shifted very significantly.
There is then the . Issue,
And so we will now see which of those services garner the commercial interest of the public in terms of taking up more of these services. We have also sought to make other forms of. advice more accessible, including mortgage advice and making the digital journeys more freely available. We're looking at the work on. pensions as well. So overall, I'd say that the regulatory framework and has shifted very significantly.
There is then the . Issue,
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Speaker 3
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Speaker 3
Many of them are large firms. So I think amongst them, those that have confirmed, I mean, they will have tens of millions of customers. So they will be rolling that out to their market. There's a long there's a significant number behind them. We have moved very fast. So really, it's up to the firms themselves to decide when . They're ready
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Speaker 3
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Speaker 3
sort of targeted support? I'd say that that that everybody should have access to the information they need to navigate their financial lives with confidence. In some cases, that may be very simple. information because they may not have significant savings where they need targeted support and financial advice. Because remember, there's several million people who don't even have a few hundred pounds of cash savings. And the the support they need may be through workplace savings schemes or other schemes to start to build up that buffer that they need for.
unexpected life events. To the millions of people who have more than. £10,000 in cash, which could be invested. So there's a range, and we'd like to have. everybody having access to the support they need. We'd like to see the amount in cash, which is. uninvested and which is not needed for liquidity purposes. We'd like to see that come down a greater proportion of that in long term investment. Some of that is about tax and education.
It goes beyond.
unexpected life events. To the millions of people who have more than. £10,000 in cash, which could be invested. So there's a range, and we'd like to have. everybody having access to the support they need. We'd like to see the amount in cash, which is. uninvested and which is not needed for liquidity purposes. We'd like to see that come down a greater proportion of that in long term investment. Some of that is about tax and education.
It goes beyond.
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Speaker 3
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Speaker 3
So I think with the Sheldon Mills Review, I think in terms of if you look at regulation around the world, it was quite groundbreaking in terms of how we engaged on this topic and, and laid out all the evidence. We did extensive survey work with consumers to understand their inclination to use. advice and use AI models. And as Jessica can explain, we're. experimenting with a number of these firms in our innovation services.
We are awaiting the provisional licensing regime that will come through the bill to enable us to license providers who may wish to experiment here, short of full fisma authorization. I think the question that we get asked and we get different views on this from different interests, is should these models be regulated? Should these. models come under FCA purview? That is ultimately a question for government and Parliament at the.
We are awaiting the provisional licensing regime that will come through the bill to enable us to license providers who may wish to experiment here, short of full fisma authorization. I think the question that we get asked and we get different views on this from different interests, is should these models be regulated? Should these. models come under FCA purview? That is ultimately a question for government and Parliament at the.
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Speaker 3
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Speaker 3
would you respond to that? That's why I talk about risk appetite in the committee, because I think we could probably see very significant benefit to perhaps. Let me let me put a rough number at. 90% of the population are accessing it, but there may be 10% who may not get the optimal product, which they would get from an. individual customized piece of advice. And the trade off we're making quite openly, we're making it here.
We're making it in our mortgage reforms is the benefit to the. 90% is overall to the benefit of the market and to the delivery of our outcomes and our objectives, recognising that we're not going to deliver a regime that is perfect for every single.
We're making it in our mortgage reforms is the benefit to the. 90% is overall to the benefit of the market and to the delivery of our outcomes and our objectives, recognising that we're not going to deliver a regime that is perfect for every single.
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Harriett Baldwin
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Harriett Baldwin
So we'll see how that market evolves in the coming months and years. Okay, moving on to a different topic, if I may, the insurance sector and the committee will be doing a special. session on insurance, because I think we're picking up from our. postbags that a lot of. insurers are responding to the competitive. marketplace with. reducing coverage and sort of putting more exceptions in their policies.
I think we're also hearing from insurance companies that they're using AI very. extensively to do. pricing that. reflects things as. unusual as which. browser you use to look for your insurance policy. And we also, in terms of.
I think we're also hearing from insurance companies that they're using AI very. extensively to do. pricing that. reflects things as. unusual as which. browser you use to look for your insurance policy. And we also, in terms of.
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Speaker 3
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Speaker 3
Insurance, I wondered if you could comment on those, Mr. Rathi. Yeah. So we look forward to your inquiry. We will engage obviously fully with it. There's been a parallel inquiry on insurance in the Financial Services Regulation Committee as well, and we've been giving. evidence there too. I think that just. demonstrates the interest there is in these issues across Parliament. The consumer duty has been important bedrock of our work, and I know there's debate to the extent which we should rely on the duty versus introduce lots of new standards.
What we are seeing in terms of the. overall trust index on. insurance published by organizations like Fair Finance or the Chartered Institute of Insurers, is that in some segments that's been going up in car and travel, it's improved. In pet and home, it's more stable. So there has in terms of that outcome measure, we have seen that improve. We've also seen in some specific cases where we've intervened.
For example, in one home. emergency cover situation, the number of complaints go down by 61%. There is an active programme of work on home and travel. In
What we are seeing in terms of the. overall trust index on. insurance published by organizations like Fair Finance or the Chartered Institute of Insurers, is that in some segments that's been going up in car and travel, it's improved. In pet and home, it's more stable. So there has in terms of that outcome measure, we have seen that improve. We've also seen in some specific cases where we've intervened.
For example, in one home. emergency cover situation, the number of complaints go down by 61%. There is an active programme of work on home and travel. In
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Speaker 3
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Speaker 3
looking at the claims data. One area we've called out. explicitly is there's only. 31% of accepted claims for storm damage, which points to us to there being a problem with how that product is understood, as well as. potentially problems in the claims journey. Now, we've been working closely with the Abi on that. We want to see some. improvements there. We have published our work on premium finance. We steered away from seeking to impose a particular cap because we think that could have unintended consequences.
This is a product that is needed by people who are not able to pay a large annual premium and want to budget over a month, but we did intervene with a number of firms, and we've seen a number of firms that we did intervene with. reducing the overall. cost of that product to their to their consumers. And aside from fairly active supervisory.
This is a product that is needed by people who are not able to pay a large annual premium and want to budget over a month, but we did intervene with a number of firms, and we've seen a number of firms that we did intervene with. reducing the overall. cost of that product to their to their consumers. And aside from fairly active supervisory.
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Speaker 3
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Speaker 3
Including on claims handling, where we're doing detailed work with 300 firms, where we've seen issues around the process of claims handling, also where technology is being used more. We also have six open enforcement. investigations into the. insurance market across a range of issues. Now, perhaps if we had been able to be more open about our enforcement investigations than turned out to be the case, those are a couple of those cases . May have been ones which we would have
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Speaker 3
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Speaker 3
observed by the majority of insurance firms? There is, I think I think we're seeing that by the by, the. majority we have, as I said, we have a number of open enforcement investigations where we are concerned about compliance with consumer duty and those those investigations will proceed, and we will see what the. outcomes are, where we where we have specific concerns. We've called those out in the home market.
We have called it out in claims handling. We have taken individual. intervention in certain situations. So, for example, in motor insurance claims handling, where we felt that for some.
We have called it out in claims handling. We have taken individual. intervention in certain situations. So, for example, in motor insurance claims handling, where we felt that for some.
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Speaker 3
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Speaker 3
Particularly around used cars, the valuation that was being offered as as a settlement of the insurance claim did not reflect the market valuation. And we have called that out. And we have made certain large firms. remediate and pay tens of millions of pounds of compensation back to customers where we have been concerned. So we are active in this market we're monitoring,
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Speaker 3
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Speaker 3
Is a core component of the consumer duty, and it's one limb of it. And we expect firms to provide a channel of engagement that is appropriate to its customer base. And some customers will want digital only. Some customers will want other forms of contact. And it's important that the right channel of. engagement is available. So yes, and if there are specific issues there where there hasn't been the appropriate channel of engagement either in the provision of the insurance product or through the claim that is an issue we'd want to look at.
The other issue we've seen on insurance is people who've bought the product digitally but are not able to cancel it digitally, and they're put through sludge.
The other issue we've seen on insurance is people who've bought the product digitally but are not able to cancel it digitally, and they're put through sludge.
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Bobby Dean
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Bobby Dean
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Speaker 3
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Speaker 3
the legislative process will sort out your concerns going forward? Overall, we support the direction of travel. On the. reforms that are before Parliament. We've worked well with the Treasury and the Financial Ombudsman Service, that they're part of a package of reforms. Some have been taken forward outside legislation, for example, in relation to professional.
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Speaker 3
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Speaker 3
The framework of cooperation we have with the Financial Ombudsman Service as well. We have highlighted this issue. I highlighted it to the committee. We remain concerned. The issue from our perspective is that it's only only really just a few hours before the legislation was published that we learnt that it was going to say must rather than may, and quite an important change was made. At that point. And we do think that could have some quite significant operational consequences.
It could slow down the system. It could I'm not sure it's great for industry either, to have that volume of referrals. We think potentially as many as between 1000 and 3000. And that's before you take any account of what may happen, as AI is used to try and figure out all the ways in which rules are ambiguous, and then press the Financial Ombudsman Service to refer those to the FCA. And so we do think the primary legislation should change.
The ideal change for us would be to go back to what we had understood it to be, which was, may we understand from Treasury officials that they haven't heard this yet, from the Economic Secretary to the Chancellor, but there is real reluctance to make that change. So we've shared some language as to how the the clause could be amended. Otherwise that would all be damage.
It could slow down the system. It could I'm not sure it's great for industry either, to have that volume of referrals. We think potentially as many as between 1000 and 3000. And that's before you take any account of what may happen, as AI is used to try and figure out all the ways in which rules are ambiguous, and then press the Financial Ombudsman Service to refer those to the FCA. And so we do think the primary legislation should change.
The ideal change for us would be to go back to what we had understood it to be, which was, may we understand from Treasury officials that they haven't heard this yet, from the Economic Secretary to the Chancellor, but there is real reluctance to make that change. So we've shared some language as to how the the clause could be amended. Otherwise that would all be damage.
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Bobby Dean
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Bobby Dean
the referral mechanism is is an orderly mechanism. So to be clear, your sense is that there was an understanding that the word may would be more productive. It would stop this idea of there being a back door appeals mechanism. But perhaps due to industry lobbying that changed to must quite late in the day. And you're you're very . Concerned about the
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Speaker 3
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Speaker 3
implications of that and how it might be exploited going forward. Yeah, I think if I. How, how I think about these issues from the perspective of leadership of the FCA at the start, I said the talked about the challenges we're facing when it comes to integrity of the financial services system. So as an.
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Speaker 3
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Speaker 3
need to be operationally focused on the biggest. risks that are out there. There is going to be enormous operational pressure on us and other institutions. Also, many of the partner institutions that are facing budget challenges right now. Therefore, we are concerned that something which is going to create a lot of operational.
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Speaker 3
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Speaker 3
As we have seen in the past when legislation has come through, and I was a former Treasury official. So I know what it feels like a little bit when you legislate from afar, and you don't always. understand the operational consequences of what you're doing. You know, you can look at pension freedoms, you can look at Consumer Credit Act, look at the look at the sheer operational consequence of it, look at the operational consequence of inaction when it comes to the exemption on high net worth and the level of fraud that we see around use of that exemption.
So what we're asking for is really, please take. seriously the genuine operational issues that will arise from here. This has not been completely considered in full. The cost benefit analysis isn't very. detailed on this aspect at all, and I'm not even sure it is industry lobbying. I'm not sure I'm hearing that this is what some industry are potentially asking for. So it seems to be that there was an initial proposal in the first consultation, which would be which came from, I guess, some of the sort of options analysis around should the FSB, a subsidiary of the FCA, there wasn't huge support from that from any quarter, I don't think.
And we're worried this could be an attempt . That
So what we're asking for is really, please take. seriously the genuine operational issues that will arise from here. This has not been completely considered in full. The cost benefit analysis isn't very. detailed on this aspect at all, and I'm not even sure it is industry lobbying. I'm not sure I'm hearing that this is what some industry are potentially asking for. So it seems to be that there was an initial proposal in the first consultation, which would be which came from, I guess, some of the sort of options analysis around should the FSB, a subsidiary of the FCA, there wasn't huge support from that from any quarter, I don't think.
And we're worried this could be an attempt . That
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Speaker 2
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Speaker 2
Unless we can sort of drive a high level of. automatization through it, it becomes a lot of resource consuming. And I think where we are trying to go as an organisation now is actually we take our existing processes, we create a higher level of organisation, we use AI and so on. And this would go sort of contrary to this. And basically here we get a new process that is creating. volume that we then need to capacitate.
And we need to add. resources that could to, to Mr. Nicholas says, be spent better elsewhere. So I think it's sort of . How do we.
And we need to add. resources that could to, to Mr. Nicholas says, be spent better elsewhere. So I think it's sort of . How do we.
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John Glen
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John Glen
Thank you. Thank you very much, Mr. Dean. John Lennon yes. Mr.. You just referred to your previous life in the Treasury, and I wanted to ask you about the dynamic of work between yourselves and the Treasury. I mean, when I was economic Secretary, I had a secondee from the FCA, but there is often a question asked about, you know, is the. dynamic and I'm not talking about tension between but in terms of the efficiency of delivering.
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John Glen
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John Glen
And I just wondered if you've got any comments on that. I know this is a sensitive subject, but at the same time, we're trying to get to the heart of what are some of the blockages of some of the things you need to do. And I've heard. anecdotally that, you know, there aren't as. many a lot of people have left aspects of the Treasury . In terms of
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Speaker 3
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Speaker 3
financial services. I just wondered if you'd like to say anything on that. The we work very productive with the Treasury. If you look at what has been achieved over the last 5 to 10 years, including prior to my time as CEO of the FCA, the. transition of the entire financial services rulebook from the EU acquis.
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Speaker 3
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Speaker 3
And then into our firm facing rules, an enormous exercise, and there's been a huge amount of productive cooperation. Last year we delivered 50 measures supporting growth and competitiveness, many of those in close working with the Treasury. So I think that's my starting point. It's incredibly important that the system works together. None of us have time for institutional chicanery and all of the things that can that can get in the way. The points I made last time to the committee stand.
What do I think we need in the system? I think we need pace. Pace in the system. Now by by no means perfect, and we are looking at how we can go faster. The policy making. process is lengthy and we, for example, at the instigation of previous Treasury committees, produce a perimeter report which. recommends changes. If you were to judge us as an outcomes based regulator on the success of our report, we wouldn't be doing very well because we're not very persuasive in in, in getting the changes we need.
And certainly, even if we do persuade . That the
What do I think we need in the system? I think we need pace. Pace in the system. Now by by no means perfect, and we are looking at how we can go faster. The policy making. process is lengthy and we, for example, at the instigation of previous Treasury committees, produce a perimeter report which. recommends changes. If you were to judge us as an outcomes based regulator on the success of our report, we wouldn't be doing very well because we're not very persuasive in in, in getting the changes we need.
And certainly, even if we do persuade . That the
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Speaker 3
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Speaker 3
isn't the capacity to do things quickly enough as you would like. I think that is a. That's one of the challenges. I think there's. You have to. I think the. I think it can be quite hard to make the case for changes around consumer protection and market. integrity to get to the threshold of legislative change. There is clearly system capacity.
There's legislative time capacity. You will be familiar with this . In
There's legislative time capacity. You will be familiar with this . In
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Speaker 1
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Speaker 1
Certainly during the Brexit period it was very high because there was so much work going on that has abated. somewhat since then. I would also make the point here, and I think you always ask me, when I was appointed and reappointed, if there was any disagreement with the Treasury, would I be open with you? Of course I would be. The the issues that I think that that I think as a system, we need to be considering.
When you when you hear this discussion around deficit of trust and. institutions that the public have across the board, and it varies for different institutions, to me that that is a question around institutional effectiveness . And do do our citizens feel they can get things out of us at the speed and pace that they expect, quite. legitimately expect? And we are looking at how technology can help us deliver that. I also think when you look at the overall.
accountability framework and the judicial framework, we have something like. 40 to 45 accountability. mechanisms across the landscape of our work at the FCA 80 plus have regards. To go back to Mr. Deane's question on the referral mechanism, if you watch the passage of. legislation and much of it is created in the Treasury and then ratified by Parliament, every single one adds more.
When you when you hear this discussion around deficit of trust and. institutions that the public have across the board, and it varies for different institutions, to me that that is a question around institutional effectiveness . And do do our citizens feel they can get things out of us at the speed and pace that they expect, quite. legitimately expect? And we are looking at how technology can help us deliver that. I also think when you look at the overall.
accountability framework and the judicial framework, we have something like. 40 to 45 accountability. mechanisms across the landscape of our work at the FCA 80 plus have regards. To go back to Mr. Deane's question on the referral mechanism, if you watch the passage of. legislation and much of it is created in the Treasury and then ratified by Parliament, every single one adds more.
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Speaker 1
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Speaker 1
want a criminal trial, now we have to wait three years in the courts before we get a trial date. And then for the civil cases, it's different. That is the system question, which I don't think gets enough attention. And that is why we are very concerned about this referral mechanism, because we think that that is just adding to system . Blockage, which
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John Glen
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John Glen
Because there is a massive. premium to be paid. And, you know, a number of former officials who pop up working for banks at the appropriate time after process, etc.. But does that not mean that there's a risk that you don't have the right expertise in the FCA and the Treasury to deal . Appropriately and
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Speaker 1
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Speaker 1
swiftly enough for the sort of things that we need to. You'll see you've got three people before you here who've all worked in the financial services industry. Now, sometimes we can get criticised for that. But and Johann has vast international experience. He's joined us. He relocated his whole family from Sweden to come and become chief operating officer of the FCA. He used to run a. Tackling financial crime from the large Swedish institutions, has vast experience of money laundering, and Jessica worked for a fintech and financial services beforehand.
One of the best professional decisions I made, I think, notwithstanding that I was. I think doing well at the Treasury, was to actually take a step out and go and get some commercial operational experience to build some of that understanding. And we have I think over half of our directors have got commercial experience and professional experience outside. I'm vastly impressed by the expertise of our colleagues all the way through our organisation, both on the technical issues, but also the legal and legislative framework on technology.
We publish a lot . Of work on
One of the best professional decisions I made, I think, notwithstanding that I was. I think doing well at the Treasury, was to actually take a step out and go and get some commercial operational experience to build some of that understanding. And we have I think over half of our directors have got commercial experience and professional experience outside. I'm vastly impressed by the expertise of our colleagues all the way through our organisation, both on the technical issues, but also the legal and legislative framework on technology.
We publish a lot . Of work on
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Speaker 1
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Speaker 1
in answering. It's not a criticism. It's just the system. Partly, I think, part of our role, part of the Bank of England's role, is to assist the Treasury on technical matters, because we are we are market facing, and we're the people in the system who are who are supposed to. Supposed to . Contribute
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Speaker 1
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Speaker 1
Financial services expertise and financial crime expertise. I've been very lucky with economic secretaries previously as well. The and the Chancellor had a very generous meeting with regulators in the Business Secretary last week. So I think ministers are really listening. I would say, what is the expertise that I would I would like to see there being a focus on really understanding operational consequences of legislative decisions and rule making fundamental. The issue in the United Kingdom, in my view, is, is a deficit of operational execution.
So let's not make our lives more difficult at a moment when the opportunities are great. But the risks are enormous. And I think we . Really shoot
So let's not make our lives more difficult at a moment when the opportunities are great. But the risks are enormous. And I think we . Really shoot
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Speaker 1
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Speaker 1
time after time. I'm getting reminded that legislation doesn't solve things. Technology, expertise, depth of technology, expertise. But that's where the AI Safety Institute and the AI Economics Institute has been established are very important. No, no single department's going to have that expertise. So that is expertise. That is for the entire collective that then what you need to do is get the mechanisms right. So that gets.
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Julie Minns
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Julie Minns
Report, sexism in the city. Now that found that there was a very stark gender pay gap. Harassment and widespread sexual harassment, bullying, misogyny persisted across the industry. There was a broken system of. whistleblowing and widespread misuse of NDAs. You said in response to that report that you would be.
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Speaker 1
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Speaker 1
sufficient to change the working culture in this sector? No, not on their own. So we've we had we published, we took a step and it was heavily contested, as the committee heard, to publish guidance on. non-financial misconduct to. extend the coverage of our rules to beyond the banking sector to a broader population of firms, because some of the most severe cases we had seen were in in the investment management industry or in other sectors beyond the the banking sector.
But we want to be very clear about what our role is. We're not going to be the. organisation that can oversee every potential employment grievance in relation to non-financial misconduct, and some of the conduct that is of most serious concern engages criminal matters, which are for the police to investigate. But we did say this is relevant to fitness and propriety, and the way in which these issues are overseen is important. The way in which whistleblowing allegations on these issues are overseen is important, particularly when there can be such an asymmetry of power between the people against whom the allegations are being made and the individuals who are making the allegations.
And we've taken a number of cases more than I think you'll see, any financial regulator around the world in this arena with significant numbers of prohibitions, and we are not afraid to go after if we need to, based on the evidence, the most senior people in the industry and prohibit them if we need to. But no, we can't do it on our own. There's been other legislation that's come through and that's come into force, including for all employers around prevention of of harassment.
And . At the
But we want to be very clear about what our role is. We're not going to be the. organisation that can oversee every potential employment grievance in relation to non-financial misconduct, and some of the conduct that is of most serious concern engages criminal matters, which are for the police to investigate. But we did say this is relevant to fitness and propriety, and the way in which these issues are overseen is important. The way in which whistleblowing allegations on these issues are overseen is important, particularly when there can be such an asymmetry of power between the people against whom the allegations are being made and the individuals who are making the allegations.
And we've taken a number of cases more than I think you'll see, any financial regulator around the world in this arena with significant numbers of prohibitions, and we are not afraid to go after if we need to, based on the evidence, the most senior people in the industry and prohibit them if we need to. But no, we can't do it on our own. There's been other legislation that's come through and that's come into force, including for all employers around prevention of of harassment.
And . At the
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Speaker 1
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Speaker 1
practice. What does that look like? What are you looking for from the firms? We're looking at how they address whistleblowing allegations when they come. And it's important here to stress getting a higher number of whistleblowing allegations may not in and of. itself demonstrate that there's an issue, because actually, what it might demonstrate is that the Speak Up culture is working , and that.
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Speaker 1
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Speaker 1
Individuals who felt they couldn't talk about their experiences are now able to use the systems within firms to do so. So we're not automatically going to say that's a problem. What we want to understand is, okay, when those issues arise, how are they dealt with through the governance of the organisation? So we are we've been collecting data. periodically on on that we get our own intelligence coming in, including through our. whistleblower channels, as I say, some of the most harrowing and sensitive cases.
We deal with some of the most difficult work that colleagues at the FCA have to.
We deal with some of the most difficult work that colleagues at the FCA have to.
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Speaker 1
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Speaker 1
As I say, all of those are looked at carefully. I would repeat what I said earlier. Sometimes people come to us as the last resort when they haven't been able to get the satisfaction they wanted from the police or another authority. And these can be the challenging cases where when we look objectively, dispassionately at the evidence, it's not always possible for us to take the kind of action they want to take. But we always seek to explain that.
But I'm not sure we're always going to satisfy. everybody who comes to us. The other point I would I would just draw your attention to Miss Minns, which was which I think is significant. And it's early days because it's only just come into force on . the 1st of September . Is regulatory referencing one of the issues that was a perennial problem in the financial services sector was an individual who was known to.
There were known concerns about that individual and non-financial misconduct in one firm, but they left either resigned or a settlement agreement. And the new employer did not know about the. history of this alleged behaviour , or indeed, the history of disciplinary action in previous employers. That now needs to be included in regulatory references, which go from one firm to another, so we can tackle .
But I'm not sure we're always going to satisfy. everybody who comes to us. The other point I would I would just draw your attention to Miss Minns, which was which I think is significant. And it's early days because it's only just come into force on . the 1st of September . Is regulatory referencing one of the issues that was a perennial problem in the financial services sector was an individual who was known to.
There were known concerns about that individual and non-financial misconduct in one firm, but they left either resigned or a settlement agreement. And the new employer did not know about the. history of this alleged behaviour , or indeed, the history of disciplinary action in previous employers. That now needs to be included in regulatory references, which go from one firm to another, so we can tackle .
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Speaker 1
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Speaker 1
misconduct. Where's that trending. Is it up or down. Same. I don't have. explicit data and it goes a little bit to we were asked earlier about data collection. We have to be quite proportionate about the data we collect and how much we collect. We've done we've done periodic surveys here, but we're not doing a systematic data collection as part of our standard regulatory reporting on every type of allegation.
Also, because we're not the only authority here, and there is also going to be a new employment. I think I can't remember the precise name in legislation, fair Work.
Also, because we're not the only authority here, and there is also going to be a new employment. I think I can't remember the precise name in legislation, fair Work.
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Julie Minns
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Julie Minns
looking at. So it's important we don't. duplicate what's happening in other regulatory bodies. Thank you. That's very helpful. I'll just move us on to another topic , which is investment platform fees. Your review of disclosure documents for investment products found that only 6% were written in plain English, and none of them met the benchmark for intelligibility. The Financial Services Consumer panel argued that these disclosures should be tested with real consumers.
What are the current arrangements for . Testing
What are the current arrangements for . Testing
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Speaker 1
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Speaker 1
disclosures with consumers? Yeah, I mean, I don't think we have. Mandated rules on testing disclosure for consumers. Different firms will take different approaches. I think what we're increasingly seeking to do through our work here and elsewhere is highlight what's good and poor practice, and where testing has .
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Speaker 1
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Speaker 1
Encourage others to follow. So would that be a no to target? I don't think we'd be setting a target for the entire industry on testing with consumers. Now, I think we have to be quite careful before we would sort of try and mandate. How would we how would we implement that target? You have to I think different firms will have different approaches. And there's a degree . Of
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John Glen
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John Glen
isn't a system. Thank you very much, Mr. Glenn. Yes. Could I turn to CP. 26 stroke 24. The rules around disclosure on cash interest. I've got the the actual rules here for website disclosure, pre sale disclosure and post sale disclosure. And as I understand it, the the proposed FCA rules require firms to disclose the rate of interest paid to customers, but not necessarily the amount of interest retained by the platform.
Now, I am very supportive personally of your call to . There are trade offs between risks and reward and so on, and there's an inevitable risk with financial products. But I do feel with this, there is a practice now, particularly in a higher interest rate. environment where. platforms are. receiving a higher interest rate on cash within someone's portfolio. They allocate to the. customer .
A portion of that.
Now, I am very supportive personally of your call to . There are trade offs between risks and reward and so on, and there's an inevitable risk with financial products. But I do feel with this, there is a practice now, particularly in a higher interest rate. environment where. platforms are. receiving a higher interest rate on cash within someone's portfolio. They allocate to the. customer .
A portion of that.
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John Glen
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John Glen
But are not obliged to be totally transparent about what they retain. They use that retained surplus of. interest to. cross-subsidise a lower platform fee, thereby giving the impression they've got a lower fee. So unless these rules are really clear, you're in a situation where different. platforms are. potentially going to. misrepresent what the actual costs they're taking, because if part of their costs that they're taking from the consumer is retained interest on the cash element, and for some.
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Speaker 1
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Speaker 1
stopping me from having. How would you respond to that? I know Dame Harris was interested in my file. I was trying to resist accessing the file on this one. Now I think I feel I have to. You're going straight to a consultation, and the briefing tells me we're considering carefully the feedback to the consultation and intend to publish by the end of the year. So it's not very helpful to you. Let me. Double dipping is not acceptable.
So retaining some interest, retaining some interest, and then also charging a fee for holding cash is not acceptable. We've we have. Dealt with that through using the using the consumer duty. This issue of disclosure of retained interest is one of the most contentious issues in the consultation and opinion is split. Opinion is split in terms of the feedback we've had, we. When we. proposed the rules, were not. convinced that it was.
particularly going to enhance consumer decision making because what should consumers know? Consumers should know the interest rate they are getting and the fee that they are paying for the managed service or the execution, any service that they are party to. We'll look at all the feedback, the, the. This also ties, though, to wider work that is going on. including that the Treasury has been looking at, which is.
What are the incentives for holding cash in some of these types of accounts? And are the tax incentives in, in the right place as well? So we'll look we'll look to see what comes out of that as well .
So retaining some interest, retaining some interest, and then also charging a fee for holding cash is not acceptable. We've we have. Dealt with that through using the using the consumer duty. This issue of disclosure of retained interest is one of the most contentious issues in the consultation and opinion is split. Opinion is split in terms of the feedback we've had, we. When we. proposed the rules, were not. convinced that it was.
particularly going to enhance consumer decision making because what should consumers know? Consumers should know the interest rate they are getting and the fee that they are paying for the managed service or the execution, any service that they are party to. We'll look at all the feedback, the, the. This also ties, though, to wider work that is going on. including that the Treasury has been looking at, which is.
What are the incentives for holding cash in some of these types of accounts? And are the tax incentives in, in the right place as well? So we'll look we'll look to see what comes out of that as well .
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John Glen
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John Glen
As we think about the final steps here. Well, with respect I don't think that that's relevant. I mean, if you've got a definition of fees that only covers one form of charging platform, it doesn't cover the requirement to disclose levels of charges taken through retained cash. Interest isn't transparent. And I think, you know, it just seems to me basic logic, just make it clear. The other thing that they say is that when some of these big platforms take all their cash, they hold it in different environments and therefore it's difficult to.
compute where the interest is from. Different points in their different sort of. Sort of spread of, of accounts. I think that's a red herring to in the end, you know, we just want to know what the growth is. Interest or fund managers. expertise and what the fee . Is to the
compute where the interest is from. Different points in their different sort of. Sort of spread of, of accounts. I think that's a red herring to in the end, you know, we just want to know what the growth is. Interest or fund managers. expertise and what the fee . Is to the
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Harriett Baldwin
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Harriett Baldwin
Nothing else, I guess you thank you very much, Harriet. Thank you. Chair, can I test the thickness of the folder with a couple of other questions that are unrelated? Have you seen the report from Peel Hunt, which is called Britain is being bought, not built. It says over the last three years. 166 UK firms have been taken over to the tune of.
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Speaker 1
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Speaker 1
Regulatory failure to me to some extent. What do you think, Mr. Rathi? I'm aware of that report, and I think on the the listings regime, we have reformed radically in the last few years. The regime I don't think I'm hearing from the market now. We have a listings advisory panel, which brings together a number of practitioners that. There's friction in the listing or regulatory regime where we receive other feedback. For example, on the IPO research window, we moved within months to amend that.
We've we've reformed the. prospectus regime as well. And so I think sometimes with these issues, it's it's quite easy to say it's regulatory failure. This is a system wide issue. What what what drives the pipeline of IPOs, the underlying growth in the economy, the dynamism of the economy, the speed with which businesses are created, the path from private into public. We've established the Pisces regime, which allows intermittent trading, as you know, and it's not for me to comment on them.
There are there are debates around tax. There are debates around the. pensions system. And there's also there's also the realistic issue about the UK's position in the global economy. 20 or 30 years ago, a UK business would be a very significant share of a global business. Now, if you look at the top of the FTSE 100, most of them will be earning most of their revenues from outside the United Kingdom. And inevitably that leads to a degree of mind and.
We've we've reformed the. prospectus regime as well. And so I think sometimes with these issues, it's it's quite easy to say it's regulatory failure. This is a system wide issue. What what what drives the pipeline of IPOs, the underlying growth in the economy, the dynamism of the economy, the speed with which businesses are created, the path from private into public. We've established the Pisces regime, which allows intermittent trading, as you know, and it's not for me to comment on them.
There are there are debates around tax. There are debates around the. pensions system. And there's also there's also the realistic issue about the UK's position in the global economy. 20 or 30 years ago, a UK business would be a very significant share of a global business. Now, if you look at the top of the FTSE 100, most of them will be earning most of their revenues from outside the United Kingdom. And inevitably that leads to a degree of mind and.
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Speaker 1
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Speaker 1
no regulatory change needed at all. I think we've put through enormous volumes of regulatory change. The question now is, and I'm really I'm not hearing if you're hearing specifics about the listing regime, I'd be interested to hear it. We're not hearing from the market that people want us to do anything more. If you look at the reports that are coming from industry.
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Speaker 1
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Speaker 1
looks like the costs really exceed the. benefits they do. They do challenge us. And I think, for example, you asked. around the equity consolidated tape at a previous committee hearing, and when we went round for a second consultation on it, we put it back into the cost benefit analysis panel to get their feedback on and updated impact assessment. Last year, 13 out of 32 of our Cbas went to the the panel, which is broadly in line with what we what we anticipated.
And they've given us some interesting feedback, for example, on how we can make sure that our our analysis ties to the objectives of the FCA and the objectives of our work. And I think we will absolutely look, look very .
And they've given us some interesting feedback, for example, on how we can make sure that our our analysis ties to the objectives of the FCA and the objectives of our work. And I think we will absolutely look, look very .
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Speaker 1
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Speaker 1
So are you likely to change anything? I think we will. We're looking at it, and I think there may well be improvements. We can we can make. So I think we do we do whenever we publish our final rules, which have been through the CBA panel, we. explain where we have made changes in response to the feedback and where we have not. And that's all. transparent for us in terms of the in terms of the rule making process.
And then where there are these more cross-cutting recommendations.
And then where there are these more cross-cutting recommendations.
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Speaker 2
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Speaker 2
Insider trading and digital engagement with firms. So can I thank Nicole Rathi, the chief executive of the FCA, Jessica Rousseau, the chief data , information and intelligence officer at the FCA, and Johan Sikora for his first outing as chief operating officer at the FCA for their time. The transcript of this session will be available on the website uncorrected in the next couple of days, with thanks to our colleagues at Hansard. Thank you to our . Colleagues
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