Speech by Nikhil Rathi, chief executive FCS at the Corporation of the City of London’s annual City Dinner
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Speech by Nikhil Rathi: Market Integrity in a Digital Age.
Highlights: The UK's financial services strength provides a
platform to lead the next era of technology-driven growth. We
must move faster and focus on outcomes to protect market integrity
without holding back innovation. The FCA will make better use
of technology and intelligence and more assertive use of its powers
to tackle system-wide risks and financial...Request free trial
Speech by Nikhil Rathi: Market Integrity in a Digital Age. Highlights:
The success of the UK's financial services "Lady Mayor, ladies and gentlemen, thank you. Let me first extend a warm welcome to Katharine. I am looking forward to our double acts at Mansion House... Now, in August, flight cancellations left my sons and I with an extra day in Boston. A Red Sox game, perhaps? No, the Rathi boys naturally - headed straight tothe Museum of American Finance. Funded by industry, the museum celebrates the role of finance in American life. Illuminating the powerful benefits of informed risk taking. Three sceptical boys engrossed for nearly two hours. I quite enjoyed it too. It struck me though how right George Bernard Shaw was: Britain and America are two countries separated by a common language. On this side of the pond, we're perhaps more reserved, embarrassed even, talking about why finance matters. Yet there's plenty to cheer. We are the world's biggest cross-border banking, FX and derivatives trading centre. We're second in investment management And our commercial insurance sector has doubled in size over a decade A financial services sector built on trust and one the whole United Kingdom should be proud of Even more so as new technologies, so many owing to our research base, transform our economy and society. UK firms leading in AI adoption and tokenisation. Consumer access to investment opportunities widened. Moving from Open Banking to Open Finance. Lady Mayor, your myth busting campaigns have championed London and the City. Thank you for your leadership. If we can capture this opportunity, we gain in productivity With rewards of ecoomic growth felt across the country. Market integrity I say we because the FCA plays an important role. Financial services businesses and investors need confidence in marketsincluding their ability to withstand and recover from shocks. That's why ensuring the integrity of the financial services system is an FCA primary objective. Tonight, I want to explain how we maintain it as technology accelerates exponentially. Because, while we may be getting past peak rule making, we are nowhere near peak reform or innovation. Nor past the peak intervention required to disrupt harm and support market integrity and growth. We have seen radical technological change before But never so widespread or disruptive. Nor combined, as now, with a new geopolitical and defence order. The trouble is our system responds too slowly. And trust in institutions is eroded if we can't solve problems quickly. Regulation takes time. Legislation requires scrutiny. Parliamentary resource is precious. Our judicial system is under immense pressure, with more litigation and weightier decisions. We risk delays becoming the norm, with legal claims written with AI's help potentially making things worse. We all play a part in a system that prioritises safety in process over ruthless focus on outcomes and delivery. So, the UK finds itself in a dangerous innovation delta: where institutions tasked with regulating markets and the mechanisms holding us accountable lag behind. If we maintain an analogue approach in a digital age, new products enter the market faster than we adapt Leaving us reacting to, even overwhelmed by, changes rather than shaping conditions for the UK to thrive. Take Meta Muse, launched 6 weeks ago, one of the fastest-downloaded apps in US history. Personal agents are profoundly changing how consumers interact with financial and health services. Such applications will reach UK consumers soon. Frontier AI models are here, making it easier for AI agents to carry out tasks increasingly autonomously. You are fast adopters. And rapid change in wholesale markets decentralised finance 24/7 trading a reality with prices increasingly forming over weekends parallel market structures operating alongside traditional ones. Vast opportunities. But the threats to market integrity are as serious as I have seen them. Unprecedented volatility, concentration risks, new forms of market abuse and rampant cross-border financial crime: fast-emerging technologies putting these on steroids. Cyber security too mixes the frailties of human nature and high tech. Our own AI minister recently said it was likely that at some point the UK's systems will be breached. Which is why reporting and learning from near misses is so important. As is insurance for you, your customers and supply chain. Prevention will not always work, so investment in recovery is a necessity. The gravity of the decision to press a kill switch may pale in significance with the enormity of the task to get a system running again. In the face of all today's challenges, the temptation is to say: write more rules, but do it damned well faster. We will, where we need to Including aligning with any national or global AI standards, which the Prime Minister has said will be a focus of the UK's upcoming G20 presidency. But if policymaking is our only regulatory reflex, we'll be stuck chasing yesterday's market instead of embracing the one in front of us. Regulatory reform continues I do not mean to suggest that we will slow down rule reform ormodernisation. But our focus must be on outcomes. We have reformed our rulebook and strengthened our operations. Capital market reforms have kicked in. Technology is making it easier to interact with us with reduced reporting burdens. Our widest ever range of innovation services with record demand. And we promised less intensive supervision for those clearly trying to do the right thing, so we can focus where harm is greatest. But the impact won't be fully felt unless we also end tickbox compliance. Reams of potentially duplicative assurance data packs, risk reports, internal audit. Some of these processes driven by commercial choice, others by regulation and legislation. Sarah Pritchard, the FCA's deputy chief executive, will engage with you to streamline unnecessary effort. To give Boards confidence to be brave. And consider if it's time to look again at the three lines of defence. As much as 8% of banks' workforces are dedicated to combatting crime. We should be delivering far better outcomes with those resources. Yet we're bogged down by excessive data collection, complex validation, and a limited ability to understand a customer's wider context and identify risks that span borders, institutions and accounts As we integrate over 60,000 professional services businesses into our ambit, Johan Sekora, our new Chief Operating Officer, who previously led Swedish banks' intelligence sharing efforts, will spearhead work to look beyond KYC process so we unearth actual money laundering. Information collected through KYC, transaction and sanctions monitoring will remain valuable. We are ready to experiment, so we can focus collective resources exactly where they are needed. Within the FCA, too, we must continue to get better at joining up the dots. AI tools give our supervisors a richer risk picture Agents can assess cases, synthesise returns and intelligence parse millions of rows of data and identify missing or concerning information Freeing up our people to do the work we need experts to do: to make the hardest decisions Such as when agentic coordination becomes market manipulation. Or judging when a risk becomes system-wide. Expanded capability means we'll find more risks. So, we'll need to be open about which justify the use of resources and which don't. Powers and partnership As an institution, we have not always persuaded others of the need for legislative change And even when we have, change has been welcome but often slow. So: how can we do our job effectively when technology advances faster than we can write laws or rules? The answer must be to rethink how we use powers we already have. We have system-wide responsibilities, but a fixed view of who we explicitly regulate. Government and Parliament decide who we authorise. This perimeter is our anchor. But we cannot let it weigh so heavily that it sinks the regulatory ship. Today's risks aren't polite enough to knock on our door to introduce themselves. Market, cyber, or criminal risks emerge from multiple networks, firms and jurisdictions. Capital flows across sectors, regulated or not, creating complex webs of commercial incentives. And harms within our remit originating outside it. Be that mass digital harm on social media. Insider trading on offshore gambling or prediction markets. Or outages like Google Cloud this week disrupting people's access to vital services. Talk of such system-wide risks is far from academic. Money laundering through the regulated system is not just about fraud, sanctions and tax evasion, it funds human and drugs trafficking. Their victims: ociety's most vulnerable. Parliament has provided tools to deal with such systemwide issues affecting our objectives and remit: The Enterprise, Consumer Rights and Online Safety and Digital Market Acts to name four. The critical third-parties regime. An expanding anti-money-laundering remit. It isn't enough to ask: is this in our perimeter? If significant harm affects markets within our remit, we should ask: what powers do we have to tackle it? Would this be a good use of resources? The same is true of growth opportunities. Not what are they, but how can we enable them? In every instance: who can we work with to make a difference, quickly? Because no single agency can rise to today's challenges alone. Working with the Met, National Crime Agency and HMRC, we've recently undertaken two of our most significant operations to disrupt suspected organised criminal gangs who seek to abuse our financial system. So, effective partnerships are already in action. Cooperation through the Digital Regulators Forum on Meta Muse. A big delivery year for pensions with the Pensions Regulator and DWP. A FCA-Bank of England roadmap on digital assets soon dovetailing with the work Chris Woolard and the industry have been doing. And work with international counterparts. Recent action by US authorities against anti-money laundering violations confirming the fight against financial crime remains global. Call to action: we need you We should also be open to ideas about how we can act at pace and scale. We have seen dedicated financial services courts speed things up in other markets, for example And the accountability system could foster collaborative working. There aresignificant mechanisms to hold the FCA accountable, more than for most regulators. Appropriate given the significance of our work and the breadth of powers entrusted to us. But accountability must be system-wide too. Whether that is to press hard on growth or engage on risks, and which are priorities and which aren't. Parliament is the only body that can ensure accountability across rather than within narrow remits, transcending traditional committee boundaries. And as we significantly step up the intensity of our activity to address system-wide risks, we need you. The earlier we can work with you the firms we regulate and civil society - to identify emerging risks and opportunities, the faster we can give you the confidence to move. Close: the prize In other words, partnership. That is what we need now. Partnership not just between financial regulators but more widely. Only through partnership can we deliver the system-wide response needed to protect market integrity. And that is the foundation necessary so innovation can flourish, productivity can rise and growth can endure. The UK is incredibly well placed to harness the power of new technology. The existing strength of this sector gives us a genuine head start. If we can harness technological progress if we continue to lead financial services can place the UK at the forefront of this new era of innovation. As regulators, we are committed to creating the conditions for you to do that. Together, we can build a future that the whole country will be proud of" |