There was a flurry of headlines recently following statements from Financial Conduct Authority (FCA) Chief Executive Nikhil Rathi on a podcast, where he laid out the FCA’s new five-year strategy and its mandate for growth. In response to a direct question about regulating encrypted messaging apps and WhatsApp specifically, Mr. Rathi stated that they’re not planning any wholesale rules around encrypted communications. This is part of the regulator’s shift away from prescriptive rulemaking to focusing on outcomes.
Matt Smith, CEO of integrated surveillance provider, SteelEye comments, “There will surely be a collective sigh of relief that the FCA are not planning any blanket ban on WhatsApp or similar applications being used for business purposes by those filling the Square Mile. The reality is that in an increasingly competitive economic environment, these professionals must put the client’s preferences first, which generally means communicating through encrypted social messaging applications,” he says.However, the obligations on firms to maintain adequate surveillance, controls and record-keeping still apply. Failures in these controls are frequently cited by regulators in enforcement actions.
Smith continues “While this show of trust from the FCA will avoid major disruption to the way business is now conducted in the City, financial institutions must recognise that they have their part to play in response. They must ensure that they can effectively capture and monitor staff communications, whatever channel these are conducted through – that is essential to ensure robust risk management. Although the FCA are not being overly prescriptive, it doesn’t mean that they do not expect firms to ensure the maintenance of transparent audit trails and the integrity of their staff’s financial conduct,” he says.The new five-year strategy comes on the heels of a change of government and has a strong mandate for promoting growth, reducing regulatory burden and protecting consumers.
Key objectives of the previous plan include fostering competition and driving positive change by updating the regulatory framework to support innovation and address emerging risks. It ensures that regulation promotes both growth and competitiveness while strengthening market infrastructure to reinforce the UK’s position as a leading global financial centre.
In a recent letter, to the Prime Minister, Chancellor, and Secretary of State, The FCA outlines the new five-year strategy that includes a commitment to deeper collaboration with the government to facilitate necessary reforms, including a willingness to take greater risks and prioritize resources more rigorously.
The letter highlights ongoing and planned initiatives to unlock capital investment, enhance liquidity, and streamline financial regulations. Key efforts include implementing a new prospectus regime, easing retail access to corporate bonds, reforming asset management regulations, and accelerating the review of capital requirements for specialized trading firms.
Additionally, the FCA emphasizes the need for a comprehensive financial services digital infrastructure plan, aligning with the government’s AI strategy. Planned initiatives include progressing a digital securities sandbox, improving credit information, reforming pension tools, and advancing open banking and open finance initiatives.
To reduce regulatory burdens, the FCA outlines steps such as simplifying its handbook, improving reporting efficiency, and making the Senior Managers and Certification Regime more flexible. The letter also discusses enhancing the startup environment by expediting authorizations, supporting high-growth firms, and creating a legislative framework for limited regulated activities.
Furthermore, the FCA commits to bolstering the UK’s international competitiveness by establishing a presence in the U.S. and Asia, ensuring regulatory certainty, and reforming redress mechanisms to prevent large-scale consumer compensation exercises.
The letter underscores that while the FCA prioritizes consumer protection, market integrity, and competition, it acknowledges the need for risk-based decision-making, recognizing that some failures will occur. The FCA calls for government support in fostering regulatory predictability, digital transformation, and a more informed risk-taking approach to sustain long-term economic growth.
Subscribe to our newsletter
