December 14, 2022

This show has been running for seven years now and has posted nearly 200 episodes. Over that time, we’ve had many repeat guests, because some people and organizations innovate continuously and constantly produce new and exciting things to share. Among these, the record for guests from a single organization has been, by far and away, the UK’s Financial Conduct Authority. I’m excited to say that today’s show brings a new highlight to that arc. Our conversation is with Nikhil Rathi, the FCA’s Chief Executive Officer.

The FCA, along with its sister agency, the Prudential Regulatory Authority in the Bank of England, are the main financial regulator for the United Kingdom. It is a young organization, created in 2013 in response to the financial crisis. As most of our listeners know, it leaped out ahead of other regulators around the world years ago, in recognizing the significance of the digitization of financial services and the concomitant need for regulators, themselves, to transform. The agency invented both of the two most notable technology innovations for use by regulators, namely the regulatory sandbox and the regulatory TechSprint, both of which are now widely emulated by other countries. 

I was able to sit down with Nikhil last month in Singapore, just as he and I came off the stage for a panel that we shared at the Singapore Fintech Festival. In our conversation, he talks about the panel’s theme, which was how to enhance ESG efforts by strengthening the “G” element: governance. Interestingly, governance tends to be discussed less than the “E” and the “S” — environment and social — but it is older and better developed, drawing on deeper traditions of knowledge, methodology and metrics. It is also essential to making progress in both of the other two areas, in addition to being critical in its own right. When we get governance right, everything else comes out better. 

It’s worth noting that we recorded this episode just as news was beginning to surface that there might be issues at the crypto exchange FTX. The coming crisis was not yet visible and therefore, alas, our conversation does not include the spectacular failures of governance that appear to underlie the FTX meltdown. The FTX story does, however, dramatically validate Nikhil’s point: governance matters.

Our discussion does, of course, include an update on the FCA’s Innovate initiative, including how its famous sandbox has evolved now into the Digital Sandbox, which enables early stage firms to test their product ideas using synthetic and public data, before having to incur the expense of full product development and licensing. Nikhil also talks about the FCA’s efforts on Diversity, Equity and Inclusion — DEI — and how important they are to its progress. And he shares perspectives on the international front, including the efforts of the Global Financial Innovation Network. The FCA initiated GFIN to tackle the challenge of international cooperation and collaboration in financial services regulation. Financial regulation is highly localized, since each country (and regional units like Europe) has its own rules and its own regulatory bodies. At the same time, however, it is also highly global, as financial activities today flow across borders more than ever before, and no single regulator has enough information or enough powers to prevent problems. Cooperation is increasingly essential.

I follow the FCA’s work closely, and have for years. Many of our listeners know that, about a year ago, our AIR team was joined by Nick Cook, who previously led the innovation division at the FCA. Still, this conversation taught me many things I didn’t know. Most exciting is the FCA’s progress in becoming a “data-driven regulator.” I think you’ll be as impressed as I was, for example, to hear that they have successfully created a data-driven “single view of the firm,” for the companies they regulate. I believe this kind of approach is the future of financial regulation. 

Despite the fact that dozens of countries are emulating FCA initiatives, many have missed a crucial design feature:  that their innovation efforts are both external and internal. The best-known programs are externally-facing, helping the agency understand the changing market and helping private companies align their digital offerings with regulatory mandates at an early stage, to head off regulatory problems (and to prevent wasted effort). The other half of the strategy, however, is internal. The FCA is making itself into a digital, data-driven organization. I hope that one outcome of today’s show will be to inspire more regulators to embrace digitization as a two-sided challenge and to invest whatever is necessary to modernize their own technology architecture, move into cloud computing environments, collect vastly more and better data, and hire and train the talent they need to analyze that information for the rich insights it holds. Twenty-first century regulators will have to “fight fire with fire” – that is, to oversee digital financial markets by using digital financial regulation. Nothing less will meet the challenge.

Enjoy my conversation with Nikhil Rathi.


More on Nikhil Rathi

Nikhil was appointed Chief Executive of the FCA on 1 October 2020. He began his career in HM Treasury before serving as Private Secretary to the Prime Minister between 2005 – 2008. Nikhil then became Head of the Financial Stability Unit, overseeing a number of the UK’s financial stability interventions before becoming HM Treasury’s Director of the Financial Services Group from 2009 – 2014. In that role, he also served as the UK representative to the EU Financial Services Committee.

Nikhil joined the London Stock Exchange (LSE) in 2014 and was appointed CEO in 2015.

Nikhil holds a BA in philosophy, politics and economics from the University of Oxford.

More for our Listeners

2022 is winding down. We have more fantastic shows in the lineup, including one with the Chairman of the National Credit Union Administration, Todd Harper. And I have spoken at my last event of the year – the Hope Global Forums in Atlanta, on the keynote panel with John Hope Bryant and Acting Comptroller of the Currency Michael Hsu on cryptocurrency and financial inclusion. 

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