FCA looks to the future of finance in speech to investment managers

In a globalised industry, having a strong regulatory regime that embraces innovation helps make the case for investing with money managers in the UK. That was the message from the Financial Conduct Authority’s CEO, Nikhil Rathi, speaking at the Investment Association’s 2024 annual conference.

Fund tokenisation 

The FCA is part of a working group which is exploring how distributed ledger technology can be used in investment management. According to Mr Rathi, the FCA is engaging with firms to understand their tokenisation use cases and to identify any regulatory barriers to adoption of DLT. Firms can test these use cases using the FCA’s regulatory sandboxes.

Read our blogpost: Technology Working Group sets out its vision for implementing UK fund tokenisation

Digital Securities Sandbox

Mr Rathi name-checked the Digital Securities Sandbox. This initiative is intended to support novel market infrastructure models that may not work under the existing regulatory framework. The FCA and Bank of England have just closed their consultation outlining how they plan to run the sandbox.

Read our blogpost: UK regulators outline how they plan to operate the Digital Securities Sandbox

Artificial intelligence

Mr Rathi raised a number of questions around the regulation of AI in financial services but reiterated that the FCA does not want to “put the brakes on innovation”. The FCA’s view is that its existing rulebook can accommodate AI use cases. This includes the FCA’s high-level Principles, the Senior Managers Regime, the Consumer Duty and operational resilience rules.

Read our blogpost: Charting the course for AI: Digital regulators confirm existing frameworks are sufficient (for now)

Critical third parties

The FCA is also looking at the concentration risks associated with AI. Mr Rathi used his speech to welcome increased engagement with Big Tech and data service providers. The FCA and Bank of England are due to finalise rules for a critical third party regime later this year.

Read our briefing: UK financial regulators draft rules for critical service providers

Looking forward 

Against a background of geopolitical risks, demographic change and the rise of passive investing, Mr Rathi nodded towards some of the priorities for the FCA. For example, it wants to make regulation more efficient and proportionate as it repeals and replaces EU-derived laws such as AIFMD and UCITS. He also mentioned the Long Term Asset Fund (LTAF), its clampdown on fraudulent financial promotions and improvements in how the FCA handles authorisation applications.

With thanks to Elton Qemali, Paralegal, Linklaters for contributing to this post.