FCA Signals Major Shift Away from New Rules as Regulator Prioritises Growth and Consumer Protection

The Financial Conduct Authority is fundamentally reshaping its regulatory approach, moving away from writing extensive new rules in favour of an outcomes-based model that relies heavily on existing consumer protections and supervisory powers. Nikhil Rathi, the FCA’s chief executive, outlined this significant shift during a recent appearance on the Fairer Finance podcast, emphasising that the regulator has identified supporting growth and protecting consumers as twin priorities for 2026.

Rathi acknowledged that “not every problem is going to be solved quickly by doing big interventions, more rules, bans, guidance.” Instead, the FCA is moving toward an approach that leverages the Consumer Duty—a principle-based rule introduced to ensure firms deliver fair value to customers—alongside enhanced supervisory tools. This represents a fundamental departure from traditional command-and-control regulation that characterised much of the pre-2020s financial services landscape.

The timing of this announcement reflects the post-Brexit regulatory environment, which has given the FCA greater freedom to reassess rules inherited from European Union frameworks. Rathi stated that “as we’ve left the European Union, we can also look at which rules we need to keep and which rules we can actually adjust.” This recalibration is part of a broader government deregulation agenda aimed at boosting economic growth, particularly important given that unemployment recently reached a five-year high.

The FCA’s dual focus on growth and consumer protection reflects a deliberate attempt to address criticism from multiple quarters. Consumer advocates have accused the regulator of being too cautious in its risk appetite, whilst industry commentators argue that excessive regulation stifles innovation and competitiveness. By moving to an outcomes-based approach, Rathi believes the FCA can achieve what he describes as “deepened trust and rebalanced risk.”

The regulator plans to supervise firms more flexibly, deploying less intensive oversight for those “demonstrably seeking to do the right thing.” This recognises that one-size-fits-all regulation may place unnecessary burdens on compliant firms whilst the FCA can redirect resources toward genuine threats to market integrity and consumer harm.

However, the shift has sparked concerns among consumer protection advocates. James Daley, managing director of Fairer Finance, acknowledged the candour of Rathi’s comments but cautioned that some market practices fall squarely within the FCA’s remit to address. He highlighted credit card markets, where unfair cross-subsidies mean less financially resilient consumers effectively subsidise wealthier customers—a practice he argues may breach the FCA’s fair value rules.

One area of particular concern for Rathi is mortgage lending in a rising interest rate environment. The regulator has loosened some lending rules to support housing access and economic activity, but acknowledged this carries costs: if interest rates rise significantly, borrowers could face “a modest amount of additional distress.” This represents a policy trade-off: greater access to credit now may create vulnerabilities if economic conditions deteriorate.

The FCA chief also highlighted pension and retirement outcomes as a systemic concern. He noted it is detrimental to society when individuals retire with incomes below expected living standards whilst holding substantial unproductive wealth tied up in property. This suggests the FCA may explore supervisory interventions around pension decumulation strategies and retirement income adequacy in coming years.

Rathi identified financial crime as the most acute challenge currently facing the regulator, encompassing fraud, unauthorised investment promotions, and threats to market integrity. The FCA is deploying supervisory resources aggressively in these areas, with enforcement action expected to remain prominent despite the shift toward lighter-touch regulation generally.

The regulator has also faced pressure from the Treasury regarding transparency about enforcement actions. Rathi acknowledged that government officials expressed reservations about publicising FCA sanctions against firms, following industry lobbying. Nevertheless, he indicated the FCA is “stepping up” communication about enforcement activity through its enforcement watch reporting, suggesting some commitment to maintaining public visibility of regulatory action despite political pressure.

The FCA’s new approach explicitly embraces technology innovation, including artificial intelligence and other emerging developments. Rather than imposing prescriptive rules on new technologies, the regulator intends to rely on existing regulatory frameworks adapted to these contexts. This tech-positive stance reflects government ambitions to maintain the UK’s competitive advantage in global financial services, particularly as traditional and fintech players compete increasingly directly.

The shift also reflects rapid market evolution. Rathi noted that technology changes substantially every few months, making static regulatory rules obsolete before they are even published. An outcomes-based model provides greater adaptability, provided firms genuinely seek to deliver fair outcomes rather than exploiting regulatory ambiguity.

Whether this lighter-touch approach succeeds in balancing genuine growth and innovation against consumer protection will become apparent through 2026 and beyond. The FCA’s five-year strategy, published in March 2025, formally enshrined these priorities, signalling a sustained commitment to regulatory reform rather than a temporary initiative. For financial services firms, the message is clear: demonstrate commitment to fair conduct and the FCA will ease supervisory pressure; fail to do so, and enforcement scrutiny will intensify.

Key Takeaways

• The FCA is abandoning prescriptive rules in favour of an outcomes-based approach centred on the Consumer Duty, expecting this single principle-based rule to achieve regulatory objectives more effectively than multiple detailed rules
• The regulator has identified supporting economic growth and protecting consumers as equal priorities for 2026, reflecting post-Brexit freedom to reassess inherited EU rules and government pressure to boost economic activity
• Financial crime remains the FCA’s most acute concern, and enforcement action will continue aggressively in this area despite the lighter-touch approach to conduct regulation generally

What This Means for Kent Residents

For Kent households, the FCA’s shift carries both opportunities and risks. The lighter approach to mortgage lending rules may make borrowing more accessible for first-time buyers and property investors, particularly relevant in Kent’s competitive housing market. However, if interest rates rise, borrowers who have taken advantage of relaxed lending standards could face genuine financial pressure. Pensioners and those approaching retirement in Kent should monitor how the FCA’s new framework addresses retirement income adequacy—an issue Rathi highlighted as concerning. On financial crime, residents should see increased vigilance against fraud and investment scams, as this remains the regulator’s priority. Savers and investors in Kent should expect clearer communications about FCA enforcement actions, potentially providing earlier warning of conduct failures among their service providers.