The National Audit Office has launched a fresh review of the City watchdog’s effectiveness and ability to manage a growing list of responsibilities, including oversight of cryptoassets and risks surrounding artificial intelligence.
Plans to assess the Financial Conduct Authority (FCA) come in light of “significant changes” in the way it is expected to regulate the financial services sector, the NAO explained.
Those changes include government orders to promote the international competitiveness of City firms, while simultaneously having to crack down on any misconduct. That is on top of the regulator’s incoming “consumer duty”, under which the FCA will have to challenge firms on whether they are charging and treating customers fairly.
The FCA is also juggling new responsibilities surrounding “technological innovations such as cryptoassets and artificial intelligence” that will “provide challenges and opportunities for regulation of financial services”, the NAO said.
The FCA is now responsible for making sure crypto firms comply with money laundering rules, and by October it will be tasked with monitoring crypto-related adverts. Those responsibilities could expand as the government makes final decisions on how to regulate the wider sector.
Meanwhile, the FCA’s chief executive, Nikhil Rathi, has been trying to get ahead of risks posed by AI. The former London Stock Exchange boss used a speech last week to warn banks, investors and insurers that while AI could improve productivity and the detection of fraud and money laundering, senior managers would ultimately be held responsible for any decisions taken by AI software.
“As AI is further adopted, the investment in fraud prevention and operational and cyber-resilience will have to accelerate simultaneously,” Rathi said. “We will take a robust line on this – full support for beneficial innovation alongside proportionate protections.”
The FCA’s board flagged the NAO audit in its May meeting, noting that it would review the regulator’s “overall effectiveness” and that this was “likely to be resource intensive”.
The NAO last audited the FCA in 2014, a year after its formation. The regulator was created out of the ashes of the Financial Services Authority, which was disbanded after the 2008 banking crisis.
An FCA spokesperson said: “We welcome the National Audit Office’s review of the FCA and how we adapt to change, as it could help us to ensure we continue to meet our objectives. We have a clear strategy in place about we want the FCA to be, and we are well under way to achieving that.”
The NAO declined to comment beyond its online notice, which was quietly released in June.
