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City minister Bim Afolami has defended the right of the government to question the actions of the Financial Conduct Authority, adding there was no danger that Downing Street was politicising the UK’s main financial watchdog.
“Ultimately regulators are only there by acts of government or acts of parliament, or both,” Afolami told the Financial Times Crypto and Digital Assets Summit on Wednesday.
“It’s really important that we accept that regulators operate under the umbrella that parliament has set,” he said, adding that independent watchdogs were “not at the level of judges”.
His comments follow an intervention by Jeremy Hunt last week when the chancellor warned the regulator against its plan to name companies under investigation more frequently, before any finding of wrongdoing, urging it to “re-look” at its decision.
Asked on Wednesday whether the chancellor’s intervention risked politicising the watchdog or undermining the UK’s reputation for regulatory stability, Afolami said: “No, I don’t think that’s a danger.
“It is perfectly legitimate for the chancellor, or indeed anybody else, to say: ‘in this instance, we’d like you to think again,’” he said.
Late last year, Afolami called on the FCA to allow more risk-taking in the sectors it regulates and he told the audience on Wednesday that its progress towards that objective was “mixed”.
He said the regulator’s approach risked putting off international investors. “Stop focusing on things that are non-core like naming and shaming, and this diversity consultation,” he said, referring to an FCA consultation on measures to boost diversity and inclusion at regulated companies.
“That sort of thing means that the signal to international investors . . . is that the regulator still doesn’t get it,” he said, adding that the FCA needed to “stop doing things like that”.
But he said it was important not to “prejudge” the FCA’s work to adapt to a new secondary objective of promoting the UK’s economic growth and international competitiveness, which it was given by ministers last year.
Afolami said the government wanted to see the crypto industry flourish in Britain by creating a “sensible regulatory framework” and said the sector was a “legitimate part of the financial system” despite scandals at companies such as FTX.
Afolami rejected concerns raised by former FCA chair Charles Randell that the government’s approach would bring “retail crypto speculation firmly into the mainstream” even though fraud was “a feature, not a bug” of much of the industry.
Afolami said worries that retail investors would fall foul of illegitimate crypto companies were overblown. “We all want to tackle fraud, we recognise it’s a big problem. But frankly, there’s more than enough fraud in the traditional financial services sector.”
He added: “It’s arrogant to think that ordinary people won’t be able to make judgments,” describing concerns about retail investors being duped as “really patronising . . . The attitude of some people in the traditional finance sector is wrong”.