The chief executive of the Financial Conduct Authority (FCA) has said more risk-taking among firms is needed to push a “step change” in the UK’s financial inclusion, which could also boost economic growth.
With research suggesting a “causal link” between inclusion and growth, the UK needs “a fundamental change in mindset” to tackle the causes of financial exclusion, Nikhil Rathi told a conference hosted by debt charity StepChange on Thursday.
“And some evidence suggests economic growth and wealth creation can in turn bolster financial inclusion,” Rathi said.
He noted that Singapore, a “successful global financial centre”, tops Cebr’s Global Financial Inclusion Index, while the UK “lags in seventh place, despite hosting the second largest global financial centre”.
The new Labour government has pledged to establish a financial inclusion strategy amid concerns that the current system is not working for everyone.
Nearly three million UK adults fell into financial difficulty last year, increasing their likelihood of being excluded from financial services, according to non-profit Fair4All Finance.
On Thursday, Rathi called for “a sustained commitment to financial and digital literacy alongside numeracy”, both in the classroom and workplace.
“We are proud of the FCA’s work over recent years to support consumers,” he said. “We must now go further and look at fixing the foundations of our economy and financial system that made these interventions necessary.”
Rathi cited the FCA’s recent push for firms to build greater awareness of basic bank accounts and make the application journey easier, as well as new access to cash rules that kicked in on Wednesday, forcing lenders to assess and fill gaps in the ability to deposit and withdraw physical money.
Still, he acknowledged “the rapid shift towards digital payments”, with FCA research signalling that more than half of UK adults likely now use digital wallets – up from 14 per cent in 2017.
“So while access to bank accounts and cash is important, what we’re hearing now… is that it’s also about access to wider services, including savings and credit products,” Rathi said.
“It’s about access to what you need to live your life. And these needs are not static. As markets digitise, what is needed to be a full economic participant will keep changing.”
Rathi said tackling financial exclusion would need “a willingness to take more risk and to experiment” among firms, alongside “a determination from everyone with a part to play to improve outcomes”.
He added that the FCA would be “ready to rethink some of our rules and regulatory approaches”, balancing consumer protection with catalysing productivity and growth.
Last year, the the government introduced a statutory mandate in the Financial Services and Markets Act for regulators to consider the UK economy’s competitiveness when making decisions – known as the “secondary objective”.
“Do we accept that the risk of a few experiments failing or some people not benefiting from innovation, is outweighed by the potential benefit to the majority of consumers, and long-term growth and productivity improvements?” Rathi said.
“I freely admit that we don’t yet have full estimates of the benefits of inclusion to growth and productivity. But experience elsewhere suggests that resolving foundational issues could have big impacts.”