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The UK’s top financial watchdog has opened the door to China’s fast-fashion group Shein joining the London Stock Exchange by saying its decisions on whether companies can list in the UK are based only on their disclosures — not “every aspect of their corporate behaviour”.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told the Financial Times that it was “not unusual” for UK-listed companies to carry legal risks around the world and “what’s important is that they disclose it, the investors understand it and they can price that risk”.
Shein filed confidential documents with the FCA this year to do an initial public offering in the UK with a planned market valuation of £50bn. The regulator has come under pressure to block the listing over allegations that Shein uses forced labour as part of its cotton supply from China’s north-western Xinjiang region.
“What parliament has not asked us to do is to be a broad regulator around every aspect of corporate behaviour and every company listed in the UK, everywhere around the world,” said Rathi. He declined to comment on Shein specifically.
One example of this is mining companies that list in London and “find themselves facing legal difficulties in many different parts of the world”, he said.
Asked whether a contested human rights record or suspicions of using slave labour would stop the FCA approving a company’s UK listing application, he said the regulator’s focus was on “disclosures around the legal risks that a company may be subject to”.
Rathi also hit back at a report from MPs and peers last week that said the agency was “incompetent at best, dishonest at worst”.
The report from an all-party parliamentary group listed several cases in which consumers and whistleblowers felt it let them down.
Rathi said the report was from one group within parliament and that “you are never going to get complete consensus in parliament”. He added: “Parliament voted as a whole to give us more objectives on growth and competitiveness, not less, and that’s the law — so we are embracing that.”
Chancellor Rachel Reeves told last month’s annual Mansion House dinner that rules drawn up after the 2008 financial crisis had “gone too far” and were stifling risk-taking, sending a “remit” letter to the FCA that called on it to do more to support growth.
Rathi, who joined the FCA four years ago after running the London Stock Exchange for five years, said the agency planned several reforms to ease the burden of regulation and encourage greater risk appetite in the UK. These include changing the rules for providing advice on pensions, reducing the need to issue a prospectus for secondary share sales and adjusting how customer complaints about financial services are handled.
Earlier this year it overhauled the rules for London-listed companies to increase their flexibility in areas such as dual-class share structures to try to attract more IPOs in the UK.
“We are making and we have made significant shifts,” Rathi said. “It is opening up a discussion about how we support growth and competitiveness, but also what risk appetite we need in the economy and society at large for us all to be comfortable in making the shifts.”
Giving the example of the government’s plans to give the FCA power to regulate the market for cryptocurrencies such as Bitcoin, Rathi said “crypto is here to stay” but it was important “that we’re all comfortable with the risks that might flow and that compensation will not and should not be available if things don’t work out”.
He said the UK needed to have a debate about its “increasing culture of mass complaints” driven by no-win, no-fee law firms and claims management companies that sprung up to encourage customers to submit claims in return for a cut of any redress.
Analysts have forecast a recent controversy over alleged mis-selling of car finance due to hidden commissions paid to dealerships could cost banks as much as £30bn in redress. The FCA and Financial Ombudsman Service last month outlined plans to shake up the way complaints were handled to avoid more “costly mass redress events”.
“What is particularly distinctive about the UK relative to some of our counterparts around the world is how quickly the debate moves to compensation when something goes wrong,” Rathi said. “We need to have that discussion.”
The 45-year-old recently was longlisted for the vacant role of cabinet secretary, the most senior civil servant, but did not make the shortlist. His five-year term at the FCA expires at the end of September. Asked if he planned to seek a second term, he said: “I’m enjoying the work that I do here, but beyond that I’m not commenting on any speculation.”