Chancellor Rachel Reeves efforts to ease business red tape and relax lending rules brings distinct consumer risk challenges. But evolving rules and regs are not stifling product innovation.

This is according to Financial Conduct Authority (FCA) chiefs – Ashley Alder (chair) and Nikhil Rathi (chief executive).

At a Parliamentary select committee hearing, Lib Dem MP Chris Coghlan asked the FCA leadership whether given that the government was very keen on growth, that the blame if any ‘intolerable harm’ resulted due to increased financial risk, would be directed towards the FCA.

Alder said there had been much talk about mortgage affordability tests, defaults and house price pressures.  Also, regulatory parameters, targeted support and an ambitious policy of getting the right level of advice to the mass market.

He added that: “One of the trade-offs is that that this support would not be the equivalent of regulated advice which costs a lot more and therefore is unavailable to many.”

Rathi agreed that a large percentage of consumers were not currently getting  the advice they needed and that in terms of understanding risk in general it was hard to measure or define ‘tolerable or intolerable’ risk.

He was keen to point out though that there were misconceptions regarding how strictly lenders were being asked to present products and their inherent risk. He said that while he accepted there were calls for clarity in some areas, he insisted the focus was on streamlining the rule book not adding more rules and standards.

“Consumer Duty does allow for a degree of discretion for firms. For instance in the way AI is used. We are in no way standing in the way of innovation.”

He added: “But we do need to have a different relationship between regulator and regulated, working with the FOS to ensure companies are confident bring products to market.”

Rathi went on to specify one disconnect between the industry and its regulator.

“I would be cautious about some of  the clams being made. For instance, when Consumer Duty was being implemented, some banks said that because of their worries about the FOS and the possible ‘chill effects’ 95% of  100% LTV mortgages would stop being sold. The facts show there are more 95%-100% LTV mortgages on the market today than there have been for the last five years. So there has been no chill on innovation.”