The Financial Conduct Authority’s (FCA) push to slash red tape and unleash growth in the City will test the UK’s appetite for risk, its chair has warned, accepting that two of its new proposals could open the door to more fraud and mortgage defaults.

Writing in City AM today, Ashley Alder said the FCA will put “sustainable growth” at the heart of its strategy over the next five years but cautioned there would need to be “trade-offs” and acceptance that changes could lead to more business failures and threats to consumers.

“This will require a bolder approach. We will have to make decisive trade-offs. And we will have to take greater risk,” Alder said.

“We have shown we are up for it, for example as we made it easier for businesses to raise capital on our public markets, we were clear that while it could mean higher returns for investors it came with a risk of more listed firms failing.”

He added the UK must decide on its “collective tolerance for failure” and question how much it is willing to “embrace risk”.

The comments come after Rachel Reeves wrote to 17 watchdogs on Christmas Eve demanding they lay out fresh proposals to boost growth within their respective remits.

In response to the Chancellor last week, FCA chief Nikhil Rathi set out plans to ease the burden of its stringent consumer duty rules, lift a £100 cap on contactless payments and loosen requirements to access a mortgage.

However, Alder warned that reducing “friction” in payments and mortgage rules could also increase scams and failed loans.