Chancellor George Osborne announced Martin Wheatley, who led the City watchdog since its inception, will depart to make way for “different leadership”.
Mr Osborne said in a statement: “Martin Wheatley has done a brilliant job of launching the FCA in tough circumstances.
“Now that phase is complete, the Government believes that different leadership is required to build on those foundations and take the organisation to the next stage of its development.”
Industry watchers said was a sign the government wants to take a less confrontational stance towards banks.
Barney Reynolds, a financial services lawyer at Shearman & Sterling, said the decision showed a change in tone from ministers.
“They want a slightly more business-friendly approach to take root and to rein back from some of the more hostile approaches immediately post credit crunch,” he said.
“This is very much welcome as the UK financial sector was starting to lose traction.”
Mr Wheatley, who will leave his post in September, launched the FCA with a pledge to “shoot first and ask questions later” in his drive to clean up the City.
However he came under fire himself last year after the leak of an impending FCA investigation led to billions being wiped off the value of insurance companies.
He was one of four executives to be stripped of his entire bonus. Mr Osborne said the incident damaged the UK’s regulatory reputation.