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FCA business plan targets ‘innovative, assertive, adaptive’ future

Out-Law News | 15 Jul 2021 | 4:46 pm | 3 min. read

The UK’s Financial Conduct Authority (FCA) has published its business plan for 2021-22, setting out its priorities for the coming year as the regulator seeks to keep up with changes in technology and adjust to economic challenges.

Among the priorities set out in the business plan are an increased focus on the regulatory ‘gateway’, to ensure firms start with the highest standards from the point of authorisation and maintain them. It will press ahead with its work on its proposals for the introduction of a new consumer duty, requiring firms to put consumers at the centre of their business plans; and seek to tailor its capital markets rules to better suit the UK following the UK’s departure from the EU.

Further commitments set out in the plan include a five-year consumer campaign around high-risk investment and what is and isn’t protected; and a review of the scope and coverage of the Financial Services Compensation Scheme (FSCS). Its plans will be backed by investment in technology and people, with new offices planned for Leeds, Belfast and Cardiff to join its existing sites in London and Edinburgh.

Cavill Jonathan

Jonathan Cavill

Partner

The FCA has a monumental challenge ahead of it, driven by pre-pandemic market issues, the pandemic itself no doubt having a long-term global and national impact, and also the profound need to respond to Brexit, digitisation and technological developments, ESG considerations and unforeseen future risks

The FCA will also develop how it monitors firms’ progress against diversity outcomes; and continue to adapt its regulatory framework in support of environmental, social and governance (ESG) criteria and the UK’s transition to a net zero economy.

Financial regulation expert Jonathan Cavill of Pinsent Masons, the law firm behind Out-Law, said: “The FCA has a monumental challenge ahead of it, driven by pre-pandemic market issues, the pandemic itself no doubt having a long-term global and national impact, and also the profound need to respond to Brexit, digitisation and technological developments, ESG considerations and unforeseen future risks”.

“The business plan sets out the FCA’s ambitions to be an agile, proactive, innovative and digitally driven regulator. Not only does it set out its focuses for the year ahead, but it looks to reform its own future strategy and objective setting by imposing on itself the requirement to release wholesale and retail objectives early next year, against which future business plans will be designed. The FCA also describes a step change in its approach, led by data and technology,” he said.

“It seems that, this year, the regulator fully appreciates the need for it to make a number of material operational improvements within the organisation to tackle the risks it has identified in the market. For a while, market participants have felt that the regulator needed to make many of the changes highlighted in this year’s plan, and no doubt there will be scepticism in some corners over whether the organisation is capable of such dramatic change quickly or effectively enough. But that doesn’t detract from the fact that change is needed, and it’s positive to see the FCA challenging itself and assessing how it can improve to make real positive change in the financial services sector,” Cavill said.

FCA chief executive Nikhil Rathi, who took over the role in October 2020, said that the FCA was in the process of “transforming” to better meet its goals of making markets work better and stopping and preventing serious misconduct that leads to harm. To achieve this transformation it is investing in new technology and making better use of data, with the anticipation that it will “intervene in real-time more often” to prevent harm to consumers and market integrity as a result.

Read Colin

Colin Read

Partner

For this year’s plan there is an emphasis on ensuring firms have high standards and maintain them. There is also an emphasis on speed: the need to find new ways of identifying issues and harm faster and being more proactive

The business plan contains a programme of work aimed at ensuring consumers are properly informed and treated fairly, including a consultation on stronger rules on financial promotions and a new consumer investments strategy. It will also target poor practice and encourage competition in the consumer credit space, review its rules on debt advice, re-start its postponed market study of credit information and work with the UK Treasury on new rules around ‘buy now, pay later’ deferred payment credit schemes.

The FCA is concerned about the impact of the Covid-19 pandemic on the financial strength of payment services firms, according to the business plan, and will work to identify at-risk firms as a priority while reviewing safeguarding and wind-down planning. It will also monitor bank branch closures, working with the government to ensure continued access to cash for consumers.

Colin Read of Pinsent Masons said: “A central theme of last year’s plan was the need for firms to focus on vulnerable customers, the number of which was expected by the FCA to rise significantly as the pandemic took hold. True to that expectation, the FCA calculates that over 50% of the adult population is now in the ‘vulnerable customer’ category due to the pandemic”.

“For this year’s plan there is an emphasis on ensuring firms have high standards and maintain them. This includes new firms making use of the FCA’s regulatory sandbox. There is also an emphasis on speed: the need to find new ways of identifying issues and harm faster and being more proactive. Central to this, as it is to many regulated firms themselves as they grapple with change, is a data strategy – the FCA has announced an investment of £120 million in its data strategy over the next three years. However, many of the chief executive’s aspirations are looking for change to be implemented over the next 18 months,” he said.

The FCA intends to be more proactive at the edges of the so-called ‘regulatory perimeter’, in order to quickly identify emerging risks to consumers in areas where it is unable to act and to work with partner agencies who may be able to take action. Newly authorised firms can expect stronger oversight, termed a ‘regulatory nursery’ by the FCA, allowing it to monitor compliance and identify potential harm early should firms’ business plans evolve.

The business plan also confirms the FCA’s continued work on the creation of the new consumer duty for firms. A consultation on the proposed new duty ends on 31 July. The regulator will consult on any proposed rule changes by the end of 2021, according to the plan.