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Out-Law Analysis 5 min. read

FCA business plan addresses coronavirus impact

The Financial Conduct Authority (FCA) has adjusted its supervisory approach and regulatory focus to take account of the impact of the coronavirus pandemic on financial services firms. This is reflected in the FCA's latest business plan.

It is clear from the plan, for example, that the FCA is focused on keeping markets functioning where there is a major impact on pricing, and in supporting consumers with the "immediate shocks" of the crisis.

The FCA's business plan 2020/21 sets out the regulator's approach for the next one to three years. There are four areas of the plan in particular that merit the attention of firms.

Enabling effective consumer investment decisions

In the investment management, banking and wholesale financial markets sectors, the business plan repeatedly flags operational resilience, high-quality products and services, and good value for consumers as "key outcomes" for the coming years.

Within investment management, the FCA identified existing problem areas as being poor governance and value, volatility caused by Covid-19, and insufficient investment in operational resilience and technology. In retail banking, the FCA’s concerns are focused on financial crime, poor access to services for consumers and, again, weak operational resilience and governance.

The FCA is keen to achieve clean, orderly and effective markets which make it hard to commit market abuse or financial crime, and which can cope in a range of stressed conditions. It wants to ensure that consumers can make good investment decisions and avoid putting their savings towards risky or poor value products. In this regard, the FCA is already consulting on a consumer harm campaign.

The FCA’s operational resilience consultation deadline has already been extended, and it will continue to review the impact of its 2017 asset management market study remedies.

In terms of cross-cutting work, it is clear that the FCA's international role post-Brexit remains important to it.  The FCA has committed to continuing to work with other regulators internationally, developing global standards and addressing shared concerns such as market integrity and operational resilience. The FCA will also work to ensure that both the UK's financial services industry and the regulator itself are ready for the end of the transition period. The FCA also highlighted the need to adapt to risks posed by climate change. There will be greater investment in innovation and technology – for example, the Gabriel system will be replaced – and increased focus on operational resilience. The FCA is keen to reduce financial crime and will continue to focus on governance.

Ensuring consumer credit markets work well

The FCA continues its focus on vulnerable customers and alternatives to high-cost credit, taking into account the expected financial impact of the coronavirus crisis.

The FCA has reiterated that vulnerable people, such as those who need to borrow to meet their essential living expenses, are at risk of severe financial stress as a result of having little chance to repay debts and lacking the financial resilience to meet unexpected shocks. This is truer than ever in the midst of the coronavirus crisis, which will be likely to have a considerable economic impact on both consumers and firms.

The FCA has indicated that it continues to focus on ensuring that consumers have access to appropriate credit, without being exposed to over-indebtedness. It has pledged to work with the government and other stakeholders to develop access to fair and affordable credit, including continuing to increase availability and awareness of alternatives to high-cost credit. The FCA will continue to scrutinise firms’ creditworthiness assessments to find out if consumers are being offered credit they cannot reasonably repay.

Looking forward to the expected economic downturn following this crisis, the FCA’s goal is for firms to identify customers at risk at an early stage and offer suitable forbearance.

Delivering fair value in a digital age

The loyalty penalty that some consumers face in areas such as general insurance, savings and mortgage continues to be an area of focus for the FCA, particularly in the case of vulnerable customers. Increased digitisation, which is developing even more quickly in the context of the coronavirus crisis, risks further disenfranchisement of these customers who may not be able to access products and deals that would benefit them. The FCA expects that as firms innovate and compete across digital platforms, they use data and algorithms to ensure fair pricing and avoid bias or discrimination.

Firms should also continue to ensure that vulnerable customers are not disadvantaged and that they are offered suitable products at fair value. The FCA also refers to its proposed guidance for firms on fair treatment for vulnerable customers, which clarifies firms are "to take extra care when dealing with vulnerable customers".

Making payments safe and accessible

Whilst open banking will continue to be a priority in the payments industry, in the wake of the coronavirus outbreak the FCA has indicated its focus will be on protecting consumers and ensuring the market remains stable. 

The FCA has indicated that ensuring consumers can make payments with confidence is high on the agenda for the next financial year. The FCA will continue to support the industry in tackling fraud, particularly as we approach the anniversary of the introduction of the authorised push payments (APP) voluntary code. The focus is likely to shift now to 'confirmation of payee' reforms, with the FCA working with other industry bodies including the Payment Systems Regulator and Pay.UK.

Ensuring customers have access to a variety of payment methods is also going to be central to maintaining consumer confidence, with the 'access to cash' agenda maintaining its position as one of the FCA’s top campaigns in this respect. 

The FCA has hinted that it will have a particular focus on payment firms’ compliance with safeguarding requirements. Ensuring customers’ funds are adequately protected, and that firms maintain their financial strength through compliance with prudential rules, will be particularly important for the FCA to monitor in the coming months.

An overview and the FCA's commitment to internal reform

Overall, the business plan reflects the FCA's continued focus on firms' treatment of vulnerable and potentially vulnerable customers, a group that is likely to grow significantly as a result of the Covid-19 outbreak. Operational resilience, governance and value also remain core focus-areas for the FCA.

Its own transformation is an internal priority for the FCA. It plans to update its entire regulatory system to enable it to act faster in emergency situations, so that firms and individuals can be removed from the regulated sector promptly when required. The FCA will do this through updated systems and technology. We will also see a shift from a regulatory framework centred on "rules and process" to one focused on outcomes and principles.

The FCA reiterated its belief that the markets are functioning in an orderly fashion despite Covid-19 and that it does not see a need for a ban on short selling. It has already delayed non-critical activities so that firms can focus on supporting consumers. That said, the regulator does not view the financial impact of Covid-19 as being comparable to previous recessions and the FCA cited the "enormous uncertainty" as to how the market will be impacted. As a result, the FCA has said it will keep its business plan under review as the pandemic progresses and may update the strategy if issues identified change substantially due to the impact of the virus.

The UK regulator’s global role post-Brexit is vitally important to the FCA and it has committed to engaging internationally, alongside its own plans for transforming how it works and regulates to ensure the UK markets and regulatory framework maintain their excellent reputation.

Andrew Barber, David Heffron, Alice Bell and Lauren McCarthy are experts in financial services regulation at Pinsent Masons, the law firm behind Out-Law.

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