FCA 'mission' will help regulator prioritise resources, Bailey says

Out-Law News | 01 Nov 2016 | 4:51 pm | 2 min. read

The Financial Conduct Authority (FCA) has published a broad strategy that will guide its day-to-day regulatory decision-making over the coming years.

Titled 'Our future Mission', the document is designed to give regulated firms and other groups more clarity over the regulator's objectives and an idea of how it will prioritise its resources in order to deliver them as effectively as possible. The FCA is seeking feedback on the draft document until 26 January 2017.

FCA chief executive Andrew Bailey said that the document was "critical" to the regulator's success.

"Our mission will set out a framework within which we prioritise our work, ensuring we focus our resources in the right places," he said. "This will improve accountability and transparency of how and why we make the choices that we do."

"The mission will only be a success if our stakeholders engage with us through this consultation process. We want this to be a very open process. Out of it, we hope that we can set out a clear path ahead for financial conduct regulation in the UK," he said.

Among the themes which the FCA seeks to address in the 51-page document are how it should balance the responsibilities of firms and consumers from a consumer protection perspective; and how and when it should intervene. As part of this, it has also attempted to provide clear guidance on whether and when it will intervene in regulated firms' unregulated activities.

The FCA is also seeking suggestions on a proposed review of the FCA Handbook, which sets out the rules for regulated firms, in order to "reduce the restrictions our regulations cause without compromising our objectives".

The document suggests that the FCA must "adapt" in line with the changes in the wider UK financial services industry. From a regulatory perspective, these changes have created three challenges: the growing number of regulated firms and individuals; consumers' needs becoming more diverse and complex; and the opportunities and challenges created by new technology.

The second half of the document considers how the FCA uses its regulatory tools, which it splits into three broad categories: competition powers, firm supervision and enforcement. In particular, it proposes to review the language it uses to describe its use of these tools, noting that the term 'referred to enforcement' is often misunderstood and does not necessarily lead to a finding of guilt and punishment.

The FCA said in the document that the distinction between regulated and unregulated activities has become "blurred" in recent years. Many of the recent issues that have arisen in the financial markets have been caused by regulated firms carrying out unregulated activities, it said.

"Our objectives, to varying degrees, give us powers to intervene in many of these activities," it said. "But we have limited resources and must prioritise using them where we can have the biggest impact."

"We will prioritise intervening outside [our 'regulatory perimeter'] when we believe our objectives are threatened; if we believe an unregulated activity is illegal or fraudulent; has the potential to undermine confidence in the UK financial system; is closely linked to, or may affect, a regulated activity; [or] calls into question the suitability of the firm," it said.

The document also sets out the circumstances in which the regulator will support and enable innovation, and why it will do so.

"For a market to work well it must be open to new firms entering, and innovation in terms of the services provided," the FCA said in the document. "The role of technology in, for example, reducing some consumers' car insurance premiums by using telematics, or the development of dark pool trading exchanges which give large institutional investors the ability to trade with reduced market impact and lower transaction costs, show how innovation can help markets meet need."

"Effective regulation can help create a more competitive and innovative financial services market. We have already begun, and propose to continue, to identify specific areas where our regulations are inhibiting competition," it said.