The Financial Conduct Authority (FCA) published its business plan for the coming year this morning, which didn't really contain any surprises. As we all know, the FCA had already planned to focus its resources more heavily on the areas of greatest potential harm identified in its Sector Views, as well as transforming its own ways of working in preventing harm. It believes this work needs to continue, but it has significantly reshaped its plan because of the impact of coronavirus on the UK and global financial markets.

The FCA recognises that the magnitude and duration of the economic shock caused by coronavirus is highly uncertain. It has affected both the demand and the supply sides of the global economy, and has lead to an untested impact on confidence and investor/consumer behaviours. The FCA says this has made planning ahead much harder.

The plan was intended to show the FCA's strategic focus for the next three years. Instead, the regulator has published today's version of the plan and will review this as the global financial position becomes clearer.

The FCA has identified four external priorities which it will be focusing on over the next 1–3 years. It also has a fifth priority; its own transformation. The FCA has said that where it can take this work forward now, without diluting its focus on the impact of coronavirus, it will. However, it recognises that it may be months before it can focus fully on the following activities.

What are the FCA's key priorities over the next 1–3 years?

The FCA will transform the way it works and regulates

Coronavirus has meant that the FCA has had to change the way it regulates and it wants to be ready for the future. In order to meet the change in demand and pace, it has identified a few key outcomes it wants to focus on:

  • The FCA wants to be able to make faster and more effective decisions
    • It plans to invest, to grow and develop its capabilities in order to keep pace with the evolving and more complex regulatory context it is working in.
    • As well making use of its wide range of regulatory tools, it wants to operate in a more integrated and simplified way through its ‘One FCA’ concept.
  • Prioritise end outcomes for consumers, markets and firms
    • It plans on being clearer with firms on the end consumer outcomes the FCA is targeting through its work.
  • Intelligence and Information
    • In order to be able to use information and intelligence better, the FCA is reviewing its processes around retrieval, analytics and acting on such information.
    • Investment in systems is in processes, in particular through its data strategy to help the FCA use data better to understand markets and consumers better.
    • For firms, it plans to streamline data and regulatory returns through Digital Regulatory Reporting and through better regulatory coordination between the FCA, Bank, PSR, CMA, Treasury and other public bodies.
  • Influence internationally on issues that affect UK markets and consumers.
    • The FCA plans on building stronger links with global partners to ensure that it can respond in the most effective way to global challenges.

The FCA will work to enable effective consumer investment decisions

The FCA is concerned with the amount of consumer losses that can be caused by the pension/retail investment sectors working poorly. This is highlighted by the statistic mentioned - that those consumers who are scammed lose an average of 22 years’ pensions savings.

The FCA is concerned with the significant risk of harm in these markets driven in part by consumer’s personal responsibility for complex decisions through the shift to defined contribution pensions and pension freedoms. To combat this, it wants to ensure consumers are supported to make better decisions and will do this through targeting three outcomes:

  1. Ensuring investment products are appropriate for consumer needs – through design, offering good value for money and being marketed in a clear, fair and not misleading way.
  2. Supporting consumers to make effective decisions – through access to high-quality advice and support and awareness of scams and fraud. In particular, a consumer harm campaign is being planned for the retail investment sector.
  3. Ensuring higher standards of governance is adhered to – right through firms’ distribution chains.

The FCA will continue to ensure consumer credit markets work well

The coronavirus has had a major impact on this sector. As a result of this and other factors, the FCA will focus on delivering the following outcomes:

  • Consumers can find products that meet their needs – through delivery of clear and simple information to ensure ranges and features can be easily understood
  • Consumers do not become over-indebted by being given credit they cannot afford.
  • Affordable credit is available to smooth consumption – through increasing access to fair and affordable credit including alternatives to high-cost credit
  • Consumers can take control of their debt at an early stage when they fall into financial difficulty– encouraging and helping firms be able to identify consumers at risk at an early stage and to give them suitable forbearance and encouraging debt advice.

The FCA will endeavour to make payments safe and accessible

The FCA acknowledges that the payments sector is developing quickly and the FCA wants to ensure this market continues to be safe and varied.

The FCA has identified three outcomes it wants to deliver and to do so, will collaborate with other regulators (including the PSR, Government and the Bank):

  1. Consumers transacting safely with payment firms – there will be a focus on payment firms’ systems and controls to ensure they are robust enough to combat fraud and operational outages
  2. Payment firms meeting their regulatory responsibilities while competing on quality and value – the FCA will crack down on firms who fail to deliver safeguarding and other regulatory requirements. It also expects open banking to increase competition in this sector to help consumers access high-quality, fair value products and services
  3. Consumers and SMEs having access to a variety of payments services – the FCA wants to ensure certain consumer groups and consumers are not excluded from access to different payment methods. A key priority here is ensuring consumers continue to have Access to Cash.

The FCA will strive to deliver fair value in a digital age

The FCA wants to ensure it has the necessary skills and tools to effectively supervise firms in the age of Big Data. A particular focus will be on how digital technologies is affecting vulnerable customers and the FCA will focus on three outcomes:

  • Consumers can choose from products that meet their needs, at a suitable quality and price – consumers should have confidence that they are getting appropriate quality and services and that they have the information to assess this
  • Digital innovation and competition supports greater value for consumers – a focus will continue on ethical use of data including preventing undue bias or discrimination
  • Vulnerable consumers are not exploited or targeted with poor value products and services and access to key products and services is fair – through robust policies.

What is the FCA's cross-cutting work?

In relation to the five key priorities, the FCA will work across sectors in areas that have a broad market impact:

  • EU withdrawal and wider international work – it will continue to work closely with European and global stakeholders on developing global financial standards and effective supervision, and addressing areas of mutual interest. It will also provide the government with technical support as it negotiates the UK's future relationship with the EU and will take steps to insure that both it and the UK financial services industry are prepared for the end of the transition period
  • Climate change – it will assess the feedback to its recent consultation on new climate-related disclosure rules for some issuers. The FCA will also continue its policy research to better understand how retail investment products are designed, the accuracy of disclosure, and whether this enables consumers to make effective decisions on ‘green products’
  • Innovation and technology – it will invest in new technologies and skills, so that it can make better use of data to regulate efficiently and effectively. Amongst other things, the FCA's rules to prevent money laundering will be strengthened, and it will work with domestic and international stakeholders to support a joined-up approach to cryptoassets
  • Operational resilience – in December 2019, along with the PRA and the Bank, it published its joint Consultation Papers on operational resilience. The proposals are clear that the FCA expects firms and Financial Market Infrastructures to take ownership of their operational resilience and prioritise plans and investments based on their public interest impact. When the consultation period closes, on 1 October 2020, it will consider the responses and publish a Policy Statement with its response and final rules
  • Financial crime - in line with its commitments in the UK’s 2019 National Economic Crime Plan, the FCA will start to implement changes to how it reduces financial crime and will continue to take enforcement action where it uncovers serious misconduct. It will also consult on extending the Financial Crime Data Return to more firms to help strengthen its risk-based supervision as part of its wider Anti Money Laundering strategy. Further, the FCA's ScamSmart campaign focuses on mitigating consumer harm arising from scams
  • Culture in financial services – it expects all solo-regulated firms to comply with the requirements of the SM&CR as they fall due. The FCA will continue to focus on the four key culture drivers in firms – purpose, leadership, approach to rewarding and managing people, and governance – and their effectiveness in reducing the potential harm from firms’ business models and strategies.

Which sector work will the FCA continue to work on?

As notified in the FCA's sector views, they will also continue to work to address harm in the following areas:

  • Wholesale financial markets (ensuring an orderly transition from LIBOR, clean markets, good value, high quality products, orderly markets in a range of conditions, a market that meets users needs)
  • Investment management (ensuring investors get high-quality, fair value products and services – looking at effective disclosure, effective governance and SM&CR, how host SCD firms discharge their responsibilities, LIBOR risk)
  • Retail banking (looking at ensuring Access to Cash, operational resilience, minimising fraud and financial crime, a wide range of services are available, high quality products and services are offered, cash savings remedies are delivered including SEAR)
  • General insurance and protection (looking to ensure products and services are suitable for customer needs and deliver on their promises through clear, fair and not misleading communications, focusing on value measures, renewals and switching, access to GI&P products is maintained especially for vulnerable customers who should be sign posted to alternative specialist products that might better meet their needs, looking at pricing practices, operational resilience.

Check out our previous briefing note on the the sector views mentioned above for more details.

For more details on anything else mentioned in this briefing note, get in touch with one of the team.