Rebalancing the risk: the FCA's strategy for 2025 to 2030

The Financial Conduct Authority (FCA) has published its much-anticipated strategy for 2025 – 2030. Against a vision of "deepening trust, rebalancing risk, supporting growth, improving lives", the new plan will focus on four key priorities: making the FCA a "smarter" regulator; supporting sustained economic growth; helping consumers navigate their financial lives; and fighting financial crime.

In this article, we take a look in depth at the FCA's plans for each priority concern, and also explore some other focus areas the regulator highlights in the new strategy.

Priority one: making the FCA a smarter regulator

The FCA's first focus area is making its own operations cost efficient, cost effective and proportionate, including in relation to how it collects and uses data.

Regulated firms will continue to see changes in how the FCA supervises them. It has set a small number of priorities designed to have greater impact. The FCA currently sets detailed individual two-year supervisory programmes for large firms, but now plans more flexibility with less intensive supervision for those firms who are clearly seeking to "do the right thing". It also wants there to be more direct contact points within the FCA for regulated firms.

In line with its supervisory strategy for large firms and its recent publication on streamlining Consumer Duty requirements, the FCA plans a significant reduction in publications setting out its priorities, publishing a small number of market reports each year which set out risks and opportunities observed.

The FCA has also committed to investing in its technology, people and systems – including digitising authorisation processes - to improve efficiency.

The overall thrust of this priority is to give firms fewer separate pieces of guidance, and to recognise when firms are trying to get compliance right. Firms will on the whole welcome this, especially if communication with the FCA for smaller firms becomes easier as is also promised. The FCA plans to use new metrics to assess how well it's doing, in addition to wanting its current metrics to improve.

Priority two: supporting growth

The Government and regulators have spoken a lot in recent months about the importance of growing the UK financial services industry, including the announcement of several red-tape cutting measures, the launch of the inaugural Financial Services Growth and Competitiveness Strategy, and hosting a research competition on economic growth.

In the new strategy, the FCA notes that regulation's role in supporting economic growth is not simply about "getting out of the way", but rather about "rebalancing risk". It cites the ambitious capital markets reform programme and the digital securities sandbox as examples of what it has done to help to unlock investment and growth.

The FCA's focus on the investment market prioritises changes to disclosure requirements, the prospectus regime, and widening retail access to investment opportunities as examples of how it plans to ensure the financial services sector contributes to the wider UK economy. It also intends to support improvements in productivity through a tech-positive approach.

Structurally, the integration of the Payment Systems Regulator within the FCA will help to deliver the National Payments Vision, namely an innovative, safe and competitive payments sector.

The FCA also plans to support competition through reforming (and making redundant unnecessary) rules in areas like commercial insurance and asset management, and says the recently announced review of redress arrangements is needed because the current scheme can create uncertainty which in turn can hold back investment and innovation.

By 2030, the FCA wants to see an increase in firms using its tailored services, with a growth in financial services exports and better access to capital for businesses.

Priority three: helping consumers navigate their financial lives

In his introduction to the new strategy, FCA Chair Ashley Alder stressed the importance of trust in financial firms and the products and services they provide.

Under this focus area, the FCA aims to drive better value for money in workplace pensions and ensure fair value and competition in the insurance industry – and has made a start by initiating a deep dive into the pure protection insurance market. It also hopes to encourage product innovation and widened access, including by reviewing mortgage affordability requirements which have up to now focussed on reducing the number of borrowers who get into difficulties but may also have made it harder for first-time borrowers to get on the property ladder. The FCA also highlights plans for a new regulatory regime of targeted support for people without access to financial advice to make the most of their pensions.

The FCA will continue to rely on the fact that the Consumer Duty should now be fully embedded throughout firms to drive trust and increase confidence in the industry, and will also work with the Government on its wider financial inclusion strategy.

By 2030, the FCA wants to be able to report an increase in consumers holding key products like general insurance, pensions in accumulation, day-to-day accounts and savings accounts, and also a higher proportion of consumers (with over £10,000 in investible assets) holding mainstream investments.

Priority four: fight financial crime

Curbing financial crime and scams remains a priority area, as it was in the previous strategy. The FCA notes that in the last two years, it has charged more individuals with criminal offences than ever before, and is concluding enforcement investigations quicker. Although the FCA recently withdrew its controversial "name and shame" enforcement plans, going forwards, it plans to "draw on all the tools" at its disposal, including public warnings, formal requirements on firms, civil action and criminal prosecution.

In particular, it plans to focus resources on those seeking entry to regulated financial services in order to use FCA authorisation – and the so-called 'halo effect' – as a mask for financial crime.

The FCA also wants consumers to have tools to protect themselves against financial crime, so will continue to raise awareness of investment and authorised push payment (APP) frauds.

What else?

In addition to these four priority areas, the FCA's new strategy also explores three key focus points, which shed light on its aims to adopt a more flexible approach, encourage innovation in the financial services industry, and position itself in the international market.

Rebalancing risk

Perhaps more as background to the way the FCA has planned its strategy, rather than a strategic priority in itself is the topic of "rebalancing risk".

In a recent speech at the Association of British Insurers, FCA CEO Nikhil Rathi likened the exercise of balancing consumer protection with encourage growth to a Gordian knot, and noted wider industry concerns about cutting 'red-tape'. In the new strategy, it considers the importance of another rebalancing exercise: risk.

The FCA's view is that regulation should enable informed risk to be taken, not aim to eradicate it entirely, and this is in keeping with the need to encourage innovation and competition. So the FCA's view is that it should focus on what risks regulation should allow now:

• Regulatory risk – the FCA has to make decisions and judgments based on an informed assessment of risk. For example, it has to make a balanced decision on where to set the bar for the regulatory gateway – not too high to put new entrants off, but not so low as to risk an unsuitable firm causing harm.
• Market and firm risk – again the challenge for a regulator is to mitigate excessive risk, balanced against the need to ensure firms and markets can evolve. AI is the obvious example, as it brings with it so many advantages and efficiencies, but also carries risks.
• Consumer risk – consumers always need to make choices in the financial services that they use, which in turn will entail taking risks. Some may favour "risk free" easy access accounts at the expense of interest they would gain on savings or profits they may make on investments. The FCA acknowledges that with any regulatory initiative taken to rebalance risks, a minority of consumers may not end up achieving the outcome they intended.

A smart data revolution

More than 11 million people already use Open Banking, but the FCA promises to increase the pace of change and deliver innovation and competition through greater flexibility, tailored services and lower costs.

In particular, the FCA wants to prioritise the development of smooth account-to-account payments, and make Variable Recurring Payments possible.

This will mean greater data sharing, which means Open Banking will need to be commercially sustainable without jeopardising the currently free access model. However, the FCA also notes that premium – and paid – services could allow people access to better banking and payments services suited to their needs.

In the next year, the FCA will publish a roadmap for the roll out of Open Finance, with regulatory frameworks for the first scheme to be in place by the end of 2027. Initially, it will prioritise small business lending.

An international regulator for an international market

The FCA is keen to play its part in the international market, to ensure that the UK keeps (and improves) its position as the largest net exporter of financial services. The FCA is already often involved in key regulatory projects at an international and EU level.

However, the FCA's new strategy acknowledges that, while lack of international adoption of key standards can lead to the need to make hard choices, it may sometimes make sense to take initiatives forward sometimes with smaller numbers of "like-minded jurisdictions", as well as keeping up strong bilateral relationships with international counterparts.

The FCA plans to establish a permanent presence in the US and Asia-Pacific for the first time, the better to support some of its key counterparts and also local firms that are interested in becoming UK-authorised.

What next?

In some ways, the paper was not as detailed as expected in that it made little reference to the Government's growth initiative which, in the case of financial regulation, will take the form of a lot of cutting of red tape. But in fact, the FCA has come at this from a different angle. Its focus on rebalancing the risks will allow it to take forwards projects to refocus parts of regulation and make others more flexible – and in doing so, it will open up new markets to firms and consumers alike. But the FCA is, and must continue to be, aware of the impact on risk profile of each change.