The UK’s Financial Conduct Authority (FCA) has published its business plan for 2015/2016, setting out the areas on which it intends to focus over the coming year.
There is nothing particularly surprising in the business plan and many of the themes or areas of focus will already be familiar to regulated firms. They are either updates to issues highlighted in previous years, a description of the FCA’s approach to dealing with highly publicised industry changes, or reviews which the FCA has already announced. However, the business plan does provide a useful indication for firms as to what the authority will be looking into over the next 12 months, and where firms should be focussing their attention.
It is probably no surprise, for example, that pensions feature high on its agenda. Its Chief Executive, Martin Wheatley, recently described what is “arguably the most profound political reform of UK pension provision since Beveridge in the 1940s” (due to take effect from 1 April 2015) as the “most defining challenge of our time”.
In particular, the business plan makes it clear that the FCA will be looking into whether pension providers’ sales practices have improved since it looked into the annuities market in 2014, and whether firms were doing enough to ensure that consumers were making the right choices when selecting pensions products.
As well as the pensions market, the areas on which the FCA intends to focus over the next 12 months include:
- The mortgage market, with a particular focus on barriers to entry or hurdles that prevent consumers getting access to credit
- The implementation and review of the consumer credit regime
• The recently announced review into the wholesale market in corporate and investment banking
- Monitoring developments in technology, including a review of the use of ‘big data’ in the insurance market
- Contributing to international efforts to reform benchmarks
- Working with firms in preparation for MiFID II
- Reviewing how asset managers charge their customers
- Considering how the FCA intends to use its increased regulatory and enforcement powers (which come into force from 1 April 2015) in relation to anti-competitive conduct.
In addition to detailing the areas on which the FCA will focus, the business plan also includes the FCA’s Risk Outlook. This details seven areas of risk which firms should consider over the coming years and to which the FCA will be paying particular attention. These are:
- The impact of technological development on firms, customers and regulators
- The threat to market integrity posed by poor culture and oversight within firms
- The impact that large back books have on how firms treat existing customers
- Consumer outcomes for pensions and retirement income products
- How poor culture and practice in assessing affordability for consumer credit could lead to unaffordable levels of debt for customers
- The impact of the Consumer Rights Act, which is due to come into force in Autumn 2015
- Firms’ systems and controls in relation to financial crime.
Many of these areas of risk are developments from those highlighted in previous business plans. The FCA has developed these existing themes, explained how its thinking has progressed in these areas and also highlighted areas where the risks overlap.
Unsurprisingly, technology continues to be a key focus. The FCA has always been vocal about the potential benefits of technology to consumers, while being mindful of the risks and regulatory challenges posed by fast moving technological developments.
Another area of potential risk highlighted by the FCA is that posed by the systems and controls that firms have in place or, more to the point, might not have in place, in relation to financial crime. This is not a new topic in itself but, given its inclusion in the seven highlighted risk themes, all firms in the regulated financial sector should consider carefully whether their systems and controls are adequate to prevent financial crime.
Although the business plan sets out the FCA’s vision for the next twelve months, its agenda is likely to be impacted by the recommendations of the Fair and Effective Markets Review, co-chaired by its Chief Executive, Martin Wheatley. This is due to publish its recommendations on how to make wholesale markets fair and effective in June 2015.
For the time being, however, the business plan gives firms plenty to think about in relation to the priorities of a regulator keen to exercise its increasing powers. It is an important document for firms to read, to get a better sense of the areas where there is likely to be increased enforcement in coming years