In its Future Mission paper, the FCA seeks out views about its future approach and how it should apply its statutory objectives. The Future Mission paper represents an opportunity for the industry to shape and influence the FCA’s priorities and focus areas and how it uses its powers and tools, in sometimes relatively unexplored areas.

The FCA regulates a broad church of over 56,000 firms in many different segments of the financial services industry and it must prioritise and use its resources proportionately. In its Future Mission paper, the FCA sets out its stall on how it will approach its regulatory tasks.

The FCA aims to tease out feedback on the FCA’s thinking by raising 26 questions in the Future Mission paper. As this represents a chance to shape the regulatory environment in which firms operate, we would recommend making a response by 26 January 2017. Here are a few thoughts from us on the key points.

  • The FCA is likely to embrace data science and artificial intelligence as part of its diagnostic work to identify firms and business models with a higher likelihood of presenting with a regulatory breach. This will probably be deployed to detect financial crime (e.g. insider trading, market manipulation and money laundering).
  • The FCA may intervene in non-regulated areas of a firm’s business. It provides clarity about when it can do this e.g. when it is relevant to the threshold conditions, general consumer protection, market integrity, and financial stability; or where it is an area of senior manager accountability.
  • The Future Mission paper acknowledges that the FCA’s relatively new competition powers are underutilised as a regulatory tool. We can anticipate more use of measures to: bring increased transparency; act as proxies for competition; set minimum standards and principles; and intervene in specific markets and products. Behavioural economics will play a greater role.
  • The FCA sees itself as having a role in administration of broader public policy e.g. facilitating access to financial services, consumer protection (particularly for the vulnerable (including wealthier consumers) and those involved in complex products), promoting innovation in the interests of consumers, and ensuring long- term products “deliver”. It asks where the boundary should lie between policy and regulatory responsibilities.
  • Voluntary and compulsory redress programmes may become more common, although the FCA is aiming for suitable levels of deterrent and protection from poor conduct rather than a situation where consumers never make poor choices. Such schemes should have a defined scope, quicker payments and clear communications.
  • The FCA asks whether it should make rules specifically setting the standards firms must meet when dealing with retail customers, defining what “a reasonable duty of care is for financial service providers to their retail customers” (see page 24).

    This may make it easier to suggest where the line is drawn between consumers taking responsibility for their actions and allocating responsibility to the firm, particularly as the FCA wants to follow principles of good regulation, features of which are “that consumers should take responsibility for their decisions” and it is “the responsibility of firm’s senior management” to comply with FCA requirements (see page 17).

    Nevertheless, the FCA appears cautious about this suggestion, which has its roots in the Financial Services Consumer Panel. A prescribed duty of care may have limited reach to strengthen the ability of consumers to bring a claim for breach of FCA rules, alone or through group litigation. The FCA seeks views on whether such a duty of care would improve culture in firms and whether the duty could help sharpen the responsibilities in the product provider, advice and distribution chain. In mentioning it, the FCA demonstrates, to a limited extent, it is eager to give a nod to the credibility of this strand of consumer protection. Its broad question is whether a duty of care would help ensure that financial markets function well.
  • “Less is more” – disclosure may not be the answer: consumers with more information do not necessarily make more appropriate choices and the FCA recognises that behavioural economics can shape and improve customer experience and outcomes. The FCA specifically asks whether a more interventionist approach is needed where conventional disclosure proves ineffective.
  • The FCA will use communications to be clearer about its expectations – about the enforcement process, the FCA’s analysis, and expected outcomes, as the FCA expects firms and individuals to learn from its action: “Investigations should draw clear bright lines that the rest of the market can follow, helping everyone comply”.
  • We anticipate there will be a subtle change in the approach to enforcement. Three standout points from chapter 13 are that:
    • the FCA wants industry to move away from an assumption that an investigation leads to sanction;
    • the use of private warnings may fall away.

Before acting, the FCA will ask itself if intervention would advance its strategic and operational objectives (see Financial Services and Markets Act 2000 section 1B), as part of which it will ask whether another agency should act instead, whether there is a wider social context to consider and what levels of protection and responsibility may be appropriate in any given sector. Specifically the FCA wants to know whether this all helps to make FCA decisions more predictable.

As well as setting out the areas the FCA needs to distil into its framework for conduct regulation, the Future Mission paper is important as a quiet signal from its relatively new Chief Executive, Andrew Bailey, that he intends that UK’s financial system, with consumers as part of that, should be protected with a transparent and even-handed regulator (Andrew Bailey’s launch speeech).