The Mission, which takes into account stakeholder views, seeks to explain to firms how and why FCA prioritises its focus to meet its statutory objectives. It stresses that it regulates to promote the public interest and with the aim of adding the most public value. It aims to:
- build trust between users and providers of services
- improve how markets regulate
- create economies of scale by applying a common approach to regulation
- work to prevent harm from occurring
- help to put things right when they go wrong.
The Mission looks at how FCA uses its decision-making framework, including how it categorises different types of “harm” and, following on from that, how it uses its diagnostic and remedial tools, as well as evaluating how well they have worked. The Mission also explains how FCA uses its regulatory judgement, interprets and measures its objectives and sets out what various market participants and users can expect from it.
The Business Plan sets out a demanding range of key priorities:
- consulting on the extension of the accountability regime
- reviewing the regulatory framework on remuneration
- considering how technology can help AML processes
- preparing to review the quality of professional bodies’ AML supervision
- preparing a further investment fraud warning campaign
- giving guidance to firms on developing robo-advice services
- engaging with Fintech hubs throughout the UK
- looking at the role of near and real-time compliance monitoring in reducing the regulatory burden
- setting up cross-sector cyber co-ordination groups
- carrying out technology and cyber-capability assessments on all high impact firms
- analysing resilience risks in major initiatives, including ring-fencing and PSD2
- looking at the effect of “wake up” packs on consumer decisions on retirement
- focusing on how firms treat borrowers when interest-only mortgage approach maturity
- publishing its “Consumer Approach” on how it addresses consumers’ needs
- generally continuing its work on consumer credit, including high cost credit and overdrafts.
In addition to these cross-sector priorities are a range of sector priorities, including:
- ensuring MiFID 2 is effectively implemented in the wholesale financial markets and improving competition in investment and corporate banking
- consulting on remedies in the asset management market and considering policy on fund liquidity
- looking to improve competition in the retirement income market, and reviewing the non-workplace pensions market
- launching a strategic review of retail banking business models, raising awareness of the PPI complaints deadline and supporting ring-fencing implementation
- setting out its analysis and preliminary conclusions on the mortgage market
- monitoring the debt management sector
- starting to explore the motor finance industry
- reviewing pricing practices in general insurance
- looking at the effectiveness of competition in the wholesale insurance market
- considering how to improve competition for investment plaforms
- analysing the developing market for automated advice models
- looking further at the risks in the CFD market.
FCA notes the key largest risks to markets and consumers are outside its control, but that it must be prepared to address the risks as they arise. Domestically, it will continue to focus on conduct risk, and work towards reducing the need for regulatory intervention and building trust. FCA has noted the growing need for cyber-resilience, including the risks of outsourcing.
Of course, the Business Plan needs to account for Brexit planning. FCA says it has dedicated resource to manage the necessary work and will provide the Government with the support required.
It certainly paints a very ambitious picture of FCA's plans for the year ahead. It is clearly trying to keep many balls in the air, the biggest of which are, in no particular order (or order of importance):
- Addressing new risks – specifically the risks of technology, be they the increasingly sophisticated cyber-attacks, or the mixed risks and benefits of use of technology to help with AML compliance and to provide robo-advice
- Continuing the championing of conduct as a way generally to raise standards at all levels of regulated businesses and minimise the need for intervention – while extending accountability as the SMR regime extends to cover all firms (the momentum for which is started and can't now be delayed without serious loss of face)
- Ensuring regulation covers the needs of the evolving population – in particular, how to address the retirement and mortgage needs of an ageing population (who are also more vulnerable to technology-based scams) and a younger working population whose earning potential and attitudes increasingly diverge from the previous generation
- Encouraging competition through getting the best choice for consumers, which they understand, while allowing market players to move with the times
- Never forgetting investor protection – and the need to focus resource on more "mundane" pieces of work such as transparency in insurance pricing and fair treatment of existing customers, as well as the work in the consumer credit sector which is always necessary to ensure proper standards in debt management and high cost credit
- Considering prudential issues, specifically the ongoing focus on remuneration
- Working on standards in wholesale markets, in particular the asset management and wholesale investment sectors
- Coping with regulatory change including significant measures such as MiFID 2 and PSD 2, not to mention the not insignificant changes that MLD4, the IDD and PRIIPs will bring
- Last but of course not least, having the resource available to deal with whatever vagaries the Brexit negotiations will throw at UK financial regulation.
It seems to me that FCA is right to focus on the benefits and risks that ever-evolving technological solutions bring – and, in turn, this plays into many of the more focussed priorities it has enumerated in the plan. Firms are always looking to innovate, and the younger consumer often wants to benefit from a full range of services without the need for human interaction with their service provider. So making sure the consumer gets clear, fair and not misleading information, has the right access to an appropriate range of products and services, and is not compromised by cyber-risks, is a challenge. With firms having a plethora of constant and evolving regulatory requirements to deal with, the engagement and understanding of appropriate levels of management, and the ultimate accountability is also key. FCA is right also to try to combine its cross-sector priorities (that provide a consistent approach) with its defined sectoral risks (because a one-size-fits-all approach to regulation cannot work). To that extent, if it starts from culture and accountability, encouraging strong and informed governance, that must be the right approach. Engaging with Fintech and Regtech, and encouraging the use of innovation is also an essential move, so FCA can work on ensuring new entrants to the financial markets understand their regulatory responsibilities. If regulation keeps up with technological developments, consumer benefit can be maximised and risk minimised.
FCA's focus on existing customers is also welcome. Whether because of investor inertia, or the sheer complexity of products on the market, studies are increasingly showing that customers who stick with one product are often disadvantaged. Measures that require firms to consider this, and measures which make it easier for consumers to understand their position are important. Many of FCA's initiatives in the various parts of the retail sector are aimed at encouraging shopping –around and better competition.
The way in which FCA has set out its various priorities makes it clear how its key cross-sector priorities impact on the individual sectoral risks and needs. It has identified issues and desired outcomes in all areas, which should make assessing the success of the plan transparent. But the timetable is very ambitious, with several key reviews to be published during 2018. It's hard to say that there is anything in the plan which should not be a priority for FCA, but it is surely going to be a struggle for it to keep up with all these initiatives while both continuing the "day job" of authorisations, the supervisory programme and enforcement, and dealing with implementation of regulatory change while planning for Brexit as best it can.