The FCA published its Business Plan ("the Plan") for 2021/22 on 15 July 2021. The Plan sets out the FCA's priorities for the coming year, and the FCA is planning a significant amount of change, both for itself and the firms it regulates.
In this article, we provide an overview of the Plan and what firms and consumers can expect.
The Business Plan is a strong post-COVID-19 response by the FCA. The FCA is re-inventing itself under its new senior management team, led by Chief Executive Nikhil Rathi. There is an increased emphasis on technology, innovation and the use of data. There is also a stronger emphasis on protecting consumers, especially the vulnerable ones. Firms can expect the FCA to be more assertive, proactive and interventionist. It will be a stronger gate-keeper on authorising firms, and tougher and more robust in using its supervision and enforcement powers. In particular it will be interesting to see how the statement in the Plan that the FCA will be "testing the limits of our powers" plays out in practice. Diversity and inclusion are also higher up the FCA's agenda, and the FCA expects firms to do more on this.
Changes to the FCA
The FCA is changing itself. It wants to be:
- More innovative - using data and technology for the benefit of consumers. This aligns well with the UK Government's promotion of FinTech;
- More assertive - testing the limits of its powers. The FCA has been criticised in the past for not being sufficiently robust or aggressive in exercising its powers, particularly around the regulatory perimeter;
- More adaptive - constantly learning and adjusting its regulatory approach to consumers, markets and products. The FCA has been criticised for being slow to respond to regulatory scandals.
The FCA is introducing:
- A more robust gateway for new firms, with more intensive assessment and greater scrutiny of firms' financials and business models;
- Stronger oversight for newly authorised firms (described as a regulatory "nursery"). The FCA will oversee firms as they develop to check they comply with its rules and to identify potential harm early. This is a logical development from the regulatory "sandbox" which the FCA offers to innovative firms prior to being authorised;
- Stronger oversight of firms that are growing significantly. The aim is to help newly authorised firms with plans to scale fast to receive support and oversight.
There is a strong emphasis in the Plan on protecting consumers. The FCA's priorities for its consumer-facing work in 2021/22 are:
- Enabling effective consumer investment decisions;
- Ensuring consumer credit markets work well. This includes reviewing consumer credit in areas such as the buy-now-pay-later (BNPL) sector, which has attracted attention. The FCA will also be monitoring closely how firms provide support to borrowers in financial difficulty.
- Making payments safe and accessible. The FCA wants to see an innovative and competitive payments market. It is also concerned about the closure of bank branches and ATMs and the availability of alternative services to vulnerable customers
- Delivering fair value in a digital age. Although the digitisation of financial services has in some ways improved access and brought benefits, the FCA also has concerns about potential harms such as "sludge practices", when consumers find it hard to cancel a product or service online.
- Improving consumer outcomes through the new consumer duty. The consumer duty is the new one of these priorities, and the most interesting and controversial. The FCA is consulting separately on the new consumer duty, but one concern is that it will be used as a private litigation tool, encouraged by claims management firms.
Wholesale markets priorities
The key workstreams include:
- Reviewing the listing and prospectus rules framework, the MiFID rules around trading of financial instruments in secondary markets and an orderly transition away from LIBOR. The FCA is developing a more liberal post-Brexit regulatory regime to attract financial services and investment to the UK;
- Non-bank finance with a particular focus on ESG in the asset management industry. Also reviewing liquidity issues in areas such as money market funds;
- Increasing supervision of the Appointed Representative (AR) regime and the principal firms which oversee the ARs. The FCA is concerned that there has been inadequate supervision of AR firms, with some principal firms having taken on too many ARs.
- Fraud strategy - the FCA is concerned about the increased incidence and impact of fraud, and will be conducting proactive surveillance and monitoring to disrupt fraud;
- Financial resilience and resolution - the FCA will have an increased focus on firms' financial resources and liquidity, and will introduce the Investment Firms Prudential Regime (IFPR) for investment firms;
- Operational resilience - the FCA wants firms to be operationally resilient against multiple forms of disruption to minimise the harm caused to consumers and markets. Over time, the FCA expects to see a reduction in the number, type and duration of incidents and the level of harm they cause.
- Diversity and inclusion - this is a very important new area of challenge from the FCA. The FCA wants to see the following outcomes in the financial services sector:
- Regulated firms and listed companies have more diverse representation at all levels.
- Regulated firms and listed companies foster cultures that are inclusive so that staff can share their diverse experiences and backgrounds.
- Firms design and deliver products that reflect the diverse needs of consumers, offer fair value and are delivered in a fair and accessible way.
The FCA expects to see better data collection on diversity and inclusion by regulated firms. It will develop how it measures progress against these outcomes to ensure a consistent approach across financial services.
- Environmental, social and governance (ESG) - this is also an increasing and expanding regulatory priority. The outcomes that the FCA intends to achieve relating to ESG are:
- High-quality climate and sustainability-related disclosures.
- Protecting consumers from misleading marketing and disclosure around ESG-related products.
- Governance arrangements at regulated firms for more complete and careful consideration of material ESG risks and opportunities.
- Active investor stewardship that positively influences companies' sustainability strategies.
- The promotion of integrity in the market for ESG-labelled securities.
- Innovation in sustainable finance, making use of technology to bring about change and overcome industry-wide challenges.
Workstreams include implementing disclosure rules in line with the recommendations of the TCFD, and publishing a Climate Adaptation Report later in 2021 and a report aligned with the TCFD's recommendations in 2022.
- International priorities - the FCA will continue to contribute to international bodies such as the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS). It is as important as ever that the UK is represented in international fora and discussions post Brexit.
- Market access, equivalence and trade negotiations - the FCA states that it will provide advice to the government as it develops mechanisms to enable cross-border market access in financial services. This also aligns with the post Brexit imperative to sign up to more trade agreements and collaboration with other non-EU jurisdictions, for example the agreement between the UK and Singapore.
Business as usual priorities
It should not be forgotten that the FCA will still have its "business as usual" work, such as enforcement cases on market abuse, AML, retail cases and policing the perimeter. The Plan indicates that the FCA will be very active around monitoring and enforcing the regulatory perimeter, and firms can expect plenty of action also on financial promotions.