Charles Randell, the regulator’s chairman, explained some of the key areas of focus for the Financial Conduct Authority when he gave a recent speech to trade association the Finance and Leasing Association.
With his audience in mind, many of the examples he gave during the speech related to consumer credit, but the key messages remain applicable to authorised firms in all sectors.
Mr Randell began by harking back to a speech he gave last summer, where he expressed a desire to change the way the FCA operated:
“I noted that the pandemic had exposed some stark truths: that we have too much debt; that we don’t save enough; and that when people do save, they are too often persuaded to buy unsuitable investments. I said that the financial conduct regulator we need for the recovery is one that fundamentally changes this picture.”
Mr Randell continued his current FLA speech by expressing “cautious optimism” that the FCA could meet the challenges of adapting to the modern world, but he also listed some factors which he believed had made this task harder, saying that the pandemic has:
- Accelerated the digitisation of financial services
- Opened up a gap between one section of society who have been able to accumulate savings and secure their financial position, and another group of people who have suffered serious debt problems
- Increased the amount of unregulated online activity, leaving consumers vulnerable to scams
The FCA chair said that there were five principal ways in which the FCA would seek to address these challenges:
- Focus on the gateway
- Focus on basics
- Focus on outcomes
- Re-shape regulation
- Re-shape the FCA itself
Regarding the gateway, he said that “we need to make sure that the firms which have FCA authorised status are good enough”, adding:
“This means that we not only need to be rigorous with firms at the point when they apply; if we do authorise them, we need to know whether they are using their authorisation and what for; and we need to quickly remove the authorisations of firms which are not using them or which are misusing them.”
Mr Randell noted that the FCA now regulates 60,000 firms, around twice as many as seven years ago, and that this number is only likely to grow further.
On the ‘basics’ topic, he explained the FCA’s four priorities for basic consumer protection: safe and accessible payments; sustainable credit; clear and safe investment choices; and fair product terms, including price.
He made reference to some consumer credit lenders having an inappropriate business model, saying that these firms were “indifferent to whether the consumer could pay back the loan as long as they could make a return through interest payments and other charges, the proceeds of a further loan or a combination of the two.”
Moving on to the ‘outcomes’ topic, he gave an example of how a lender could deliver positive outcomes for their customers:
“Firms must identify if consumers are trapped in a cycle of unaffordable debt and take action to break that cycle, such as forbearance, support and referral to appropriate debt advice.”
Under the ‘re-shaping regulation’ topic, he made reference to “the difficulty of using detailed laws and rulebooks, which take a long time to change, to tackle a world of digital activities which are changing faster and faster.” Mr Randell said that the FCA would have a renewed focus on whether firms were complying with the Principles for Business, in light of this dilemma.
Finally, he made reference to the need to “re-shape ourselves”. Mr Randell highlighted some of the recent senior appointments at the FCA, which include its first Chief Data, Information and Intelligence Officer, as it seeks to make better use of data in the way it regulates firms.