The Financial Conduct Authority (‘FCA’) has released its highly anticipated Business Plan which is available to read on its website. The FCA publishes a business plan annually which is an outline of the regulator’s intention and goals over the current and forthcoming years. This year, the Business Plan was published on the 15th of July 2021 alongside a webinar hosted by the new FCA Chief Executive Officer Nikhil Rathi.

Within the plan and the CEO’s speech the FCA acknowledged the unprecedented year it and the wider financial services sector has experienced, Brexit, the pandemic, and the drive for a greener economy all factoring into a turbulent and uncertain period.

The FCA’s findings and reflections over the past year.

The FCA has rationalised a lot of its proposals using the data it has collected over the past year. For example, the FCA has seen the rise of crypto asset investments and it now estimates around 2.3 million UK consumers hold some form of crypto asset. The FCA is seeking to rise to this challenge in the words of Nikhil Rathi some young investors see the activity as a form of ‘entertainment’ which the FCA is keen to discourage.

Furthermore, the FCA found consumer financial resilience to be demonstrably lower during or as a result of the pandemic. The Financial Lives Survey found an increase of 3.5 million UK adults reported low financial resilience making the total in the UK 14.2 million. For characteristics of customer vulnerability, the FCA found a 3.7 million increase to a total of 27.7 million UK adults displaying one or more characteristics of customer vulnerability. The trend is something of concern for the FCA and some of its future proposals are designed to either mitigate or reverse these increases.

More generally, the FCA noted the pandemic forced a huge shift to remote working and promoted alternative means of payment and customer engagement. The shift to online and remote options is naturally increasing digitalisation and demonstrates the operational resilience of the finance market in the UK. The FCA has indicated it will continue to support this shift, adapting itself to this rapid change all the while continuing support to those consumers/customers who may be digitally excluded.

What are the FCA’s aims?

In light of some of the changes the FCA has observed, the regulator seeks to reform itself to continue to be effective in its role as a watchdog and supervisory authority of the UK financial market.

Nikhil Rathi proclaimed data as ‘the lifeblood of a modern regulator’ with the firms it regulates being increasingly data-centric the FCA has pledged to become a ‘data regulator’ as well as a financial one within the next five years. The scope and outline for this plan have not yet been disclosed but the FCA is expecting to grow in its powers and perimeter over the next few years. Further to this, the Government has agreed to an annual review of the FCA’s perimeter to approve any further expansions to its remit.

Outside of this perimeter, the FCA has pledged to be more proactive and less wary of acting outside of its established confines. This will not mean the FCA will act outside its statutory powers, however, it will mean the FCA will ask and seek further information where it suspects malpractice and work closely with the appropriate authority to action it where necessary.

Internally, the FCA has highlighted its plans to reach an inclusive and diverse workforce it pointed to its plans to have women in senior roles to be 50% by 2025. Its 2020 target of 45% was missed by 5% but it still maintains the 2025 target. Overall the regulator wants to be reflective of the markets and firms it regulates aiming to be diverse and inclusive as possible.

Finally, the FCA is pledging to be more accountable by being more open with its internal metrics. These reporting metrics are expected to be published by April 2022 and onwards to demonstrate the level of success the regulator is meeting.

Priorities towards consumers.

The FCA is being handed by HM Treasury new consumer-orientated financial services which are to be regulated in 2022 including the funeral plan sector and later in 2022 buy now pay later (‘BNPL’) schemes. The funeral plan sector has largely been consulted, with applications slated to open in September 2021 whereas BNPL is expected to be consulted on at the beginning of 2022. Scott Robert is currently assisting some firms in the funeral plan sector as they work to transition over to FCA supervision. If your firm requires assistance with applying to the FCA for funeral plan permissions contact us and we will be happy to assist.

Outside of the new areas the FCA is expected to regulate, the FCA is taking action upon its findings over the past year. For example, in light of the increased crypto investment, the FCA is creating a digital marketing campaign for young investors forewarning them of the risks and advising them to invest wisely in the crypto market. The FCA considers this move as a way to enable consumers to make effective financial decisions. Other elements of FCA action towards consumers is the banning of ‘price walking’ the gradual price increases of general insurance products which the FCA considers unfair towards consumers who are loyal and remain on the same plans. Insurance firms are reminded to be aware of the pricing changes if your firm seeks further clarity or advice on your firm’s price structure Scott Robert can be on hand to assist.

Perhaps the flagship element of the FCA’s new proposal is The Consumer Duty which is likely to be treated as a new principle but only for consumer products and services. The FCA, by introducing this new principle, wants a higher standard of care and conduct in the retail market more so than what Principle 6 and TCF currently require. The duty will mandate firms to consider their actions as what they would expect on themselves in return, in essence, requiring firms to consider themselves within the consumer’s position. The consultation on The Consumer Duty has now closed with the responses and modified rules expected later in the year. Firms should prepare and keep appraised of the Consumer Duty rules which will be finalised before the end of the year.

Priorities towards wholesale markets.

On a more macro scale, the FCA outlines priorities for B2B arrangements and overall market integrity. A key change is a transition from LIBOR to alternatives such as risk-free rates, the FCA is overseeing this transition encouraging all firms to cease relying on LIBOR for new transactions.

Moreover, the FCA is continuing its priority in preventing financial crime. They have highlighted the need for all regulated firms to prevent market abuse and reduce the risks of financial crime. The regulator has provided details of their internal monitoring through things such as Suspicious Transaction and Order Reports and intelligence gained from whistleblowers.

Another key arrangement change is the FCA’s focus on the Appointed Representatives Regime which acts as an alternative to firms seeking direct authorisation for regulated activity. Recent consultations are demonstrating the strategy from the FCA that they intend the AR regime to be more robust with the introduction of periodic fees and more timely reporting requirements on principal firms. Scott Robert recently took part in a consultation on the AR regime changes as many clients recognise the increased costs. If your firm would like to seek clarity on the changes or a review of their current AR network compliance contact us today.

What Scott Robert expects next.

Overall, the FCA has released a comprehensive business plan which is an amalgamation of its currently known initiatives as well as indications for the future. The FCA has made it clear it plans to be more assertive and unwilling to look the other way at activities it considers dubious even when outside its perimeter.

The FCA’s Business Plan is a highlight and reflection on the turbulent year experienced by all in the financial sector but it also demonstrates the FCA’s learning from that experience. In the near future firms should continue to expect an ever-expanding regulator in perimeter and resources who will seek to modernise itself further to maintain pace with the rapidly changing markets it supervises. At the forefront of all of this will be a regulator seeking cooperation but ultimately higher standards of care from regulated firms, in particular, for those who offer products and services to consumers.

Contact us.

If you or your firm seeks assistance or guidance from the proposed changes within the Business Plan, Scott Robert can help. We are familiar with the regulatory changes such as funeral plans, changes to the AR regime, and The Consumer Duty.

If you or your firm needs assistance, please contact us on our phone number: 0161 250 9508 or email: enquiries@scottrobert.co.uk

Harvey Lewis.