The FCA’s 2023/24 Business Plan: Stop Me If You’ve Heard This One Before…
On 5 April 2023, the Financial Conduct Authority (FCA) released their 2023/24 Business Plan, detailing the actions the UK regulator aims to take over the next 12 months in support of its three year strategy, which was published in April 2022.
Set against the continuing backdrop of economic and geopolitical unpredictability, the Business Plan highlights key uncertainties for the year ahead, which include volatility around inflation and interest rates, the risk of unemployment increasing more than currently projected, the ‘cost of living’ crisis, and the potential for further market volatility.
But those expecting something new and revolutionary will be sorely disappointed. Following last year’s approach, the document is once again structured with cross-sector focus points and desired outcomes applicable to all regulated firms, framed in the same three key strategic themes. The FCA wants to be a more assertive, adaptive, and innovative regulator and is cognizant of the need to be agile to deal with new challenges, though a reference to “finite resources” does perhaps temper expectations. Despite the obvious budgetary constraints (with regulatory fees increasing below the level of inflation and a freeze on application fees) headcount has grown, locations have expanded, and new digital and data capabilities are afoot.
Alongside the strategic themes of reducing and preventing serious harm, setting and testing higher standards, and promoting competition with positive change, the FCA sets out four critical commitments:
- Preparing financial services for the future
The FCA plans to continue its urgent work with its partners and deliver the outcomes of the new Future Regulatory Framework (FRF) and Edinburgh Reforms. More than £12 million will be invested to prepare for the FRF, which will help support the UK’s wider economic growth and international competitiveness, in line with the FCA’s new secondary objective. The regulator will also continue to support innovative and high growth firms.
- Reducing and preventing financial crime
As always, financial crime is an area of focus for the FCA, with it now continuing to look for innovative ways of reducing and preventing financial crime. This includes a strengthened authorisation process, improved assessments of regulated firms, and more staff to investigate and prosecute offenders. Much of the work to deliver on its commitments is well underway and the FCA wants to continue to prioritise its work to bring the most benefits to consumers, firms and the wider economy.
- Putting consumers’ needs first
In light of the rising cost of living, the FCA is ever more aware of its duty to ensure that retail investors are protected from unfair treatment, with more staff allocated to ensure firms support consumers who are struggling financially. Nothing is more prevalent in the Business Plan than the Consumer Duty (the Duty), coming into force later this year, which plays a leading role in meeting the regulator’s objective of putting consumers’ needs first. It’s apparent that this concept is becoming integral to the regulator’s mindset in every stage of the regulatory lifecycle. The FCA has committed to providing additional resources to make sure the transition is smooth for consumers and that firms properly commit to the new principal, with threats of enforcement activities for those whose activities undermine good consumer outcomes or result in consumer harm.
- Strengthening the UK’s position in global wholesale markets
To ensure the UK remains an attractive place for business, the FCA is pouring investments into its technology and analysis capabilities to aid in quicker and more efficient market oversight. The regulator will use the opportunity provided by the FRF to review regulation of the asset management sector. It is already seeking views and will bring forward proposals based on the feedback it receives later this year. There has been much discussion around the democratization of the private markets over the last year or so and the FCA will consider the necessary mechanisms, as and when deemed appropriate, to enable retail access to the capital markets.
The stated outcomes within each strategic theme have been set out over a 3-year time horizon, and the FCA’s progress in year one will be published later in the year in its Annual Report. Keen followers of the FCA Business Plan will note that the themes covered are consistent to last year’s plan though the narrative around these themes, one year on, have progressed.
Focus 1: Reducing and preventing serious harm
- Problem firms – Acting faster to identify and react to firms causing harm to consumers or to wholesale markets with more risk adverse and robust action by the FCA.
- Redress – Improving the framework to ensure consumers receive prompt compensation, but also ensure the firm that owes the redress pays it, as opposed to passing it on to other regulated firms through the FSCS levy.
- Firm failure – Ensuring firms are able to meet their financial resource requirements and can recover quickly from disruptions to their business models, or wind down orderly. This is not a ‘zero failure’ regime.
- Oversight of Appointed Representatives (ARs) – A complete overhaul of the requirements on principal firms came into effect in December 2022 with the hope of creating stronger principal firm oversight and reducing AR harm.
- Financial crime – Improving confidence that consumers and market participants have in the financial services industry by lowering incidences of money laundering through supervised firms.
- Market abuse – Delivering assertive action to help firms develop strong prevention cultures and effective surveillance, underscored by improved detection capability by the FCA to achieve clean markets.
Focus 2: Setting and testing higher standards
- Consumer protection – Reiterates the importance of the forthcoming Consumer Duty coupled with concerns over the cost of living, financial inclusion, and access to cash, ensuring the renewed higher standard is met.
- Enabling customers to help themselves – Focus on the use of technology and data to find breaches and shut down misleading promotions that may be unsuitable or result in mis-selling.
- Environmental, social, and governance (ESG) – Ongoing development of the FCA’s strategy for positive change and building a regulatory framework that is at the forefront of ESG thinking internationally as sustainability related matters become increasingly material to firms and investors.
- Operational resilience – New standards related to operational resilience to ensure consumers can continue to access essential financial markets and threats to confidence in and disruption of the sector are reduced.
Focus 3: Promoting competition and positive change
- UK regulatory framework – Additional investment in this area, given the political backdrop, with the aim of ensuring the UK maintains its position as a leading financial sector.
- UK competitiveness – The desire for the UK financial services industry to be open to innovation to support growth, with a backbone of high standards of market integrity and consumer protection, making it the leading choice for investment and international issuers.
- Market digitisation – Better understanding of the opportunities and risks which lie in the digital world by working with other regulators to support consumers making good decisions.
The FCA has set out the expected budget requirements for the year and, alongside the previously mentioned £12.7 mln for investment in the FRF, the implementation of the Consumer Duty alone is expected to cost around £5.3 mln. These amounts are in addition to an increase in budget of approximately £47 mln for ongoing regulatory activities, bringing the total Annual Funding Requirement to just north of £680 mln, which is just shy of a 10% increase YoY.
The FCA has always been focused on the consumer market and protecting the wholesale market in general, and this clearly remains central to the FCA’s approach with “consumers” being dominant in each area of the Business Plan. How the implementation of the Consumer Duty plays out across the market, even for those not directly impacted, may set the tone for regulatory reassessments and reviews in the coming years. The review of the Asset Management sector is similarly weighted towards the consumer despite the FCA themselves stating that 80% of AUM resides with institutional investors.
What also cannot be ignored is the political influence that runs throughout, with the Edinburgh Reforms forming the backbone to the recent reviews and discussion papers that have been issued (Asset Management, SM&CR review et. al.). Much of the FRF is predicated on the passing of the EU Retained Law Bill, including the “sunset” clause within this hotly debated piece of legislature. With recent briefings indicating a willingness to forego at least the “sunset clause”, the pace of regulatory change may reduce in the lead-up to the next general election.
Until then what is past appears to be present and the power, or at least the focus, sits firmly with the people.
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