The Financial Conduct Authority (FCA) Business Plan for 2023/24 follows the structure introduced last year: a shorter summary of priorities and planned activity rather than the more exhaustive list of planned activity now published twice annually in the Regulatory Initiatives Grid.
What are the FCA's strategic themes?
Within the plan itself, there are few real surprises. This is largely because many its initiatives are already familiar and in flight. In that sense, the plan avoids adding materially to the burden of regulatory change already reflected in the Grid.
The plan is organised around the three focus areas first introduced in last year’s edition:
- Focus 1: reducing and preventing serious harm – dealing with problem firms and the harm they cause
- Focus 2: setting and testing higher standards – improving consumer outcomes, imposing ESG standards
- Focus 3: promoting competition and positive change – being globally competitive through high international standards
Under each of these themes, the FCA has described a total of 13 ‘commitments,’ with four of these being ‘headline priorities’.
For each of these commitments, there's an explanation of what the FCA will be seek to achieve and some indication of the steps they will be taking to deliver on each commitment.
One area where the language of last year’s plan has been diluted is in the commitment to have objective outcome measures to evaluate its performance in each focus area. There are still outcomes listed in the plan, but many of these are qualitative or hard to measure.
The funding proposals show the ‘like-for-like’ budget increasing by 9.5% (on top of the 7.3% of last year), and there's a further £50 million in capital spending on systems as part of the FCA’s Transformation programme.
As the FCA’s budget is funded by the fees paid by regulated businesses, the increases are leading to higher fees, although the fee proposals published alongside the Plan show efforts being made to mitigate their impact on certain sectors.
One budget item to note is that Enforcement is to have its own budget to undertake Consumer Duty-related actions from ‘day one’ of the new rules coming into force at the end of July 2023.
The plan also provides an update on the FCA’s regional office strategy, with Leeds becoming the focus for digital and data capabilities. In total the FCA reports its current headcount as 4,500, up from 3,800 in 2022.
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The FCA's 13 commitments
The four headline commitments are areas where additional resources will be allocated and work prioritised ahead of the other commitments.
1 Preparing financial services for the future
2 Reducing and preventing financial crime
3 Putting consumers needs first
4 Strengthening the position of the UK in global wholesale markets
Focus 1: reducing and preventing serious harm
Reducing and preventing financial crime
There will be an increase in the number of firm-level anti-money laundering (AML) reviews performed as well as greater use of data analytics to try and identify suspicious activity.
Delivering assertive action on market abuse
The Market Surveillance Refresh project is expected to deliver improvements in the FCA’s ability to spot market abuse concerns.
Dealing with problem firms
The plan uses some high-level language about moving harder and faster to tackle problem firms but there is little detail provided. It does suggest that Threshold Conditions will be used more frequently as the basis for banning firms, i.e., rather than poor conduct leading to censure the general ‘unsuitability’ of the firm’s business model or management team will be used to justify action.
Improving the redress framework
There will be a consultation on rule for redress calculations and a review of whether SMEs should be eligible to take cases to the Financial Ombudsman. There will also be proposals for upgraded requirements on complaints reporting.
Reducing harm from firm failure
The only initiative of note here is the planned introduction of a new regulatory capital return which will apply to some 20,000 regulated firms currently subject to limited reporting on their financial resilience.
Improving oversight of Appointed Representatives (AR)
There will be supervisory activity to test compliance with recently introduced rule changes applying to ARs.
Focus 2: setting and testing higher standards
Putting consumer needs first
The focus here is on implementing the Consumer Duty, critically now described as ‘Consumer Duty and cost of living’, indicating that the Duty is the lever the FCA expects to use to influence outcomes for customers impacted by the cost-of-living crisis. Other initiatives referenced include a review of debt advice rules and a review of rules for handling borrowers in financial difficulty.
Enabling consumers to help themselves
This references the (relatively minor) changes to the financial promotions regime already announced.
A strategy for positive change: our environmental, social and governance (ESG) priorities
Minimising the impact of operational disruptions
There will be more supervisory work with firms on operations resilience arrangements as well as work with the Bank of England and PRA on new rules for oversight of critical third parties.
FCA’s ESG strategy, particularly promoting trust in ESG product marketing and disclosures
This covers the upcoming Sustainability Disclosure Regime for investment funds as well as the expected consultation on broader rules on ESG.
Focus 3: promoting competition and positive change
Preparing financial services for the future
This covers work to implement the Future Regulatory Framework and also a commitment to develop an improved approach to cost benefit analysis in FCA rules development.
Strengthening the UK’s position in global wholesale markets
Not much mention of reducing the regulatory burden here, the activities described are increased use of technology to oversight UK markets and make it simpler for firms to meet their regulatory reporting obligations.
Shaping digital markets to achieve good outcomes
This will be a slow burn, with follow-ups planned to the discussion papers on big tech and artificial intelligence (AI) as an approach to regulation in these areas evolves.
Finally, one improvement on last year's document is that level of embedded hyperlinks has been reduced, so the plan can be read end-to-end without being forced to chase references to see all relevant content.
For more insight and guidance, get in touch with David Morrey.
