The Financial Conduct Authority’s (FCA) annual Business Plan has landed slightly earlier than usual; bearing a very close resemblance to the prior year plan in content and structure.
Set against a backdrop of economic and geopolitical uncertainty, the plan continues to be centred around the FCA’s existing core operational objectives and is underpinned by 13 pre-existing public commitments. As such, there are few real surprises with most of its initiatives already being in progress; this being the final year of the FCA’s current 3-year strategy.
Firms will, nevertheless, welcome the opportunity to familiarise themselves with the likely regulatory path for the year ahead, and calibrate their own plans and efforts accordingly.
What are the FCA’s strategic themes?
In keeping with its existing operational objectives, the FCA will focus on three core areas:
- Reducing and preventing serious harm
- Setting and testing higher standards
- Promoting competition and positive change
In particular, further to the enactment of the Financial Services and Markets Act 2023 (29 June 2023), the plan now incorporates the FCA’s new secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium to long term.
The plan strikes a cautious tone, acknowledging that while there are some encouraging signs, many consumers and business continue to face direct pressures from higher inflation and borrowing costs, whilst underlying global financial risks and geopolitical risks persist.
The FCA’s means of measuring its own progress against its objectives (through outcomes and measures) remains firmly in place, but we will have to wait until the summer before it will provide an update on its latest performance.
What are the areas of focus?
The apparent lack of change from the previous year plan should not undermine the scale of the FCA’s challenges and future workload. Notably, it expects its annual funding requirement to rise by more than 10% to £755 million. Although this figure will not be formally confirmed until June, this sets an expectation for firms’ annual fee rates which are due to be consulted on during April.
To help meet its growing remit and responsibilities (in large part driven by the UK’s departure from the EU, with £11.3 million this year being invested in the Smarter Regulatory Framework), its workforce is soon expected to exceed 5,000. And yet, size alone will not be enough. The FCA will need to have the right skills for the future if it is to achieve its objectives effectively and sustainably.
For example, it will continue to develop its use of Artificial Intelligence (AI) to help prevent fraud and scams, and to enhance the experience of firms and consumers when they contact the FCA. Importantly, the FCA will continue to invest in its own operational resilience, ensuring that plans are in place in the event of disruptions.
For the year ahead, the FCA’s plan reflects the following areas of focus:
- Protecting consumers – here, the embedding of the Consumer Duty predictably takes centre stage, with important related references to the Advice Guidance Boundary Review (requiring £1.9m in funding), Value for Money and unlocking innovation.
- Ensuring market integrity – the FCA will finalise “far-reaching” reforms to capital markets and continue to invest in its data and technology to enable robust market oversight.
- Promoting effective competition – we have already seen notable examples of FCA intervention to promote more effective competition and deliver fair value outcomes, with the Consumer Duty being the catalyst for fundamental change. Expect this trend to continue over the year ahead with the necessary sectoral focus.
- Facilitating international competitiveness and growth – the FCA highlights the use of its Sandboxes and Innovation Pathways, TechSprints and its leadership of the Global Financial Innovation Network to facilitate medium to long-term-growth and ultimately secure better outcomes for all consumers.
What are the key commitments and high priority areas?
Across its 13 public commitments, the FCA’s plan highlights three core priorities:
Reducing and preventing financial crime
Financial crime results in harm and erodes trust and confidence in the sector. In keeping with its intention to be a ‘data-led’ regulator, the FCA will continue to use intelligence and take assertive action as part of a “national ambition” to reduce and stop financial crime.
The FCA cannot achieve this alone and recognises the importance of working alongside partners to support system-wide improvements such as the National Economic Crime Centre (NECC).
Expect consumer campaigns to continue in attempts to raise awareness of fraud (eg APP fraud).
Putting consumers’ needs first
The FCA’s Consumer Duty encapsulates the breadth of ambition here.
As firms’ attention currently turns to annual board reporting and closed products, the FCA’s supervisory work will look to “test” firms’ implementation of the Consumer Duty.
As recently announced, over the coming year, firms should expect the FCA to reinvigorate its focus on the treatment of customers in vulnerable circumstances.
More broadly, we can expect further multi-firm work and market studies to drive up standards, with a focus on product value (including for long-term savings products and unit-linked pensions).
Strengthening the UK’s position in global wholesale markets
In-flight work dominates here, including delivering the FCA’s ambitious set of Primary Market policy reforms (such as the Listing Regime), steps to prepare for new derivative reporting rules under UK EMIR, and an “orderly transition” away from LIBOR. By way of addition, supporting the industry’s intended move to T+1 settlement gets a special mention.
Helping your firm prepare for the FCA's Consumer Duty
Learn more about how our Consumer Duty services can help you
What are the other commitments?
Let's take a quick look through the FCA’s other key commitments.
Preparing financial services for the future:
Enabled by the Financial Services and Markets Act 2023, the repeal of retained EU law will continue and the FCA will look to tailor provisions to better suit UK markets through the Smarter Regulatory Framework.
Dealing with problem firms:
The FCA will act swiftly against firms and individuals to prevent harm. Perhaps conspicuous by its absence, there is no mention of the open (and recently) extended consultation on its enforcement guide, including proposals to expand the public disclosure of certain ongoing cases.
Taking assertive action on market abuse:
There will be “significant” steps to increase FCA capability here, but within a “proportionate” framework. This includes a new market abuse regime for Crypto Assets as phased UK regulation here continues to take shape (initially for stablecoins).
Reducing harm from firm failure:
With the increase in corporate insolvencies expected to continue through 2024, FCA’s horizon-scanning mechanisms (eg the new financial resilience return) and continued focus on firms’ wind-down planning are highlighted here.
ESG:
Expect familiar activities here to continue, by integrating the Sustainability Disclosure Requirements and Investment Labels, including to address greenwashing. Preparations to have regard to a ‘Nature’ regulatory principle coming into force will be one to watch.
Shaping digital markets:
AI and Big Tech feature heavily here. In looking to strike the right balance between risk and opportunities, expect the FCA’s deliberations over the intersection between financial services, technology and data to become clearer.
Improving the redress framework:
Here, the FCA calls out its continuing work on historic discretionary commission arrangements in the motor finance market (which we further consider here) and ongoing focus on Claims Management Companies.
Enabling consumers to help themselves:
For example, this year the FCA will invest £2.3m in InvestSmart to help consumers make better-informed investment decisions.
Minimising the impact of operational disruptions:
A timely reminder that from 31 March 2025, all relevant firms will need to maintain their important business services without intolerable harm to consumers and markets.
Improving oversight of Appointed Representatives:
The necessity for efficiency in the use of supervisory resources resonates here, including deeper analysis of existing data, new regulatory returns and assertive supervision of high-risk principal firms.
In summary, firms should be familiar with much of the FCA’s intended areas of focus for the year ahead. Yet, the sheer breadth of regulatory change and challenges should not be under-estimated.
To learn more about the FCA’s plan means for you, contact Paul Staples.
