This week, we pick up a string of significant announcements; many of which exemplify the current regulatory mood with heavy political undertones.
Up first, the UK Government has confirmed its intention to merge the Payment Systems Regulator (PSR) with the Financial Conduct Authority (FCA) as part of its wider efficiency drive. Beyond the headline, debate will no doubt ensue as to whether the desired benefits will outweigh the organisational upheaval, at least in the short term.
Next, the FCA’s contentious so-called “name and shame” proposals see a significant, albeit unsurprising reversal after mounting pressure. And within the same announcement, regulators reflected on past feedback and does not plan future joint regulatory initiatives around diversity and inclusion, preferring to defer to wider legislative initiatives.
Our third item provides an update on the major motor finance review, and elsewhere we highlight latest guidance on Senior Management Function (SMF) applications and sustainability reporting requirements.
Consolidation of the Payment Systems Regulator into the FCA
The Prime Minister has published a press release announcing plans to reduce regulation in a move to boost economic growth. The plans included abolishing the PSR which will be integrated into the Financial Conduct Authority. The decision here aims to address concerns from businesses on the complexity of the regulatory environment, particularly the impact on businesses in terms of time, money and resource. By streamlining regulation, the government seeks to create a better environment for economic growth and ultimately enhance living standards by increasing wages and putting more money in working people’s pockets.
These changes build on the Government’s deregulatory agenda which has made various changes to date including lifting the onshore wind ban, launching a review of the water sector, and setting financial services regulators on a growth agenda. The Government continues undertaking a comprehensive review of the entire regulatory landscape as part of a broader effort to stimulate economic growth and ensure that regulators contribute to the country’s advancement.
Read more on the consolidation of the PSR into the FCA
FCA update on enforcement transparency proposals and D&I proposals
The FCA has published a letter to the Treasury Select Committee which addresses two recent areas of focus for the regulator: potential reform of its enforcement work, and potential improvements to diversity and inclusion across financial services.
On the former, the regulator highlights that it has significantly improved both the speed and focus of its enforcement work. Five recent investigations closed with a public outcome in under 16 months, compared to an average length of 42 months in 2023/24, and the number of open operations has dropped by around 35% since April 2023.
Proposals to increase transparency in enforcement investigations have had somewhat less success, with the industry voicing particular opposition to one such proposal – announcing investigations publicly if it is considered to be in the public interest. The regulator will instead proceed with proposals which received broader support, such as confirming investigations announced by others and publishing greater detail of issues under investigation on an anonymous basis.
On the second focus area discussed in the letter – improvements to diversity and inclusion – the FCA has reviewed feedback received on its 2023 consultation on boosting diversity in financial services, in addition to the findings of the Treasury Select Committee’s ‘Sexism and the City’ report. Having done so, the regulator has decided not to publish new rules on diversity and inclusion, instead opting to support wider legislative change and voluntary initiatives. However, the regulator will continue its work to tackle non-financial misconduct such as harassment and intends to set out next steps by the end of June 2025.
Read the FCA update on its enforcement transparency and D&I proposals
FCA statement on next steps in motor finance
The FCA is currently reviewing the past use of discretionary commission arrangements (DCAs) in motor finance to determine whether firms complied with the requirements related to DCAs and, in cases of non-compliance, whether customers suffered losses.
A Court of Appeal ruling has indicated the potential widespread liability among motor finance firms where commission was not properly disclosed to customers. The Supreme Court will hear an appeal against the Court of Appeal’s judgement on 1 to 3 April 2025. The FCA has been granted permission to intervene in the case and has filed its submission with the Court.
Depending on the Supreme Court's decision, the FCA may potentially consult on a redress scheme in which firms would be responsible for determining whether customers have suffered due to the firm’s failings. If they have, firms would need to offer appropriate compensation.
The FCA has confirmed that it will no longer be issuing a further announcement in May as initially planned. Instead, the FCA will confirm within six weeks of the Supreme Court's decision whether or not it will propose a redress scheme and if so, how the FCA will take it forward. Firms should remain alert to this update, as it may contain crucial next steps.
Read FCA statement on motor finance review next steps
New FCA webpages on applying for senior management functions
The FCA has recently published information outlining the process to be followed in applications for approval to perform Senior Management Functions (SMF), as well as insightful scenarios to guide firms in their SMF applications. These case studies highlight common concerns about a candidate's fitness and propriety, the necessary due diligence required, and the supporting evidence that the FCA would expect from the applying firms.
The scenarios cover a range of situations, such as a firm seeking approval for an executive director candidate with potential integrity, reputation, and competency issues, an international candidate moving to the UK to take on the SMF16 role in a firm with significant compliance issues, and a chair candidate from a non-financial services background residing overseas.
In each case, the FCA highlights the significance of comprehensive due diligence to address concerns and provide the necessary evidence supporting the candidate's fitness and propriety for the SMF role.
Read the new FCA webpage on applying for a senior management function Read more on the case studies, applying for a senior management function
FCA updates to webpage on sustainability-related reporting requirements
The FCA has recently updated its webpage on Sustainability-related reporting requirements to include further information on its plans to move to new reporting standards. Following the publication of the final International Sustainability Standards Board (‘ISSB’) standards, jurisdictions need to consider how to reference the standards in their legal and regulatory frameworks. The Secretary of State for Business and Trade will be responsible for a decision to endorse standards in the UK.
Two advisory committees- the Policy and Implementation Committee and the Technical Advisory Committee – support the Secretary of State’s decision making on endorsement and coordinate the implementation of report requirements by the Government and the FCA. The FCA contributes to this process as a member of the Policy and Implementation Committee.
Read more on sustainability-related reporting requirements
