On 17 April 2019, the Financial Conduct Authority (FCA) published its Business Plan for 2019/20 (PDF 1.28MB).
The FCA places an understandable focus on EU withdrawal, which will be welcomed by the industry seeking to progress their plans for Brexit. The FCA is faced with the difficult challenge of balancing Brexit activities and its wider market work. Its role in ensuring a smooth Brexit cannot be underestimated, with a significant proportion of resources focused on the forthcoming withdrawal from the EU.
Given recent concerns about the misuse of private data, data security continues to be a priority. In addition, the focus on consumer vulnerability and access to financial services underlines the challenge the FCA faces in balancing innovation and big data with good customer outcomes in its approach to regulating in a more digital world.
The FCA also has a very significant programme of core work on authorisations, supervision and enforcement; all of which need to be balanced with the priorities set out in the plan. There are broader challenges that firms will need to address over the next 12 months and beyond. We summarise below the key points for firms to consider.
What does it mean for firms?
The cross-sector themes provide a useful overview of the FCA's priorities, and some of them (Brexit, SMCR and operational resilience) coincide with the cross-sector issues set out in the PRA's business plan published earlier this week. This reinforces a number of trends we have seen from the FCA over recent years.
Brexit - in addition to supporting a smooth transition to the UK's withdrawal from the EU and monitoring the resulting impact on the industry and consumers, the FCA is looking to develop relationships with both EU and other international regulators.
Culture and governance - the immediate tasks here are the extension of the Senior Managers and Certification Regime (SMCR) to all FCA-authorised firms in December 2019 and establishing a Directory of individuals in key roles outside SMCR (due to go live in March 2020 for banks and insurers and in December 2020 for all other firms). Firms will be expected to demonstrate effective governance arrangements in identifying, managing and mitigating risks of harm. More generally, the FCA will continue to focus on firms' cultures and remuneration practices, and consider the case for creating “purposeful cultures”.
Operational resilience - following the joint FCA/PRA discussion paper in July 2018 the FCA will consult on policy proposals later this year. The FCA notes the high incidence of operational failures due to third party IT suppliers, system upgrades and data transfers, and cyber attacks, suggesting that these areas will feature strongly in the FCA's policy development.
Combating financial crime and improving anti-money laundering practices - the main emphasis here is on the use of technology and data by the FCA, and on working closely with other agencies and government bodies. The FCA warns of potential business restrictions and regulatory and criminal investigations for firms unable to demonstrate effective safeguards for financial crime and money laundering.
Fair treatment of existing customers - the FCA highlights its market studies into pricing practices in the general insurance and cash savings markets, and following up its discussion paper on fair pricing in financial services more generally. There is a clear intention to focus on whether existing customers are disadvantaged by firms' treatment of new customers.
Innovation, data and data ethics - in addition to continuing work to promote innovation that drives more effective competition to offer consumers better value products and services, and work on the FCA's own use of technology (RegTech), the FCA will begin work on the ethical dimensions of firms' use of data and artificial intelligence.
Demographic change - Social and demographic change coupled with the pronounced period of low real interest rates heightens regulatory focus on long-term savings and pension products. The FCA intends to begin a debate on intergenerational challenges in financial services, starting with the publication of a discussion paper.
Future of regulation - driven by a combination of Brexit, fintech and its earlier work on the duty of care, the FCA will work longer term on the future of regulation.
Brexit has consumed the last two years and the FCA is realistic that it will continue to be a significant drain on resources for the year ahead. The industry will welcome that the regulator is starting to think long-term with a heavy focus on technology, and therefore also considering the future of regulation. In the near term the priority that most stands out is the clear focus on Operational Resilience where firms will sense a significant raising of the bar in terms of expectations over the next 12 months.” David Miller Partner, Risk Consulting