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Summary

The FCA’s guiding principle remains to prevent or reduce harm to consumers and markets, but its priorities are being reshaped given the medium to longer-term impact of COVID-19 on the UK and global financial markets. Some of the regulatory guidance that has been introduced in response to the pandemic – in particular, those statements concerning vulnerable customers – might continue post the pandemic. The FCA also notes that it may need to update its Business Plan if the impacts of and lessons learned from COVID-19 are significantly different to those that are currently observed.

The Plan is heavily outcomes-focussed and there is less sector-specific detail than in previous years’ business plans (in part because the FCA has only recently issued its Sector Views (PDF 5.11 MB)).

The plan highlights that the FCA will work with government and stakeholders to shape a future regulatory framework with the UK outside of the EU and using the lessons learned from operating the current framework. Brexit is partially done and remains a key factor in the future shape of UK rules, but provides greater freedom for the UK regulators. The plan states that the current regulatory framework is too focused on rules and process, and not enough on principles and outcomes. It sees too many resources today devoted to redress and remediation, and not enough to empowering consumers to take good decisions and regulatory action to prevent harm and safeguarding consumers’ financial wellbeing.

The FCA’s budget will increase by 2%. In addition, £15m will be spent on EU withdrawal issues over the next year and £30m will be spent over three years on the FCA’s operational transformation. Recognising the impact of COVID-19, the FCA is freezing fees paid by the smallest 71% of firms next year and is giving small and medium firms until end-2020 to pay.

Strategic priorities

The FCA has streamlined a range of ongoing regulatory activity into four strategic priorities, with a fifth relating to the way in which it works:

Enabling effective investment consumer decisions: the FCA sees significant risk of harm in the retirement and savings markets (partly due to Pension Freedom), and consumers are exposed to significant market volatility. The intended outcomes are:

  • investment products are appropriate for consumer needs (value for money and transparent)
  • consumers make effective decisions about their investments (distribution, including the advice process, needs to work better)
  • firms and individuals operate under high regulatory standards and act in consumers' interests (stronger governance and tighter oversight of networks of individuals)

Ensuring consumer credit markets work well: consumers who need to borrow to meet their essential living expenses typically pay more for credit, have little chance of repaying their debts and lack the financial resilience to meet unexpected shocks, such as COVID-19. The intended outcomes are:

  • consumers can find products that meet their needs (access to clear and simple information)
  • consumers do not become over-indebted by credit they cannot afford 
  • affordable credit is available to smooth expenditure
  • consumers can take control of their debt at an early stage when they fall into financial difficulty (firms to identify consumers at risk at an early stage and to give them suitable forbearance)

Making payments safe and accessible: the payments services sector is growing rapidly, with more firms and products. The intended outcomes are:

  • consumers transact safely with payment firms (increased focus on firms' systems and controls and data protection)
  • payment firms meet their regulatory responsibilities while competing on quality and value (Open Banking is expected to foster competition)
  • consumers and SMEs have access to a variety of payments services (including cash)

Delivering fair value in a digital age: markets sometimes fail to achieve fair value for consumers, some of whom pay a loyalty penalty, and consumers should benefit from digital innovation. The intended outcomes are:

  • consumers can choose from products that meet their needs, at a suitable quality and price (information is available to make informed buying decisions) 
  • digital innovation and competition supports greater value for consumers (firms should use data and algorithms ethically to price and have adequate controls to prevent undue bias or discrimination)
  • vulnerable consumers are not exploited or targeted with poor value products and services and access to key products and services is fair (firms should have robust policies on fair value for vulnerable consumers, and do not target them with poor value products and services)

Transforming how the FCA works and regulates: COVID-19 has underlined the need for regulators (and firms) to transform how they work and to embrace digital innovation. The intended outcomes are:

  • make faster and more effective decisions (invest, grow and develop capabilities; broaden approach to the choice and use of regulatory tools; operate in a more integrated way)
  • prioritise end-outcomes for consumers, markets and firms (all firms to take these into greater account when they design and deliver services)
  • intelligence and information (identify, prioritise and act on information and intelligence; invest in systems and processes; reduce regulatory burden on firms by streamlining reporting and co-ordinating better with other regulators) 
  • international influence (future regulation in a post-EU withdrawal, tech-enabled world; stronger links with global partners)

Cross-sectoral priorities

Climate Change becomes a new cross-sectoral priority and Demographic Change has dropped off the list compared to last year. Also, as a result of the FCA's new approach, some of the previous cross-sectoral priorities have been elevated to strategic priorities. Therefore, whilst the fundamentals of FCA activity may not have materially changed, the relative importance of some clearly have.

  • Climate Change: the FCA recognises that all sectors need to adapt to manage the physical and transition risks that climate change poses and therefore its regulatory approach needs to reflect and support accordingly.
  • EU withdrawal and international engagement: this remain a key regulatory priority, both EU withdrawal and working alongside international regulators in response to COVID-19 and maintaining influence as a leading global regulator.
  • Culture in financial services: no surprise at all that this remains a key priority for the regulator as a means to get firms to focus on outcomes. The FCA will continue to focus on the four key culture drivers in firms – purpose, leadership, approach to rewarding and managing people, and governance.
  • Operational resilience: now more so than ever, ensuring firms focus on developing plans for their response when disruption happens rather than just simply continuing to try and mitigate the risk of it occurring. Alongside, the Bank of England and the PRA, the FCA will continue to progress final rules to give firms greater clarity on regulatory expectations.
  • Financial crime (fraud & scams) and anti-money laundering (AML): maintaining the momentum from last year on preventing money laundering and scams, through a combination of raising standards, improved intelligence, reporting and data, and customer education.
  • Innovation and technology: this priority is a collaboration between the industry and the FCA and has two strands. On products and services, it is a focus on how to enable safe, appropriate and ethical use of new technologies, including anti-money laundering. On the interaction between firms and the FCA, it is a focus on making better use of firm and market data to regulate more effectively and efficiently e.g. RegTech.

Key outcomes for other sectors

Wholesale financial markets

There are no new outcomes or priorities in this sector. The FCA continues its focus on an orderly transition from LIBOR by end-2021, prevention of market abuse and financial crime, and enhancing governance and accountability through the SM&CR. Obviously firms will need to continue focusing on these priorities while handling the operational implications of COVID-19. The FCA is also focused on ensuring markets remain orderly in a range of market conditions, specifically during the pandemic and the end of the EU exit transition period. Beyond these, the only specific initiatives that are mentioned are: the Call for Input on accessing and using wholesale data; the introduction of a more risk-sensitive prudential regime for investment firms in 2021 (i.e. the UK implementation of the Investment Firms Directive and Regulation); and a review of remuneration practices in the wholesale broker sector.

Investment Management

Good governance and culture remain high priority outcomes and firms should continue embedding SMCR as well as reviewing the ability of authorised fund managers (AFMs) to provide effective oversight. Following on from the Asset Management Market Study, the FCA’s focus on fair value products and disclosures continues – firms should look through the distribution chain, use customer data smartly and offer products and services which meet customer needs. COVID-19 has highlighted the criticality of operational resilience and firms should invest in technology, testing their capabilities and implementing business strategies that reflect the dynamic risks environment they operate in. The FCA also continues to assess Asset Managers’ exposure to LIBOR, including management of conduct risk.

Retail Banking

Many of the outcomes in this sector have already been highlighted above in the strategic priorities or cross sector priorities. The intended outcomes are that the sector is operationally resilient and supplies important products and services with minimal disruption to consumers and markets, and that incidences of fraud and financial crime are minimised. There is a focus on consumers and SMEs being able to access high quality products and services that meet their needs, including cash. The FCA also highlights its consultation paper on ‘Single Easy Access Rate (SEAR)’, which it thinks should lead to a higher interest rate for longer-standing customers, and its Overdraft Policy Statement from October 2019 showing a continued focus on fair value for consumers.

General insurance & protection

There are no new priorities for this sector. All the intended outcomes have been highlighted previously by the FCA. The theme that runs through these priorities for the sector can be summarised as being designed, in aggregate, to ensure that firms balance the interests of their customers and their own commercial interests (whether in pricing, product exclusions or claims). Firms may therefore need to be able to evidence how they have appropriately balanced those interests at all stages of the customer journey. A robust and objective product governance framework will help demonstrate those outcomes.

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