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