FCA’s Business Plan 2021/22

How much of a change is there to the FCA’s approach?

The FCA is “becoming a different organisation” in view of current economic, technological and social changes and the ongoing challenges brought by Brexit and Covid-19.

The majority of changes however constitute tweaks around the edges following the appointment of the new CEO; Nikhil Rathi, rather than a complete overhaul of the FCA’s regulatory philosophy. There is however good news for firms with the FCA’s commitment to become more accountable to its stakeholders. The FCA will set itself measurable goals and report publicly on its progress toward achieving them. Whilst there are clear international priorities, the FCA is also developing its presence across the UK with a new office in Leeds.

Real-time intervention and an “assertive” regulator

Is an “assertive regulator” reminiscent of the former FSA’s more enforcement-driven approach under Sir Hector Sants[1] following the financial crisis? This is unlikely. Post-Brexit, the UK Government is keen to be open to business and maintain London’s position as a leading financial sector. The FCA also proposes to “change the balance of decisions taken by the FCA Executive and the Regulatory Decisions Committee”. There is yet no detail as to what this will mean in practice but the FCA says it will be more willing to “intervene in real-time more often, to prevent harm to consumers and market integrity”.

A more robust gateway for new firms

The FCA promises a more intensive assessment for new firms and greater scrutiny of their financials and business models, although the application process will be simpler, with user-friendly forms and better digital applications. There will also be stronger oversight of firms which are growing significantly.

Policing the perimeter

If the FCA can’t act where an activity is unregulated, it will nonetheless alert its partners to risks and issues it sees in markets. As an example, the FCA refers to the warnings it has issued to consumers on high-risk products like cryptocurrencies. The FCA will also continue to actively seek out intelligence where they suspect misconduct.

A more data and technology-driven regulator

The FCA will use data and analytical techniques more effectively to identify harm to consumers or markets and to prioritise its investigations accordingly. To ensure that it collects and uses the right data effectively and delivers this new strategy, the FCA will invest more than £120m over 3 years.

Some cross-market areas of focus

The 2021/22 business plan, unlike previous years, does not follow a sectoral approach, focusing instead on some key initiatives that will apply cross-market such as fraud, financial resilience, operational resilience, diversity and inclusion and sustainable finance. Some highlights in policy development include:

• Diversity and inclusion: The FCA wants to see regulated firms and listed companies with more diverse representation and for firms to “design products that reflect the diverse needs of consumers, offer fair value and are delivered in a fair and accessible way”. They recently published a Regulatory Diversity and Inclusion Discussion Paper on possible policy changes jointly with the PRA and Bank of England and it will be important for firms to assess their governance processes and policies against the increased expectations set out in the paper.
• Environmental, Social and Governance (ESG): The FCA will support achieving net-zero by 2050 by adapting the regulatory framework to enable a market-based transition. Here they will want to see high-quality climate and sustainability disclosures, helping consumers choose sustainable investments. Protecting consumers from misleading marketing and disclosure around ESG-related products remains high on the agenda. Firms will need to have governance arrangements that allow consideration of material ESG risks and opportunities.
• Consumer priorities and the Consumer Duty: Enabling effective consumer investment decisions; ensuring consumer credit markets work well; making payments safe and accessible, and delivering fair value in a digital age[2] are the FCA’s consumer priorities for the coming year. The new Consumer Duty is currently under consultation and would require firms in retail markets to ask themselves what outcomes their customers should expect from products and services and act to enable those outcomes[3].
• Operational resilience: Following the publication of the final operational resilience Policy Statement[4] in March, the FCA expects firms to implement requirements, and will assess firms’ progress throughout the year. From 31 March 2022 to 31 March 2025, the FCA will assess how firms remain within their impact tolerances to evaluate the effectiveness of its policy on the operational resilience.
• Fraud strategy: To drive down the incidence of fraud, the FCA will conduct proactive surveillance and monitoring, and intervene on potential fraud or other serious irregularities whether such intervention is by the FCA or counter-fraud partners. They will remove FCA-supervised fraudsters from the financial system.

What firms should do now

Although not much in the 2021/22 FCA Business Plan will take firms by surprise, the changes highlighted above will require them to review their governance, processes and policies to be ready for the regulator’s increased scrutiny. New firms will need to prepare to be challenged on their business models and expect more questioning and follow-up from the regulator. The FCA will be keen not to be seen as a light touch post-Brexit and the coming year will require a balancing act for the regulator; convincing firms that the UK is open for business and that its regulatory framework is not a hinderance to new, fast-growing and innovative activities, whilst protecting consumers and markets from the riskier aspects of financial innovation.

_References

• _{[1] BBC News - 'Be afraid' warns regulator Sants}
• _{[2] GI pricing and product value}
• _{[3] CP21/13 – A new Consumer Duty}
• _{[4] Operational resilience – final rules and guidance}