FCA Business Plan 2020/2021: What's on the Regulatory Horizon
Perhaps the most important regulatory document is the business plan which the FCA releases each year. It sets out their objectives and areas of focus over the coming twelve months, allowing compliance professionals to plan their regulatory horizon scanning.
In the mist of coronavirus the FCA have released the business plan on schedule, although heavily re-written to factor in the herculean challenge the pandemic brings to the industry, as well as all of us. Let’s explore what the FCA include in the plan.
In the medium term the FCA say they have the following objectives. They are that consumers:
can rely on safe and accessible payments to receive their pay or benefits, settle their bills and access cash when they need it
can make effective investment decisions about their savings, and are not exposed to risky or poor value investment products
don’t get into unaffordable debt and are treated well if they do, so that credit markets work well for consumers and
are offered fair value products in a digital age, as use of consumer data and behaviour through digital channels increases, and with it the risk that consumers are not treated fairly in the pricing and other terms they receive
Of course, with the UK’s withdrawal from the EU still continuing, the FCA have a focus on reviewing their regulatory framework. One takeaway comment is that the current framework is too focused on rules rather than principles and objectives, so expect a more principles based approach going forward.
Directly, in respect of Coronavirus, the FCA state their priority is to keep the market functioning during the major ‘repricing’ event and to ensure key services remain available to customers. The exact detail of these measures as, by their own admission, unclear at present. They have understandably left the door open for changes to the business plan based on priorities which may develop during the crisis.
Moving on from Coronavirus, the regulator still has five priorities it will focus on over the next one to three years.
Firstly they aim to ensure consumers are able to make effective investment decisions, largely through ensuring investment products are right for investors, consumers make effective decisions about their investments and firms operate within regulatory standards. The only area the FCA give us further information on is the effective decision priority where they have identified that the investment distribution network is not working effectively and retail investments where the FCA is consulting on a consumer harm campaign.
Secondly, and this one could be quite a focus given the current need for borrowing, is that credit markets function well. To ensure this is the case the FCA have four key strands:
Consumers can find products to meet their needs with a focus on clear and effective information
Credit is only provided to those who can afford the credit, here the FCA is firmly placing the onus on firms to ensure credit-worthiness
Affordable credit is available to smooth consumption
Consumers can take control of their debt at an early stage when they fall into financial difficulty, the focus here is to identify high risk groups at an early stage and give them suitable forbearance. It appears the FCA will utilise data to understand the levels of arrears and forbearance measures across the sector.
Third is the safety and accessibility of payment services, fourth is delivering fair value in a digital age where they draw on previous research into fair pricing in insurance, cash savings and mortgage sectors with the key goal of ending exploitation of vulnerable customers.
The fifth priority is to reform the way in which the FCA regulate, they aim to make faster and more effective decisions, using information and data more effectively through streamlining regulatory reporting, streamlining their work with other regulators and to extend their influence on external markets where they impact the UK market.
There are also a number of what the FCA are calling ‘cross-cutting’ priorities, the most impactful is the continuation of the FCA’s operational resilience work. The FCA opened a consultation last December, this will now remain open until October 2020. The proposals set requirements and expectations for firms to identify their important business services by considering how disruption to these services could cause harm to their customers (retail and wholesale) or market integrity. They require firms to set a tolerance for disruption, and to ensure they can continue to deliver their important business services during severe but plausible scenarios.
The FCA have also included further action on financial crime in line with the UK’s 2019 National Economic Crime Plan. The FCA will consult on extending the financial crime data return to help them gain better oversight of the industry approach and to identify where firms might be vulnerable to financial crime.
Another standout comment is that the FCA, when looking to take enforcement action, is to shift their focus to smaller firms where they consistently fail to meet regulatory standards.