FCA's New Assertive Approach to Enforcement
The Financial Conduct Authority has clearly signalled its intent to expand the use of its enforcement powers over the coming months, as it continues to react to emerging challenges. The Regulator’s business plan sets out a more assertive use of its own powers as being one of the three distinct changes planned to help it meet its aim to become a more forward-looking regulator. So what does this mean in the context of enforcement?
The FCA will likely have the memory of the Financial Services Authority’s fate in mind here. Criticised for a light touch approach that it was suggested could have directly led to some of the aspects of the 2008 financial crisis, the FSA was widely publicly criticised and outlasted the crisis by only five years before it was replaced. With a number of potential signs of upcoming challenges on the horizon, the FCA appears to be getting ahead of any suggestion it is not a proactive enough regulator.
A new assertive approach to enforcement is supported by a range of new methods, including building up its ability to use data and technology to its advantage and to take measures to ensure it can adapt more quickly to the speedily evolving services landscape. The FCA has come in for scrutiny of its own over the previous few years, with the media, investors and Parliament laying criticism at the Regulator for a slow response to consumer scandals.
In December 2020, two independent reviews – the Gloster Review and the Connaught Review - found the FCA had not acted in a manner that supported its statutory objectives and which showed significant gaps and weaknesses in the FCA’s policies and practices for analysing the business activities of regulated firms. The findings of the Gloster Report (The LCF Review) have clearly influenced the approach set out by the FCA in its Business Plan 2021/22; the Report found that the approach to the Perimeter was ‘unduly limited’, that the FCA failed to consider businesses holistically and analysed breaches in practice as if they were isolated issues, and that FCA staff had not been sufficiently trained to analyse financial information to detect fraud and other irregularity. The Connaught report found that the FCA had not taken strong enough measures soon enough to protect investors.
The 2021/22 Business Plan set out intentions to use enforcement powers much more quickly and assertively, and the July Consultation to streamline decision-making shows that the FCA means business. The next year is likely to bring in new ways of detecting and triaging harms, with the stated aim that this will all happen closer to real time; the Business Plan says where there is harm to pension customers the Regulator will “take assertive enforcement action where there is serious misconduct”, and there is everything to suggest this strategy will apply across the industry.
Pensions and Investments appear to be highest on the FCA’s radar, but consumer credit firms should bear in mind the renewed focus on consumer harms and good consumer outcomes, and factor this into strategies for the next few years. Signalling increased attention on those in financial difficulties, debt, and customers who use high-cost short-term credit - areas where the FCA have already taken significant assertive action historically - the tone of the 2021/22 Business Plan should bring some pause for thought, particularly if more lower-impact decisions will no longer have to be heard by the Regulatory Decisions Committee.
In 2021/22 we can expect to see faster decisions on varying permissions or imposing requirements and authorisation and approval decisions – but this also likely means that the RDC will hear more disciplinary cases that could have major outcomes. The message that the FCA now intends to test the limits of its enforcement powers should be on everyone’s radar; there is every indication that its laudable intentions around tougher actions against those who cause harm will now be supported with definitive change and action from the Regulator.