The FCA Regulatory Outlook for 2021

The outlook, as we move into 2021, is very different from this time 12 months ago. The course that the FCA intended to take was relatively well understood throughout the industry, with the FCA due to begin moving towards a focus on an updated approach, operational resilience and digitisation.

It makes sense that much of the regulatory focus that was due to take place in 2020 is still underway now, or has been postponed until later in 2021, as firms got to grips with the challenges of a global pandemic.

So as we begin to look to the future, this week we’ll take a look at the likely focus of the FCA over the upcoming weeks and months, and any forthcoming deadlines.

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Senior Managers and Certification Regime:

The extension of certain implementation deadlines for solo regulated firms to 31 March 2021 is coming up. The following deadlines were shifted from 9 December 2020 to 31 March 2021:

• The date the Conduct Rules come into force, for staff who are not Senior Managers or Certification Staff. In effect, this is the date by which applicable staff should be trained on the Conduct Rules.

• The deadline for assessing Certified Persons as fit and proper.

• The deadline for submission of information about Directory Persons to the Register. Firms should submit their data via connect by 31 March 2021.

Remuneration Committees:

On 22 July 2020, the FCA set out its expectations for Remuneration Committees of FCA Authorised Firms. Confirming that it will be continuing to assess the “effectiveness of firms’ incentives arrangements at driving the right behaviours, including those that lead to good market and customer outcomes”, the Regulator confirmed it will focus on:

• Assessing firm remuneration policies, with a focus on whether the policies drive good conduct outcomes

• Whether remuneration policies and practices remain aligned with long-term business plans

• Whether remuneration committees have considered the impact of and evolved in response to the Covid-19 pandemic

• Whether policies promote the right behaviours, equality of opportunity and ensure that diversity and inclusion is embedded in the firm’s approach to rewarding individuals and avoiding unconscious bias

• Whether consistent and timely judgements on the level of adjustments are made

• Whether the Committee is aware of the risks that might have a negative impact on culture, and take action where appropriate, for example where gender and BAME pay gaps exist.

Regulatory Focus – Accountability and Misconduct:

The FCA has made it clear that it will maintain its assessment of conduct during the pandemic and has issued advice around its expectations in relation to some of the challenges faced by firms that have had to oversee major changes to the way they work, including switches to working from home. At the best of times, wholesale changes can lead to regulatory compliance issues, but it is particularly important to stay on top of any risks now, as the Regulator has made it clear that it will take action.

In the January market conduct newsletter, the FCA pointed out that it had taken actions against advice firms and individuals for misconduct involving using Whatsapp and other social media messaging services to arrange deals and provide investment advice. Warning that working from home carries heightened risks of misconduct, the FCA issued a reminder that the use of unencrypted communication methods to share sensitive information represents a significant compliance risk.

Although in these cases the actions were against firms providing advice, the underlying message is applicable to all financial services firms – they are expected to have a rigorous monitoring regime to ensure that “in-scope activities” that are carried out outside of the usual office environment are as compliant with regulatory requirements as they would be within the office. At issue here is also the ability of the firm to monitor the actions of its staff, and meet its oversight and recording obligations.

Post-Brexit:

The FCA will need, following the Trade Agreement with the EU, to play a major role in the future planning of the role that financial services will play in the UK. The FCA have so far provided firms and consumers with advice and guidance on negotiating the immediate issues following the end of the transition period, but its long-term stance is much less clear. What is clear, however, is that the issue is one that will evolve over a number of years and it will be interesting to see whether the FCA are in agreement with the PRA’s stated position on the future of financial services regulation.

Vulnerable Customers:

Now, more than ever, the rules, regulator expectations and best practice can make all the difference for vulnerable customers, so it is no surprise that with an understandable increase in the numbers of customers who are vulnerable, the FCA will continue with its development and re-assessment of the regulations around vulnerability.

The Regulator is moving forward with an assessment of the impact of coronavirus on customers with its Coronavirus Impact Survey, which has been undertaken three times since June 2020. The survey aims to help the FCA understand the impact of Coronavirus on customers and of its measures to mitigate the risk of harm to consumers and the market.

Given the FCA’s ongoing focus on vulnerability, firms should be aware that it is highly likely that the Regulator will be looking to assess how fairly firms treated vulnerable customers in practice during 2020.

Operational Resilience:

Operational resilience was already on the FCA’s radar well before the emergence of Covid-19, and the pandemic has only further highlighted issues that may need regulatory attention over the coming months and years. It is highly likely that the Regulator will need to factor in the potential for long-lasting external factors and events - in the previous 12 years, we have experienced a financial crash and a global pandemic - into their framework. The FCA will likely review how firms reacted and adapted to the pandemic, considering preparedness, how well business continuity plans stood up to the test and proactivity.

For firms that still need to provide staff training on the Conduct Rules, we offer two online Conduct Rules courses, which allow Senior Managers and Certification and all other staff to access and complete the training at their own convenience, ideal for those who want to complete the training in their own time, and to come back to it to refresh later on. They provide clear and comprehensive training in the Rules, including a mix of videos, small amounts of text and plenty of scenarios to demonstrate how the rules apply practically.

For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.bell@rbcompliance.co.uk.