The U.K. Financial Conduct Authority (FCA) has released its three-year strategy for 2022-2025. The document sets out the FCA’s areas of focus for the next few years along with the goals of preventing serious harm, setting higher standards and promoting competition.
What does compliance need to know about the regulator’s updated longer term plans?
The strategy sets out the outcomes the FCA expects firms to deliver across UK markets focusing on three main areas of commitment:
Focus 1: Reducing and Preventing Serious Harm
The FCA plans to harness data to assess problems more quickly act more promptly, with the aim of preventing harm from happening in the first place. The FCA’s six six commitments for reducing and preventing misconduct include:
- Dealing with problem firms. Firms which don’t meet required standards of conduct put consumers at risk. They also undermine trust in financial services and markets.
- Improving the redress framework. Customers who have suffered harm should have access to fair reparation
- Reducing harm from firm failure. Failed firms can cause widespread harm to both consumers and the financial services industry.
- Improving oversight of Appointed Representatives. The risk of misconduct is high when firms fail to properly supervise ARs.
- Reducing and preventing financial crime. Financial crime and fraud undermines consumer confidence and market integrity.
- Delivering assertive action on market abuse. Firms are a vital first line of defence in spotting, reporting and reducing the risk of market abuse.
FCA Fines Asset Management Firm and Employee for Conflicts of Interest
Focus 2: Setting and Testing Higher Standards
The FCA is setting forth four commitments to require that every firm considers the actual impact of their products and services on consumers and provide good standards of customer service.
- Putting consumers’ needs first. Firms need to do more to make sure consumers are able to make informed decisions.
- Enabling consumers to help themselves. Firms must get better at explaining investment risk to customers.
- Environmental, social and governance (ESG) priorities. The financial sector has an important role to play in reaching a sustainable long-term future.
- Minimising the impact of operational disruptions. Firms must be able to respond to and prevent future operational disruptions so customers do not lose access to essential services.
Learn about MCO's solution for managing ESG compliance
Focus 3: Promoting Competition and Positive Change
The FCA is setting three standards that reflect current and emerging risks, while enabling innovation and competition in consumers’ interests.
- Preparing financial services for the future. The FCA and the industry must be able to respond more efficiently to innovation and new challenges and emerging harms on the horizon.
- Strengthening the UK’s position in wholesale markets. The agency has a key role to play as the securities regulator and listing authority, as well as the supervisor of firms operating within the market.
- Shaping digital markets to achieve good outcomes. The agency will proactively shape the digitalisation of financial services through developing regulatory approaches to digital markets.
Digital Transformation is Redefining Markets
The digitalisation of financial services is changing the way consumers make decisions and markets operate.There are more financial services products that the agency does not regulate because they sit outside the perimeter of current regulation. The strategy also notes that digital transformation is redefining markets and the agency will need to adapt how they prepare and respond.
Technology Gives Firms a Better Handle on Managing Digital Asset Risk
Nikhil Rathi, Chief Executive of the FCA, notes that the updated strategy will make the FCA more data driven, “using data more systematically to ask the firms we supervise more rigorous questions.”
Rathi told Bloomberg Europe, that the changes will mean faster decisions against misbehaving firms, and in turn cheaper regulatory costs for those that stick to the rules. The strategy sets the regulatory conditions to encourage, and if needed, enforce good conduct. But firms are responsible for conducting their business in a proper and responsible way. Read about how an ethical approach is good for business in our white paper Conduct and Compliance: A Collective Approach to Ethics and Accountability, created in conjunction with Coalition Greenwich.
Recent FCA Activity
In a July speech to the Peterson Institute for International Economics, Rathi spoke more about changing times at the FCA, discussing "becoming more innovative, adaptive, assertive and proactive. We are just at the foothills of this journey, but have already changed our operational posture, are running more quickly to tackle complex issues, even if they are outside of our jurisdiction." He reinforced that the agency will focus on updating operations to become more proactive and not just address issues after significant harm or risk has become embedded.
Regulatory activity and enforcement that focuses on reducing the risk of misconduct that's come about since the strategy was shared in June includes:
- Charges for carrying carrying on regulated activities without authorisation
- Fines for disclosing inside information
- New rules to improve oversight of Appointed Representatives
- Proposed updates to redress calculations for unsuitable pension transfer advice
- Stronger rules on marketing of high-risk investments to consumers
- Potential measures to oversee and strengthen the resilience of services provided by critical third parties (CTPs) to the UK financial sector
- Failure to ensure effective systems and controls to identify and reduce the risk of financial crime
- Restrictions on conducting regulated activities outside of permissions
If you'd like to see firsthand how we help firms meet the conduct risk requirements of the FCA and other regulators across the globe, let's set up a demo.