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FCA grapples with forces reshaping financial services

Posted: 27/07/2021

On 15 July 2021, the Financial Conduct Authority (FCA) published its business plan (the Business Plan) for 2021/22, its first since Nikhil Rathi was appointed CEO in October 2020. Rathi warned that the Business Plan has been designed to grapple with the “profound forces” which are reshaping financial services.

Such forces include the digitalisation of financial services and low interest rates, both of which may change the way consumers make decisions, potentially leading to them taking greater financial risk. To enable it to tackle the challenges ahead, the FCA has promised to be more innovative and assertive, while also promising more accountability by reporting on its progress against its targets. It has also committed to continually adjusting its approach as consumer products and choices evolve.

Although at first blush the changes might appear fairly minor and in keeping with previous FCA behaviour, when considered holistically it is clear that the FCA intends to become a more active regulator. Brexit has given the FCA greater freedom to create bespoke rules to address the country’s financial services sector needs. In particular, the FCA will keep a close eye on investment management and pensions to ensure that consumers are provided with products that are fairly priced and meet their needs.

The FCA also wants regulated firms to have greater oversight over appointed representatives. Further, now that the FCA can - to some extent - park the issue of Brexit, it intends to focus on tackling fraud, financial resilience, diversity, and environmental, social and governance issues. Newly authorised firms with significant growth will experience greater scrutiny as will the financial and business models of applicant firms.

The four per cent increase to the FCA’s budget coupled with the removal of the freeze on fees paid by the smallest firms indicates that the FCA is now moving towards a post-pandemic strategy.

The Business Plan targets the following three areas: consumers, wholesale markets and all markets.


Consumer Duty is a priority for the FCA following the publication of Consultation Paper CP21/13 which had been delayed by the pandemic. Its proposals in this regard are far-reaching but, at its core, they aim to provide consumers with access to a range of products and services that meet their needs and are fairly priced.

The Business Plan therefore seeks to:

  • Enable consumers to make effective investment decisions. Some inroads have already been made in this regard. For instance, consumer awareness of ScanSmart, a tool on the FCA’s website to help consumers avoid investment and pension scams, has increased.
  • Shortly publish the FCA’s Consumer Investments Strategy to show the measures it takes to punish and prevent firms from causing consumer harm. It has also committed to reviewing the scope of compensation offered by the Financial Services Compensation Scheme.
  • Ensure consumer credit markets work well. The FCA is reviewing the methodology and rules relating to tailored advice by firms to help borrowers in financial difficulty and consumers with excessive debts. One feature of this will be bringing deferred payment credit within its remit.
  • Make payments safer and accessible. Plans include a focus on supervisory activity to ensure the financial security of e-money firms and consumer understanding of FCSC coverage. Access to cash will continue to be protected for vulnerable consumers.
  • Deliver fair value for consumers. There are no significant changes here. This is very much a watching brief and the FCA will seek to monitor the potential risks that arise by the financial services becoming more digitalised.

Wholesale markets

In the aftermath of Brexit, the FCA will seek to ensure that minimum standards do not diverge from those under the EU framework, while continually keeping its rules under review. As retail consumers are not afforded the same level of protection when accessing wholesale products directly, wholesale firms will be regulated on price manipulation and conflicts of interest.

In particular:

  • Review of rules in primary and secondary markets - the FCA intends to extend the climate-related financial disclosures required from premium and standard listed companies. The MiFID II and MIFIR regimes are to be simplified in the secondary markets.
  • LIBOR - as non-USD LIBOR will cease to exist at the end of 2021, the FCA aims to ensure an orderly transition. Firms’ transition plans will be closely monitored.
  • Asset management and non-bank finance - there will be a continued focus on ensuring value for consumers. This will include closely supervising and monitoring firms and the introduction of the Long-Term Asset Fund for efficient long-term investment in illiquid assets.
  • Pensions - the FCA will liaise with the Pensions Regulator to create money for value in pensions products.
  • Appointed Representatives - the FCA will increase its supervision in this area and consult on cross-sector changes to improve and strengthen elements of the AR regime.

All markets

Lastly, other cross-sectoral priorities echo those already set out above. The FCA will continue to focus on:

  • Environmental, social and governance issues and supporting the Government’s commitment to a net-zero economy. This will include high-quality climate and sustainability disclosures.
  • Driving down fraud - the focus will include preventing regulated firms from facilitating fraud, pursuing FCA-supervised fraudsters, and protecting the public via education. The FCA will take a proactive approach to surveillance to assist with the crackdown on fraud.
  • Ensuring firms remain operationally and financially resilient. The FCA will seek to ensure that firms have the means to cover their liabilities which, over time, will reduce the burden on the FSCS by reducing the number and value of pay-outs required.
  • Promoting gender and ethnic diversity both at the FCA itself and at the firms that it regulates. The FCA is setting itself targets for meeting and publishing key indicators of diversity within the FCA.
  • There will be additional focus on maintaining international standards and entering future trade relationships that support open markets which are consistent with the FCA’s objectives in the wake of Brexit.


The Business Plan appears to signal another big step from an increasingly interventionary FCA towards more active regulation of the financial services sector. In a post-Brexit world, where the UK is keen to demonstrate it is ‘open for business’, this is unlikely to receive universal approval. It seems, however, that on the back of a global pandemic the FCA’s priority is to learn from the mistakes of the 2008 financial crisis and the Business Plan is a ‘safety first’ approach.

The FCA will expect banks to give particular focus to the priorities set out above, ensuring that these are integrated into business plans from the top to the bottom of their organisations. Banks will need to invest in terms of resource and advice, in order to ensure that they are compliant and financially resilient, and that they are fully discharging their duty to protect their customers from exploitation. Failure to do so, against a backdrop of possible adverse economic conditions and heightened scrutiny from the FCA, may well result in a growth in consumer finance litigation.

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