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