5 things to take away from the FCA’s Business Plan

22 July 2021

On 15 July, the FCA published its Business Plan and set out its key priorities for the year ahead. There is much talk about the FCA’s own internal transformation programme and how the organisation intends to become a forward-looking, proactive data-led regulator which is prepared to meet future disruption head on in a tough, decisive, and agile fashion. As a result, the Business Plan contains less information about the FCA’s policy priorities than it has done in the past.

So, what are the top 5 takeaways from the Business Plan?

1. Consumer priorities remain largely unchanged

The FCA is taking forward the four consumer priorities it identified in last year’s business plan (effective consumer investment decisions, consumer credit markets that work well, safe and accessible payments and fair value in a digital age).  The only new consumer priority this time around is the FCA’s new Consumer Duty (currently under consultation in CP 21/13), which brings a new emphasis on consumer outcomes and the end-to-end customer journey.

The FCA really wants to tackle ‘sludge practices’ (these also feature strongly in CP 21/13) and see an end to the exploitation of consumer behavioural biases.  ‘Sludge practices’ are unnecessary friction points (i.e.  obstacles, hoops and hurdles that make it harder for consumers to switch or cancel products) or websites and apps designed to push consumers into choices that may not be in their interests. The FCA wants a world where ‘it is as easy to get out as it is to get in’ i.e. if you can sign up online, you shouldn’t have to make a phone call to switch or cancel. For the FCA, it all boils down to ‘doing the right thing by the customer’ and creating an environment where consumers can make good decisions.

The FCA will shortly be publishing a three year Consumer Investments Strategy which will talk about how it will tackle firms and individuals who cause consumer harm.  This will build on its Consumer Investments Data Review in 2020 which looked at harm caused by investment scams, higher risk investments and financial crime.  The FCA is particularly concerned about a new type of consumer, one that sees investment as entertainment and behaves more emotionally, egged on by anonymous and unaccountable social media influencers.  There will be also be an £11m digital marketing campaign to warn them of the risks.

2. Wholesale priorities – focussing on the effectiveness of UK wholesale markets, non-bank finance and Appointed Representatives

The FCA will increase its supervision of ESG attributes of asset managers’ investment products, looking at whether they are fair, clear and not misleading and offer fair value to investors. We have already seen a Dear Chair letter for Authorised Fund Managers on this subject in recent days.

The FCA intends to look at what progress has been made by host Authorised Fund Managers following its review of conflicts of interests earlier this year and says that it will finally make a decision on whether to proceed with the introduction of compulsory notice periods for redemption of open-ended property funds, allowing ample time for the implementation of any change.

Supervision of Appointed Representatives and their principals in wholesale markets will be tightened in order to reduce the risk that the use of Appointed Representatives is weakening conduct standards. The FCA also plans to consult later this year on cross-sector changes to improve and strengthen elements of the AR regime and consider whether more fundamental changes are needed, including legislative change.

Work will continue with the BoE and HMT on establishing the right framework for long-term asset funds (LTAFs) and the FCA will decide whether the regulatory framework for money market funds needs amending given the illiquidity issues revealed last spring. It will also carry out a review of the effectiveness of UK wholesale markets and ensure an orderly transition from LIBOR.

There will be a focus on whether pension products offer good value and allow consumers to make effective choices, particularly during the accumulation phase and a review in 2022 of whether the FCA rules to help consumers make choices at the point of retirement have been working.

3. ESG and Diversity are the hot topics for all sectors

The FCA’s six cross-sector priorities for the year ahead are (1) Fraud; (2) Financial resilience; (3) Operational resilience; (4) International; (5) Diversity; and (6) ESG.

There is nothing much to note about the first four priorities, and it comes as absolutely no surprise that the FCA will be focussing on diversity and ESG in the year ahead.

It has been made very clear in recent publications and speeches that diversity and inclusion should now be taken seriously by firms and that progress to date has been too slow. The FCA recently published DP 21/2 (jointly with the PRA and BoE) which looks at how the pace of meaningful change on diversity and inclusion can be accelerated. The FCA expects diverse representation at all levels, inclusive cultures, and products that reflect the diverse needs of consumers.  To support these outcomes, the FCA wants to see better data collection by firms.

The FCA’s newly created Environment, Social and Governance Department, led by Sacha Sadan who joined the FCA from Legal and General Investment Management, will focus on:

  • High-quality climate and sustainability related disclosures
  • Tackling misleading marketing and disclosure around ESG-related products
  • Governance arrangements to ensure careful consideration of material ESG risks and opportunities
  • Active investor stewardship to positively influence companies’ sustainability strategies
  • Promoting integrity for ESG-labelled securities
  • Innovation in sustainable finance

4. The FCA intends to test its powers to the limit

Nikhil Rathi wants to build a more assertive regulator; “an organisation that runs towards the fires of complex, difficult decisions and tests its powers to the limit”.  We are told that the FCA will act decisively and will no longer turn a blind eye; history having shown it that where its perception of risk prevented necessary action, it often ended up with a bigger problem. 

In many respects it feels like we’ve been here before (remember Martin Wheatley’s discredited 2012 claim that the FCA would work on a ‘shoot first, ask questions later’ basis?), but Nikhil Rathi has at least given some indication of areas where the FCA intends to adopt a tougher approach.  For example, there will be a tougher approach to authorisations with a greater focus on scrutinising applicants’ financials and business models. The FCA will increase the number of firms whose permissions it removes either permanently or temporarily (as we have seen recently with four EU firms marketing CFDs to retail customers in the UK) and we are told that not all firms in the Temporary Permissions Regime or funeral plan sector will make it through to full authorisation. 

The FCA intends to support as well as scrutinise new businesses.  It is setting up a new Regulatory Nursery (a form of early-warning system where it monitors firms operating as regulated entities for the first time) and a Regulatory Scalebox (where it works with firms as they expand to ensure their growth continues to deliver fair value for consumers, supports innovation and competition and does not compromise market integrity).  To reflect the surge in BigTech, the Sandbox will be open to applications year round and the Digital Sandbox will be permanent.

5. Data will become the lifeblood of a more innovative FCA

Everything the FCA does depends on the information it collects and how it uses it. The FCA intends to become more innovative and fully capitalise on data and technology; investing £120m over three years to modernise its systems to build a ‘best-in-class system for data’.  Its people will ‘have the right information at the right time’ which will increase its ability to act decisively and make more robust, evidence-based decisions.

The FCA is clearly planning a gear change after recent criticisms of its handling of London Capital & Finance and Connaught. We can certainly expect a more joined-up approach following the recent merger of its Policy and Supervision departments, and this investment in its data systems should allow departments to share information more effectively, helping to break down the silos that have hindered good decision-making so often in the past. 

Show more Show less

Back to top

Jargon Buster

Agency Database