FCA activity shows no sign of slowing down as the regulator revealed its Business Plan for 2023/24.
Building upon the FCA's three-year strategy, the 2023/24 Business Plan represents the 'sophomore' business plan outlining how the overall strategy will be delivered. It sets out the regulator's response to a number of current challenges including the uncertainties arising out of high interest rates, inflation, unemployment, declines in incomes and market volatility.
The Business Plan for this year has been slightly re-structured to more closely align with the strategic themes and outlines a total of 13 regulatory commitments across three focus areas, which are:
- Reducing and preventing serious harm
- Setting and testing higher standards
- Promoting competition and positive change
The 13 commitments under the 2023/24 Business Plan are set out below, with the first four commitments being of the greatest priority:
- Preparing financial services for the future
- Putting consumers’ needs first
- Reducing and preventing financial crime
- Strengthening the UK’s position in global wholesale markets
- Dealing with problem firms
- Improving the redress framework
- Reducing harm from firm failure
- Improving oversight of Appointed Representatives
- Delivering assertive action on market abuse
- Enabling consumers to help themselves
- Minimising the impact of operational disruptions
- A strategy for positive change: our environmental, social and governance (ESG) priorities
- Shaping digital markets to achieve good outcomes
This article provides a brief summary on some key takeaways from the regulator's Business Plan for the year to come.
Consumer Duty
Predictably, the FCA said it remains strongly focused on the Consumer Duty, which is due to come into force on 31 July 2023, specifically for those with live products and services.
The regulator has stressed that increased consumer protection and the Consumer Duty will represent a significant shift for regulated firms. The Duty imposes more stringent standards for consumer protection and will become an integral part of the regulator's approach and mindset in years to come.
The FCA will invest £5.3 million to ensure the Consumer Duty is successfully embedded and intends to steadily increase its headcount to accompany the transition. Key information was provided about the metrics and KPIs that will be used from sources such as levels and root causes of Financial Ombudsman Service (FOS) complaints, to form a view as to whether firms are meeting the requirements under the Consumer Duty in the two outcomes relating to Consumer Understanding and Consumer Support.
Redress
The FCA is also focused on improving the redress framework and is developing proposals to improve complaints reporting. The regulator will be consulting on guidance for firms regarding redress calculations and is currently consulting on access to the FOS for small and medium enterprises that may have insufficient resources to resolve disputes through the legal system.
Oversight of Appointed Representatives ("AR")
The FCA is set to continue with its action to tighten supervision in the principal/AR space. The Business Plan confirms that there will be further engagement and scrutiny in this area from a regulatory perspective. The FCA criticised Principals for not adequately overseeing their ARs' activities, thereby putting consumers at an increased risk of being misled. Principals will have to become familiar with the FCA's new rules and guidance to ensure compliance and minimise the risks associated with their ARs' possible mis-selling to consumers. Reporting for principal firms under the new rules becomes fully effective later this year.
Financial Crime & Market Abuse
Consistent with previous year, the FCA has stated its intention to further its work in the prevention of regulated firm's being used to facilitate financial crime and it is developing metrics in this area to test the effectiveness of its strategy.
Further, the FCA continues to actively target entities who become involved in Market Abuse practices to tackle the detrimental effect these have on market confidence and participation.
The regulator is pinning its strategy on better education for its regulated entities to foster prevention and compliance. In parallel, the regulator is working to improve its detection and prosecution capabilities to detect market manipulation and abuse through increased data capture, improved analytics and a dedicated "equity manipulation team".
Persons Discharging Management Responsibility (PDMR) will also be expected to provide additional transparency and engagement in respect of detecting potential insider dealing.
ESG
The FCA is building a regulatory framework to support its ambition to foster a UK net-zero financial centre. The regulator intends to tighten its grip on mis-leading marketing and disclosure around ESG related product and "greenwashing" to protect consumers and promote trust in the market for ESG investment products.
The FCA will further collaborate with key stakeholders in the ESG sphere through its ESG Advisory Committee to the Board, which it established in December 2022, to execute its ESG responsibilities. The regulator will also finalise and publish its rules on Sustainability Disclosure Requirements and investment labels.
Data and Technology
The FCA will increasingly rely on Data and Technology-led regulation programmes this year to improve their intelligence capabilities through automation of analytics tooling, detection of crime and faster responses to consumer harms. The regulator has also invested in cyber security and operational resilience to improve efficiency of its staff and regulated firms.
We can expect that the FCA will continue to promote innovation and that reporting expected by firms will become more sophisticated, to improve their existing detection capabilities and promote speed and efficiency of supervision and intervention.
Financial Regulatory Framework
Finally, the FCA expects to invest £12.7 million in 2023/24 to support its "Preparing financial services for the future" strategic commitment. This forms part of the post-Brexit Future Regulatory Framework (FRF), which will transfer even more responsibilities to the FCA and will reinforce accountability, scrutiny and transparency for regulated entities.
General Observations
The Business Plan as pledged to further work that has been ongoing for a number of years in respect of the Financial Promotions Gateway, ensuring the ongoing resilience of firms from both a financial and operational perspective and how it will continued to share intelligence with other agencies to advance its operational objectives. Closer scrutiny of how firms meet the Threshold Conditions was also widely restated across the business plan, with the FCA planning to challenge firms at each stage of their lifecycle, starting from new firm authorisations.
Conclusion
The FCA's activity is showing no signs of slowdown. To the contrary, during 2022 the FCA issued over 1,800 warnings about potential scam firms, which is 400 more warnings than the previous year. The regulator's headcount has also grown from 3,800 in early 2022 to almost 4,500 at the end of March 2023. Numbers are expected to grow again for the years 2023/24.
DWF have a depth of expert insight on regulatory natters across a range of regulatory topics and would be pleased to discuss with you what the business plan means of your firm and how it should be integrated into your business and compliance strategy this year.
