On 7 April, the Financial Conduct Authority (FCA) published its annual Business Plan, setting out its priorities for 2022/23, which should be read alongside the FCA’s Strategy for the next three years.
The FCA’s Chief Executive, Nikhil Rathi, described his vision of a renewed FCA as “more innovative, more assertive, more adaptive”. The 2022/23 Business Plan reflects this image, most notably in its assertive stance to dealing with harm in the financial services industry.
In a change of approach, the FCA has moved away from firm-specific or sector-specific plans. Instead, in line with the FCA’s Strategy, the Business Plan focuses on three key areas. These are:
Reducing and preventing serious harm.
Setting and testing higher standards.
Promoting competition and positive change.
Reducing and preventing serious harm
During the Coronavirus pandemic, FCA data demonstrated a move away from enforcement as a principal concern of the regulator. However, the 2022/23 Business Plan indicates a renewed focus on enforcement, with the FCA setting out ambitious plans to sanction or remove firms from the market if they fail to meet FCA standards. Following on from last year’s business plan, the FCA’s approach appears ever more assertive. This is reflected in the wording of the Business Plan, which refers to the regulator acting “faster” and challenging itself to “find the limits of (its) powers”.
Newly authorised firms should expect to receive enhanced supervision from the outset through the FCA’s new early oversight team. For existing firms, the implication is that the FCA will swiftly intervene and cancel the authorisation of those firms that fail to meet the Threshold Conditions.
The risks of potential harm to consumers from the Appointed Representative regime are highlighted as of significant concern in the Business Plan. This comes in light of the regulator identifying that principal firms give rise to 50-400 per cent more complaints and supervisory cases than other authorised firms. The FCA expects to set out new rules and obligations for principals, increase its oversight of high-risk principals and improve the transparency of information regarding Appointed Representatives on the FCA Register. Given the increased intensity of FCA scrutiny, both at the regulatory gateway and following authorisation, it will be important for principals to ensure sufficient oversight of their Appointed Representatives going forwards.
In conjunction with this, the Business Plan sets out a more robust framework for consumer redress. The FCA expects to increase fairness of the claims management company sector, as well as improving consumer awareness of redress available and the timeliness of claims resolution.
Tackling the effects of financial crime and market abuse are also emphasised as areas for the FCA to address. The Business Plan acknowledges the increasing prevalence of fraud, notably commenting on the growth in Authorised Push Payment cases. In response to this, and in conjunction with the Government’s economic crime action plan, the FCA intends to:
Increase its resources for intelligence gathering – the FCA will monitor websites and social media accounts for suspicious promotions in order to identify and penalise any fraudsters.
Reduce the potential for cryptoassets to be used in financial crime – firms must comply with the Money Laundering Regulations and the FCA will act rapidly if they do not.
Setting and testing higher standards
In light of the proposed new Consumer Duty, it is perhaps unsurprising that the Business Plan focuses on consumer needs and care. This also reflects one of the FCA’s statutory objectives of protecting consumers. The Business Plan notes the importance of empowering consumers to make informed decisions, including enabling consumers to access appropriate resources and appreciate the risks of potential investments. It also addresses the risks of misleading promotions and the mis-selling of unsuitably high-risk investment decisions, suggesting firms should expect increasing scrutiny from the FCA in this area.
The Business Plan confirms an ongoing priority of the FCA is operational resilience. This responds to the increasing threat of cyberattacks and the disruption to business continuity created by the Coronavirus pandemic. The FCA expects firms to be able to demonstrate that they have appropriate procedures in place to manage operational disruptions, as well as showing familiarity with their reporting obligations.
This priority area also encompasses the FCA’s environmental, social and governance (ESG) plans, further detailed in its specific ESG strategy. The FCA aims to enhance trust in sustainable investment products, as well as supporting increased ESG-related disclosures and investor stewardship. The Business Plan stresses the improvement of diversity and inclusion in the financial sector as a particular area of focus in 2022/23.
Promoting competition and positive change
Digitalisation continues to be an area of focus for the FCA, both in terms of protecting consumers from the risks which digital services pose and in terms of supporting technological innovation and competition. The Business Plan recognises the FCA’s increased focus on cryptoassets, particularly on stablecoins, with the FCA intending to consult on regulating their use as payments later in 2022.
In a post-Brexit world, the Business Plan recognises the importance of tailoring financial regulation to better suit UK markets. The regulator’s approach is evidently shaped by the impact of Brexit, with the Business Plan setting out its aim to strengthen the UK’s position in wholesale markets internationally. For example, the FCA has set out plans to increase its capacity to approve listed issuers onto UK capital markets. The FCA is also working to shape and, if enacted, deliver the proposed Future Regulatory Framework to ensure that the UK’s financial services regulation reflects its position since departing the EU.
If you require further information about anything covered in this briefing, please contact Grania Baird or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, June 2022