The FCA has published its 2021/2022 Business Plan setting out an intention to be more innovative, more assertive and more adaptive in its approach.
The plan highlights specific areas of priority for the consumer and wholesale markets, as well as priorities that cut across all markets, whether in the form of areas of ongoing focus – such as fraud and resilience (both financial and operational), and developing areas such as ESG.
The specific areas of focus vary from market to market, but one can identify certain themes that run through the plan as a whole.
- The changing way people interact with financial services due, in part, to the accelerated pace of digitalisation, changes to working patterns and financial consequences resulting from the pandemic.
- A focus on data and how that can drive better regulatory oversight and market outcomes.
- A more assertive approach to supervision.
Changes in customer habits
The increase in remote working and reliance on digital services resulting from the pandemic has accelerated certain trends that pre-dated the pandemic, not least in terms of the way customers access financial services on a wider and more frictionless basis.
At a very basic level this mean that more people are able to access a wider range of services, more freely.
However, this has happened against a backdrop of increasing consumer vulnerability (the FCA estimates that some 53% of all adults qualify as “vulnerable”) and persistently low interest rates resulting in people being prepared to take financial risks and systemic risks in wholesale markets.
Customers are increasingly able to tap into markets (e.g. securities trading and crypto being good examples) or use services (such a buy-now-pay-later (BNPL) credit or online payment and e-money service providers) in ways that they might not have been able or inclined to in the past.
This can be seen in the FCA’s proposals:
- on improving the data available to customers and firms to ensure the right outcomes are delivered (whether in the form of requiring improved disclosures to customers, changing the way financial promotions can be signed off for unauthorised persons, ESG disclosures, or simply publishing more data to help shape customer behaviour and firm behaviour);
- for its ongoing focus on fraud, and in particular the prevalence of payment scams;
- in highlighting the link between the proper functioning of wholesale markets and consumer protection (in particular in relation to management of conflicts of interest, operational resilience, greater defences against financial crime and market abuse);
- to review debt advice rules in anticipation of a greater need for such services (particularly in relation to debt consolidation);
- to consult on new BNPL regulation and rules (scheduled for 2022);
- (perhaps paradoxically) to focus on access to cash, ensuring that the needs of consumers and small businesses are properly considered as services increasingly move online; and
- increasing safeguarding and wind-down planning standards for payments and e-money firms; and
- for the long awaited Consumer Duty of Care
Better use of data
The focus on the increased availability and better use of data also manifests itself in several areas. For example the FCA’s proposes to:
- strengthen the foundations of its data, improving accuracy and accessibility to make it more efficient in identifying harm and speeding up intervention;
- improve the data it publishes for customers to ensure greater understanding of the scope and protection afforded by regulation;
- restart the review into the credit information market to consider whether lenders are getting the right data they need to enable to decide whether to lend, and whether customers have access to and are able to make use of their own credit data;
- increase the availability of legal alternatives to high-cost credit by raising consumer awareness (and tackling barriers to access);and
- use data gathering to drive diversity within the regulator, financial services generally, and ensuring firms service diversity within their customer base.
A more assertive FCA
Thirdly, the plan highlights a more targeted and pro-active role for the regulator, with the aim to test the limit of its powers. This can be seen in:
- the continued focus on removal of firms’ permissions where they aren’t carrying out regulated activities;
- the proposal for more intensive assessment and greater scrutiny of firms’ financials and business models as part of the authorisation process;
- stronger oversight for newly authorised firms (a regulatory ‘nursery’) and authorised firms which are growing significantly;
- the focus on the Appointed Representative (AR) regime (with proposals to require more timely information on principals and their ARs and to increase principals’ ongoing oversight and due diligence of current and prospective ARs); and
- the plan to use advanced analytical techniques to proactively identify and prioritise firms or harms for investigation to enable early intervention.
Many of the proposals outlined in the plan have already been set in motion (e.g. the current consultation on the Customer Duty of Care, and developing policy and recommendations on payments, e-money and cryptoassets following the call for evidence last year as part of its Payments Landscape Review), so to a certain extent the Business Plan reflects business as usual. However, it will be interesting to see if the aim to be more assertive results in more and/or earlier interventions from the FCA.
Next Steps
Please contact any of us if it would help to discuss any of the above points in more detail.
Authored by Charles Elliott, Neelam Hundal.
