5 minute read 26 Apr 2019
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What the FCA Business Plan 2019/20 means for your firm

By

John Liver

EY Global Financial Services Regulatory Network Co-Lead and EY EMEIA Financial Services Compliance and Conduct Leader

Transformation of financial services regulatory capabilities, resilience and conduct. Facilitator of industry and regulator dialogue. Mental health charity trustee. Husband and father.

Contributors
5 minute read 26 Apr 2019

Setting the scene for the FCA’s 2019/20 Business Plan, Charles Randell, Chair, discussed change in financial services, and the risks and opportunities it brings.

If 2018/19 was predominantly about challenge, 2019/20 is predominantly about change – transformational change in some sectors. Charles Randell, Chair of the Financial Conduct Authority (FCA) set the scene for the FCA’s Business Plan 2019/20 by focussing on the degree of change in financial services, and the risks and opportunities change can bring: both to firms and regulators.

Change is inevitable, increasingly fast-moving and widespread: whether it be technological innovation changing the way firms do business; demographic change and evolving consumer needs and vulnerabilities; changes in the global context as the UK prepares to leave the EU and starts to consider the future regulatory landscape; or changes in public expectations.

This year’s Business Plan reflects these changes and many others, and sets out the implications for the FCA’s priorities and activities. It will clearly be another year of difficult choices given the FCA’s growing scope and the considerable demands of EU Withdrawal on finite resources.

Firms should, therefore, view the priorities included in the Business Plan with a keen resolve and a proactive mindset, appreciating the level of scrutiny involved in their selection and, hence, their importance to the FCA.

A number of new measures have been announced in the Business Plan, but the themes are not new, and should come as no surprise given the FCA’s ongoing commitment to creating a fair, transparent and well-functioning financial services market for all consumers.

Key suggestions for firms

  1. Make early progress towards a 2021 transition deadline from the London Inter-bank Offered Rate (LIBOR).
  2. Ensure resilience considerations are embedded, particularly around change and third-party risk management.
  3. Ensure fair pricing across all products, taking account of the FCA’s potential pricing interventions for existing customers.
  4. Consider the associated risks of applying new technology, both in the way they do business and how they engage with customers.
  5. Utilise technology and data to improve the effectiveness of financial crime controls.

Overarching priorities

It is understandable, given the complexities and uncertainties of EU Withdrawal, that Brexit will be the most immediate challenge for the FCA over the coming year. However, it is reassuring that the FCA remains focussed on its continuing cross-sectoral priorities (culture and governance, operational resilience, financial crime and anti-money laundering, and the fair treatment of existing customers) and strategic challenges (including innovation, data and data ethics, and, new for 2019/20, demographic change).

The FCA’s other new strategic challenge for 2019/20 is the future of regulation, appropriate given the changes that will follow EU Withdrawal. Key priorities for the FCA include the proposed duty of care, working with HM Treasury on the future of UK financial services legislation, the cost of regulation (including how technology could enhance the FCA Handbook) and offering greater transparency on issues at the perimeter of regulation. Firms should be ready to engage, and share their views on these and other important issues.

The future will bring a need to be smarter, focusing more on the outcomes we seek, making greater use of technology, improving our business processes and streamlining our handbook.
Charles Randell
Chair, FCA

Although the FCA is working jointly with the Prudential Regulation Authority (PRA) and Bank of England in a new Climate Financial Risk Forum, climate change is not a specific FCA priority for 2019/20. However, with the PRA’s expectations for the management of financial risks from climate change now set out in a supervisory statement for banks and insurers, we could well see climate change become an FCA priority in 2020/21.

Banking and capital markets

The impact of the EU Withdrawal will be the primary focus for the wholesale sector over the coming year. The FCA will continue their work on market abuse and will emphasise the importance of the transition from LIBOR. Data is also a key theme, where the FCA is analysing who has access to data and how it is used within wholesale financial markets.

Consumer protection across all demographics remains a key priority. The FCA aims to implement their interventions in the High Cost Credit Review whilst also focussing on supporting consumers to switch their mortgages. Additionally, the regulator intends to identify and take action on business models that drive unaffordable lending. The FCA also aims to ensure that payment services are accessible, safe, reliable and resilient through the promotion of high standards of conduct from firms.

Wealth and asset management

Following on from the Asset Management Market Study (AMMS), the FCA’s focus remains on ensuring that asset managers are providing consumers with access to a range of products that are of good value. Further work will be undertaken in the upcoming year to improve stewardship within the existing structure of UK capital markets.

Concern remains in the retail investments sector around the suitability of advice, particularly in two areas where there is greater risk of consumer harm: defined benefit pension transfer advice and advice on high risk investments. The FCA’s issuance of a number of ‘Dear CEO’ letters to Contracts for Difference (CFDs) providers has demonstrated the FCA’s serious concern in this area.

Insurance and pensions

In line with recent findings published by the FCA, protecting consumers through fair pricing strategies and products that deliver value are the key priorities within the insurance and pensions sector. The regulator’s key focus will be on understanding pricing practices and the governance and oversight across the distribution network, as well as consumer accessibility of products.

“The future will bring a need to be smarter, focusing more on the outcomes we seek, making greater use of technology, improving our business processes and streamlining our handbook. The world is changing and so must we,” says Charles Randell, Chair of the FCA.

The FCA Business Plan highlights that maintaining the status quo is no longer an option for firms or the regulators. Firms that can drive change are likely to be able to differentiate themselves from their peers.

Summary

In the face of fast moving and widespread change, the FCA Business Plan makes it clear that maintaining the status quo is not an option for firms or regulators. Firms that can help drive change, rather than follow the leader, are likely to be able to differentiate themselves from their peers. 

About this article

By

John Liver

EY Global Financial Services Regulatory Network Co-Lead and EY EMEIA Financial Services Compliance and Conduct Leader

Transformation of financial services regulatory capabilities, resilience and conduct. Facilitator of industry and regulator dialogue. Mental health charity trustee. Husband and father.

Contributors