The Financial Conduct Authority (FCA) has announced its Business Plan for 2021-22. Mohamed Dabo looks at a document that lays out the financial watchdog’s strategy for transitioning to a new kind of regulator

The FCA is turning its attention to the future regulatory framework, initiating a major overhaul that will prepare it to face the challenges of a new era.Following a government consultation, “one important question will be how we balance the need for regulators to have enough flexibility to act quickly – as we have in recent months – while maintaining proper democratic oversight of our work,” says the conduct regulator.

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“Addressing these issues requires that we transform the FCA,” the City regulator adds. “The ambitious transformation programme we are working on at the FCA encompasses everything that we do – our culture, our people and our technology.”

The agency’s Business Plan for 2021-22 unveils a new era of regulation for financial services firms that is intent on building a greener, more diverse industry that works better for consumers.

What follows are excerpts from the document.

We are changing

The environment in which we are operating is changing rapidly. This reflects economic, technological and social changes, as well as the challenges of the pandemic and our exit from the EU.We need to transform so that we can deliver our goals.

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We have two key tasks: to make markets work better and to stop and prevent serious misconduct that leads to harm.

The organisation is transforming to achieve these goals – investing in new technology and making better use of data, supporting our people and changing our culture, working in partnership with other organisations in the UK and globally.

We are committing to clear measures so we can be held accountable for our progress.

Our consumer priorities

We can better improve firms’ conduct when consumers are informed and empowered to choose the right products and services for them, at the right price. So we will:

  • Consult on our proposed changes to strengthen the rules for firms that approve financial promotions;
  • Launch a five-year campaign to inform consumers about high-risk investments and what is and is not protected;
  • Publish our Consumer Investments Strategy, setting out the work we will deliver for retail investors.

Ensuring consumer credit markets work well

We want borrowers to be treated fairly and be able to get affordable products that meet their needs. We will stamp out poor practice and encourage competition by:

  • Monitoring how firms support customers in financial difficulty and take action where needed. We will also carry out an in-depth assessment of whether consumers are getting fair and appropriate outcomes and use these findings to shape our next steps;
  • Reviewing our rules on debt advice to ensure consumers get high-quality debt advice and to help us decide if we need to change the rules;
  • Working with the Treasury on developing new rules for the Deferred Payment Credit sector, and
  • Restarting our postponed market study into credit information, to assess how consumers use their credit information and publish our interim findings.

Making payments safe and accessible

The payments services sector continues to evolve rapidly, which we hope will give both consumers and smaller businesses a wide variety of safe payment services.But innovation in this sector, such as cryptoassets, carries risks. We are also concerned about the pandemic’s impact on the financial strength of payment services firms. We will:

  • Use targeted communications, proactive reviews of firms’ arrangements and safeguarding audits to raise standards of safeguarding and wind-down planning, identifying at-risk firms as a priority;
  • Closely supervise bank branch closures, working with the government and industry to maintain access to cash and with the government as it develops legislation.

Delivering fair value in a digital age

Fair value is key to competition and to consumer trust in financial services. To ensure all consumers, especially those with characteristics of vulnerability, have fair access to key, good value products and services, we will:

  • Implement our pricing and automatic renewal remedies in January 2022;
  • Develop a digital markets strategy;
  • Investigate harmful business practices to establish how common and harmful they are to consumers and stop them.
The new consumer duty
In May 2021, we consulted on a new Consumer Duty. This would set clearer and higher standards for firms’ culture and conduct to help ensure they put their customers’ interests at the centre of their business models.This includes in firms’ communications to consumers, the way they design their products and services, including customer service, and ensuring they provide fair value. We will:

  • Consider the responses when the consultation ends on 31 July and consult on any proposed rule changes by the end of 2021.
Reviewing our rules in primary and secondary markets
Now the UK has left the EU, we want to tailor our rules better to suit UK markets, while maintaining high and internationally consistent standards at least equivalent to those in the EU. We:

  • Intend to finalise listing rules for SPACs in the third quarter of 2021, and our further Listing Rule proposals before the end of calendar year 2021;
  • Will continue amending our listing rules to support the Government’s ‘Roadmap’ towards mandatory Task Force on Climate-Related Financial Disclosures (TCFD)-aligned disclosures across the economy;
  • Will continue our work with the Treasury on legislative and FCA rule changes to simplify the complex rules around pre- and post-trade transparency in securities and derivatives markets.
Completing the transition from LIBOR
Firms and markets must complete an orderly transition away from sterling LIBOR to alternative risk-free rates, treating customers fairly throughout. To help ensure this happens, we:

  • Are consulting on requiring firms to publish the most commonly used sterling and yen LIBOR settings on a ‘synthetic’ basis, under our new powers in the 2021 Financial Services Act;
  • Will work with the PRA and Bank of England to monitor the progress of firms’ transition plans. We will also continue to support collective action by market participants to move business formerly concentrated on LIBOR to SONIA and other risk-free rates;
  • Will continue to closely coordinate with overseas authorities around transition for both new business and dealing with legacy issues.
Tackling market abuse and financial crime
Clean markets are essential for all participants to have confidence using them. We want regulated firms to prevent market abuse and reduce the risks of financial crime. We will:

  • Continue to allocate significant resource to monitor the transactions in financial instruments reported to us, assess Suspicious Transaction and Order Reports and follow up intelligence from whistleblowers on financial crime or fraud.
Improving asset management and non-bank finance
The UK investment management sector manages the savings and pensions of millions of people both in the UK and globally.We want firms to offer products that are fair value, meet investors’ needs and provide appropriate protection. We also want asset managers to manage liquidity in funds to avoid unnecessary risks. We will:

  • Increase our supervision of whether asset managers present the environmental, social and governance (ESG) properties of funds fairly, clearly and in ways that are not misleading;
  • Continue to identify funds that are outliers to their peers to understand why, and work with the fund Authorised Fund Manager and Depositary to take action where needed;
  • Following our consultation, we will design the LTAF fund structure through which investors can invest in less liquid assets. We will also decide whether to proceed with requirements for notice periods for open ended property funds;
  • Following international discussion through FSB and IOSCO, we will also consider and recommend amendments to the regulatory framework for money market funds.
Ensuring people can choose appropriate pension products
We want to ensure that pension providers offer good value products, and that consumers can use guidance and support to help them make effective choices. Focusing on product design for those saving into a pension, we will:

  • Seek views on how we can best increase value for money in pensions;
  • Consult on changes for non-workplace pension providers to help ensure consumers are offered an appropriate default solution;
  • Assess the effectiveness of our rules to help consumers make choices at the point of retirement;
  • Implement the nudge to Pension Wise and support cross-government work to create pensions dashboards.
Raising standards in the appointed representative regime
Many principal firms have poor due diligence and oversight of their ARs. To ensure principals and ARs are competent, financially stable and ensure fair outcomes for consumers, we will:

  • Increase our supervision to reduce the most significant risks from ARs in wholesale markets;
  • Consult on cross-sector changes to improve and strengthen the elements of the AR regime.
Diversity and inclusion
Evidence shows a positive relationship between financial performance and gender and ethnic diversity in executive teams. Both we and financial services firms need to better represent the society we serve. We will:

  • Continue to publish key indicators of diversity in the FCA;
  • Develop how we measure firms’ progress against diversity outcomes to ensure a consistent approach across financial services.
Environmental social and governance (ESG)
Financial services and markets are central to the UK’s transition to a low carbon economy.We will support the Government’s commitment to achieving a net-zero economy by 2050 by adapting our regulatory framework to enable a market-based transition to net-zero by:

  • Consulting on new disclosure rules for asset managers, life insurers and FCA-regulated pension schemes. We are also consulting on extending our existing TCFD-aligned Listing Rule to more issuers;
  • Continuing to collaborate domestically, supporting the Government’s 2019 Green Finance Strategy and plans announced by the Treasury in July 2021 to implement economy-wide Sustainability Disclosure Requirements for businesses and investment products, and a new sustainable investment label.
Our international priorities
International cooperation with other supervisors and global standard-setting bodies is more important than ever. We will:

  • Maintain our active partnerships and memberships of global standard-setting bodies and regulatory partners;
  • Ensure the temporary permissions regime (TPR) operates smoothly and assess overseas firms in the TPR to ensure they can comply with the onshored rulebook, before all firms leave the regime by the end of 2023;
  • Provide technical advice to the government as it develops mechanisms for cross-border market access in financial services.
Fraud strategy
We aim to use our authority and influence to work with our partners to help drive down fraud. We will:

  • Carry out proactive surveillance and monitoring, with clear prioritising so that we can intervene more quickly and decisively;
  • Disrupt the work of fraudsters, and identify the right intervention – whether by the FCA, or by our counter-fraud partners;
  • Remove fraudsters who are FCA-supervised from the financial services system;
  • Work closely with our anti-fraud partners to maximise our collective fight against fraud, such as the PSR’s work on Authorised Push Payment fraud.
Financial resilience and resolution
When firms fail, we want to ensure they do so in an orderly way. To do this, we need to be better aware of which firms are likely to fail so that we can reduce the harm failure can cause. We will:

  • Introduce the Investment Firms Prudential Regime for investment firms, and support firms as they adapt to it;
  • Continue to strengthen our data-driven monitoring of the financial resilience of solo-regulated firms, targeting our interventions at firms with weak financial resilience and those whose failure is likely to cause material harm;
  • Review key aspects of the compensation framework to ensure it remains appropriate and proportionate.
Operational resilience
Firms should be operationally resilient against disruption to minimise the harm caused to consumers and markets. We will:

  • Assess firms’ progress in implementing the new operational resilience requirements and identify areas for improvement;
  • Assess how able firms are to remain within their impact tolerances. This will help us evaluate how effective our work to improve the operational resilience of the financial sector has been.