Regulator Sets Its Priorities For The Next One To Three Years
Yesterday, the FCA published its annual business plan for the year 2020/21, which sets out the regulator’s priorities for the next 1 to 3 years. The regulator warned that the implementation of their priorities may be delayed due to the impending need to respond to Covid-19 effectively, as evidenced by the temporary measures they have rolled out in the previous few weeks. The watchdog further advised that the business plan may need to be re-drafted in the next coming months once the position regarding the pandemic becomes clearer.
In its current format however, the business plan provides useful signposts as to where the FCA will focus its efforts over the coming years and demonstrates that whilst Covid-19 will be a primary priority for the FCA, they are determined to continue to fulfil their role as a regulator and ensure that consumers remain protected.
The FCA’s Priorities
The FCA’s priorities are broken down into long-term objectives and 5 ‘medium term’ priorities, the latter of which are described as being ‘key’. The plan also touches on the regulator’s priorities in relation to specific sectors, as well as those which cut across many different industries.
Long term objectives
While addressing its long-term objectives, the FCA acknowledged the profound impact that Covid-19 is having on the economy as a whole, including thousands of businesses and individuals operating within the regulated sector. The objectives, which have now been reshaped in light of the Covid-19 pandemic, now include ensuring the following continue:
1. The financial markets continue to function well;
2. The most vulnerable are protected;
3. The impact of firm failure is minimised;
4. The FCA tackle scams; and
5. Consumers and small firms are treated fairly.
The FCA’s 5 Key Priorities: Medium- term objectives
In relation to the regulator’s medium-term objectives, the FCA outlined the following points as their 5 key priorities for the next 1-3 years:
1. Transforming how the FCA works and regulates
The FCA has identified the need to become more efficient in the way in which it regulates the financial services sector. Within the business plan, the regulator states the need for faster and more effective decision-making, and the prioritisation of end outcomes for consumers, markets and firms.
To achieve these outcomes, the FCA outlined the need to invest in innovative digital technology, as well as its intention to shift its regulatory framework to an ‘outcomes focussed’ approach. Further, the FCA highlighted the need to become more integrated and streamlined and to therefore operate as ‘One FCA’.
This intended transformation is likely to be well received by both consumers and those regulated by the FCA in circumstances where the FCA has often faced criticism that it is slow to react to market conditions, slow to regulate new products/risk, slow to protect cpnsumers and slow to conclude regulatory enforcement action.
2. Enabling effective consumer investment decisions
Consumers that have invested money into investment schemes are potentially more exposed to significant market volatility and/or fraudulent schemes due to Covid-19. As such, the FCA has detailed how it will work to help support consumers make informed and effective investment choices which are suitable for their needs.
Providing consumers with accessible information as a means of ensuring they can make informed decisions is likely to be an additional regulatory burden on firms. However, it is hoped that it will be met with improved regulatory guidance to enable TCF to be achieved across a range of investment markets.
3. Ensuring consumer credit markets work well;
The demand for consumer credit is likely to increase due to the economic challenges presented by Covid-19. To ensure the consumer credit market works efficiently, the FCA has identified the need for readily accessible information to allow consumers to take control of their debt when/if they fall into financial difficulty. The FCA has also stated they are ‘concerned’ that consumers may be tempted into entering into ‘unaffordable’ credit in which firms may seek to benefit from exploitative charges.
We have already seen a stepping up of FCA engagement with firms in regard to the credit and consumer hire perimeter, particularly around high cost subscription and “try before you buy” business models. Firms can expect greater scrutiny of applications to become authorised in this sector and of those who seek to remain outside of the need to authorise.
4. Making payments safe and accessible;
In response to the payment services sector’s rapid evolution, the FCA has committed to working with the Payment Systems Regulator, the Bank of England the Government to safeguard consumer transactions made with payment firms to ensure that consumers are protected by the new products and firms entering into the financial services sector. The city watchdog has also committed to making sure that such payment firms meet their regulatory responsibilities by providing consumers with high-quality and fair services.
This commitment comes after the FCA delayed its introduction of its online payment anti-fraud rules last year. Such delay was met with criticism from both consumers and other regulated firms who complained of a lack of regulatory standards in relation to payment security. The impact of imposing regulatory responsibilities on payment security firms is likely to be significant given that such firms are often the gateway to many other financial services.
5. Delivering fair value in a digital age.
Whilst often seen as a benefit, digital innovation also presents its own problems. Specifically the FCA has acknowledged the difficulty in keeping up with technological growth to ensure they are equipped to regulate accordingly. To help achieve consumer protection in relation to firms’ increased usage of new technology, the regulator has detailed the need to ensure products are being sold at a fair price, as well as the need to ensure vulnerable customers, such as the elderly, are not targeted with poor value products.
It is hoped that such regulation will encourage market competition within the digital sector which in turn will ensure that products are sold at a fair price, and that the quality of such products is increased. Both of these consequences are likley to benefit and protect consumers.
The business plan also summarises priorities which cut across many different sectors. These include assisting with the global response to Covid-19, contributing to the international fight against financial crime and climate change, and adapting to the evolution of technological innovation. The FCA has also acknowledged the likelihood of being required to adjust its regulatory framework in preparation of the UK’s withdrawal from the EU.
As many UK consumers invest and/ or participate in international investment schemes, it is vital that the FCA continue to cooperate with its global counterparts on various fronts as a means of protecting UK consumers. It is hoped that the regulators will be able to work and contribute cohesively on international issues such as the fight against financial crime and the response to Covid-19.
Sector specific priorities
Finally, the FCA outlined retail banking, wholesale financial markets, investment management and general insurance and protection as specific sectors it intends to focus on in the next 1 to 3 years. The broad objectives the FCA has stated that they would like to achieve in these areas include, ensuring that products are good value and high quality, and that financial crime in its entirety is minimised.
As the sectors identified above often cause consumers risk and harm, focus on effectively regulating the firms operating within these spaces and subsequently protecting consumers is likely to be welcomed by consumers but will inevitably mean more work for those owning and managing firms in those sectors.