Four key words: Accountability; Resilience; Cleanliness; and Fairness

Colin Darby

16th April, 2020

The FCA’s 2020/21 business plan sets out the latest thinking on regulatory priorities

The FCA published its 2020/21 Business Plan on 7 April[1], setting out its priorities for the next one to three years. The relative brevity of the document compared to previous years is immediately noticeable. This likely reflects that the FCA has significantly re-arranged its book of work and resources, in light of the ongoing COVID-19 pandemic. In fact, the Business Plan includes a dedicated section on COVID-19 which sets out the difficulty the FCA has had in planning ahead, and that it may not be able to fully focus on its stated priorities until the pandemic abates. Although the Business Plan contains less depth on sectoral priorities and cross-cutting work than in previous years, the FCA has said that it may publish an updated plan, once stability returns.

The objectives driving the FCA’s activities during the pandemic are:

keeping markets functioning in orderly fashion;
supporting the operation of government schemes;
supporting consumers with the immediate shocks created by the crisis;
maintaining public access to essential banking services; and
protecting the most vulnerable in society.

Through its mixture of relief measures for consumers, forbearance for firms and delays to consultations and calls for input, the FCA is clearly taking a pragmatic approach to achieving its pandemic-focused objectives whilst not losing sight of its business-as-usual priorities.

Below, we take a look at the content of the Business Plan and what it might mean for firms.

External priorities for the next three years

The FCA’s stated external priorities for 2020 to 2023 are:

enabling effective consumer investment decisions: products designed to meet customer needs; a campaign on to help consumers make better investment decisions; and higher standards of governance in retail investment firms.
ensuring consumer credit markets work well: easier consumer understanding of product range and features; avoiding consumers becoming over-extended; increased access to fair and affordable credit; and early consumer engagement with debt advice.
making payments safe and accessible: greater focus on payment service providers’ anti-financial crime systems and controls, swift action where firms fail to meet safeguarding and other regulatory obligations; and preservation of payment choice (including access to cash).
delivering fair value in a digital age: consumers are confident that they are getting appropriate quality and service for the price; ethical use of data and algorithms to price services and prevent bias or discrimination; and firms take extra care when dealing with vulnerable customers.[2]

In addition, the FCA is focused on its own transformation:

Make faster and more effective regulatory decisions
Provide greater clarity to firms on its expectations with respect to end outcomes for consumers, markets and firms
Better use of the wealth of information and intelligence it receives to expedite the identification of and response to harm and misconduct
Stronger links with global partners to influence matters which impact UK consumers and markets

The FCA is setting out to modernise, with the interests of modern consumers at the heart of its activities. Firms can therefore expect to see an evolution in the both the way that the FCA interacts with them and the areas of focus during those interactions. As the FCA increases its agility, it will likely expect firms to become nimbler in maintaining a clean and fair financial services industry.

Post-pandemic, firms may wish to review and update, as appropriate, their operating and governance models to design in appropriate end outcomes, efficient use of resources and timely decision-making.

Cross-cutting work

The FCA’s cross-cutting work will include:

Strengthening international engagement so as to develop robust global financial standards and deliver effective supervision;
Helping the financial services sector to adapt regarding climate change risks;
Improving the effectiveness of supervision and reducing the burden of regulatory reporting on firms by investing in new technology.
Supporting financial services innovation through the Global Financial Innovation Network (GFIN) and regulatory sandboxes.
Setting new requirements to strengthen firms’ operational resilience. Firms and Financial Market Infrastructures (FMIs) are expected to take ownership of their operational resilience and to prioritise plans and investments based on their public interest impact. Firms and FMIs should set a tolerance for disruption and ensure they can continue to deliver their important business services during severe but plausible scenarios. A policy statement will follow the consultation period, which has been extended until 1 October 2020. As we highlighted in our recent blog entry on Operational resilience[3], regulators have been clear that firms must not wait for final policy statements on this topic and should already be actively driving programmes of work.
Changing how the FCA works to reduce financial crime, including: extending the Financial Crime Data Return; testing of legal and accountancy sector AML supervisors via OPBAS; an increased focus on fraud risk management systems and controls; and implementation of the cryptoasset AML supervision regime.
Focusing on the four key culture drivers in firms – purpose, leadership, approach to rewarding and managing people, and governance – and their effectiveness in reducing the potential harm from firms’ business models and strategies. Solo regulated firms must continue to comply with SM&CR requirements as they fall due.

Firms should understand how the FCA’s priorities intersect with their operations and ensure that any related internal initiatives (e.g. operational resilience enhancement or financial crime risk management improvements) are adequately resourced and supported by senior management.

Sectoral sources of harm and desired outcomes

In addition to its earlier Sector Views[4] publication, the FCA’s Business Plan sets out desired outcomes for particular sectors, these are summarised below:

There are clear common themes, for firms to heed, weaved into the FCA’s desired sectoral outcomes: appropriate governance and accountability models; upgraded operational resilience; robust financial crime risk controls; and the fair treatment of customers (through communications, pricing and product design).

Fees

The FCA’s Annual Funding Requirement has increased by 5.2% compared to last year, which will be recovered through fees net of rebates from financial penalties. Given the impact of Covid-19, the FCA has frozen fees to be paid by the smallest 71% of financial services firms for next year, and granted small and medium firms an extended period, until the end of 2020, to pay. The FCA has launched its annual consultation on fees and levies.[6]

What does the FCA’s Business Plan mean for firms?

Although the financial services sector is experiencing an unprecedented challenge at present, firms should not lose sight that the FCA will continue to deploy its supervisory and enforcement tools, where appropriate. The FCA has been pragmatic and realistic in re-organising its work and granting flexibility and regulatory forbearance in particular areas but this does not mean that its expectations of firms or its regulatory principles have temporarily gone away. Regulatory initiatives which have been delayed will not simply drop off the longer-term agenda – regulatory development will continue, albeit likely in lower volume and at slower pace. Firms should strongly consider turning this slowdown to their advantage by reviewing in-flight changes to ensure the achievement of desired end outcomes and delivery of sustainable improvement.

Firms need to balance their resources between:

maintaining business as usual operations (as far as possible in the current circumstances);
identifying and responding to pandemic-specific risks and challenges;
staying engaged with re-prioritised regulatory developments; and
exploring ways to improve their regulatory and compliance agility.

Whether it is reviewing current arrangements, supporting with temporary adjustments to policies and procedures, delivering medium term change programmes or providing some additional bandwidth, BCS Consulting has the people, expertise and solutions to assist. We have specialists in all the key themes highlighted in the FCA’s Business Plan, particularly Operational Resilience, Financial Crime Risk, Governance, Conduct Risk and LIBOR transition. As regulated firms work to best serve their client base and fulfil their regulatory expectations, we are here to help you.

[1] https://www.bcsconsulting.com/blog/resilience-in-the-face-of-covid-19/

[2] https://www.fca.org.uk/publication/corporate/sector-views-2020.pdf

[3] https://www.fca.org.uk/publication/business-plans/business-plan-2020-21.pdf

[4] Please refer to our July 2019 blog entitled ‘Protecting Vulnerable Customers in a Digital Age’ – https://www.bcsconsulting.com/blog/protecting-vulnerable-customers-in-a-digital-age/

[5] http://www.bcsconsulting.com/wp-content/uploads/2020/02/023_BCS_Snapshot_LIBOR_Stepping-up-the-rate-of-change-WEB.pdf

[6] https://www.fca.org.uk/publications/consultation-papers/cp20-6-regulated-fees-and-levies-rates-proposals-2020-21