The UK Financial Conduct Authority’s (FCA) 2023 Business plan suggests some subtle amendments to the priorities previously set out in its three-year strategy.
Last year, the FCA set out a bold new plan for a more innovative, more assertive, more adaptive FCA with its 2022-2025 Strategy. As the FCA moves into the second year of that plan, the new 2023/2024 Business Plan is broadly in line with that three year Strategy but reflects some subtle change in the FCA’s priority areas in light of economic and geopolitical changes. Understandably, the FCA has again highlighted its finite resources and expanding regulatory perimeter and the consequent need to prioritize its work (despite increasing its headcount by almost 20% year on year, with further increases planned).
From an enforcement perspective, the FCA will continue to focus on outcomes, so we can still expect regulatory scrutiny even in areas that did not get a lot of focus in the Business Plan, especially where the harm caused was particularly severe or the conduct was egregious.
Among the 13 commitments, the Business Plan highlights four priorities, which the FCA will pursue above its other objectives where any additional resources are available. We would expect to see increased, or at least continued, regulatory scrutiny in these areas, with cases involving failings touching upon these priority topics more likely to form the basis of action.
- Improving consumer protection: The Consumer Duty unveiled in the FCA’s Strategy is due to come into force on July 31 and, as expected, forms a central plank of the Business Plan. The FCA intends to “identify and track early indications of problems” and to”respond proactively” where firms fail to provide a higher standard of care in retail financial markets. As part of this approach, it has adopted a multi-layered approach of both heavily investing in sector-specific supervisory work, as well as creating a new Interventions team within Enforcement to take rapid action on immediate consumer harm.”from day one”. The FCA has indicated that it will “focus initially on the highest priority issues and firms” and will”use [its] regulatory toolkit” to address harm where it identifies poor practice. Consumer-facing institutions, in particular large firms, can therefore expect an increased level of regulatory scrutiny and intervention over the coming years.
- Reducing and preventing financial crime: The FCA intends to increase its focus on tackling financial crime, particularly in relation to fraud (including Authorized Push Payments and investment fraud), money laundering and market abuse. Data collection and analytics will be key to supervising and overseeing regulated firms’ systems and processes, with an increase in the volume of proactive assessments of firms’ anti-money laundering systems and controls, alongside an increased use of data to better identify which firms are more susceptible to receiving fraud proceeds. From a market abuse perspective, the FCA aims to “significantly improve its capability to detect and process fixed income and commodities manipulation” and to focus onvery high-risk firms” with multiple regulatory failures. Given the geopolitical and economic climate, this is an area unlikely to be de-prioritised any time soon.
- Preparing financial services for the future / strengthening the UK’s position in global wholesale markets: Approximately 20% of the FCA’s increase in annual funding will be allocated to the Future Regulatory Framework project as part of its “Preparing financial services for the future” objective. From an perspective, the Business Plan shows a clear emphasis on investment in operational resilience, starting to test whether enforcement are remaining within tolerance ahead of the March 2025 deadline in the recent new operational resilience policy. The PRA’s Business Plan, published last week has a similar emphasis on operational resilience. Looking forward, the FCA is also preparing for a broader future regulatory regime for cryptoassets and investing in systems and procedures needed to supervise relevant firms.
What is not a priority in the Business Plan?
The FCA’s desire to improve diversity and inclusion (D&I), both within its own ranks and in the financial services industry as a whole, was a prominent theme running through its three year strategy, published in 2022. However, it was barely mentioned in the latest Business Plan and is considerably less prominent in the speeches delivered by key individuals in the past twelve months. In this regard, at least some of the FCA’s attention and resources appear to have diverted to matters relating to consumer protection, innovation and technology. Perhaps this explains why the FCA is yet to publish, long awaited, feedback from its discussion paper on D&I in the financial sector.
Similarly, firm culture is only mentioned once in the latest Business Plan (in relation to firms building a strong anti-market abuse culture). Firm culture and non-financial misconduct have featured much more prominently in the FCA’s messaging in previous years. There have been several prominent cases in the last couple of years, challenging the FCA’s approach and decision making in this area, and the FCA Enforcement and the Regulatory Decisions Committee have been discussing further guidance and policy to ensure consistency and clarity of decision making. Rather than the FCA having de-prioritised its concerns in this area, it seems likely that it is currently in a period of reflection.
Consumer protection, reduction of financial crime and ensuring financial and operational resilience remain clear priorities for the regulators and it would be right to assume that this will be the focus of supervisory and enforcement activities in the next twelve to eighteen months. However, D&I and firm culture are likely to influence a firm’s performance against these headline issues and it would be a mistake to assume that their absence in the latest Business Plan reflects a lack of interest in the FCA.