fca business plan summary

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• Takeaways from the FCAs Business Plan

Key takeaways from the FCA's Business Plan for 2023/24

FCA activity shows no sign of slowing down as the regulator revealed its Business Plan for 2023/24.

Building upon the FCA's three-year strategy, the 2023/24 Business Plan represents the 'sophomore' business plan outlining how the overall strategy will be delivered. It sets out the regulator's response to a number of current challenges including the uncertainties arising out of high interest rates, inflation, unemployment, declines in incomes and market volatility. 

The Business Plan for this year has been slightly re-structured to more closely align with the strategic themes and outlines a total of 13 regulatory commitments across three focus areas, which are:

• Reducing and preventing serious harm
• Setting and testing higher standards
• Promoting competition and positive change

The 13 commitments under the 2023/24 Business Plan are set out below, with the first four commitments being of the greatest priority:  

• Preparing financial services for the future 
• Putting consumers’ needs first 
• Reducing and preventing financial crime 
• Strengthening the UK’s position in global wholesale markets
• Dealing with problem firms 
• Improving the redress framework 
• Reducing harm from firm failure 
• Improving oversight of Appointed Representatives 
• Delivering assertive action on market abuse
• Enabling consumers to help themselves 
• Minimising the impact of operational disruptions 
• A strategy for positive change: our environmental, social and governance (ESG) priorities
• Shaping digital markets to achieve good outcomes

This article provides a brief summary on some key takeaways from the regulator's Business Plan for the year to come. 

Consumer Duty

Predictably, the FCA said it remains strongly focused on the Consumer Duty, which is due to come into force on 31 July 2023, specifically for those with live products and services.   The regulator has stressed that increased consumer protection and the Consumer Duty will represent a significant shift for regulated firms. The Duty imposes more stringent standards for consumer protection and will become an integral part of the regulator's approach and mindset in years to come.

The FCA will invest £5.3 million to ensure the Consumer Duty is successfully embedded and intends to steadily increase its headcount to accompany the transition.  Key information was provided about the metrics and KPIs that will be used from sources such as levels and root causes of Financial Ombudsman Service (FOS) complaints, to form a view as to whether firms are meeting the requirements under the Consumer Duty in the two outcomes relating to Consumer Understanding and Consumer Support. 

The FCA is also focused on improving the redress framework and is developing proposals to improve complaints reporting. The regulator will be consulting on guidance for firms regarding redress calculations and is currently consulting on access to the FOS  for small and medium enterprises that may have insufficient resources to resolve disputes through the legal system. 

Oversight of Appointed Representatives ("AR")

The FCA is set to continue with its action to tighten supervision in the principal/AR space. The Business Plan confirms that there will be further engagement and scrutiny in this area from a regulatory perspective. The FCA criticised Principals for not adequately overseeing their ARs' activities, thereby putting consumers at an increased risk of being misled. Principals will have to become familiar with the FCA's new rules and guidance to ensure compliance and minimise the risks associated with their ARs' possible mis-selling to consumers.  Reporting for principal firms under the new rules becomes fully effective later this year.  

Financial Crime & Market Abuse 

Consistent with previous year, the FCA has stated its intention to further its work in the prevention of regulated firm's being used to facilitate financial crime and it is developing metrics in this area to test the effectiveness of its strategy. 

Further, the FCA continues to actively target entities who become involved in Market Abuse practices to tackle the detrimental effect these have on market confidence and participation. 

The regulator is pinning its strategy on better education for its regulated entities to foster prevention and compliance. In parallel, the regulator is working to improve its detection and prosecution capabilities to detect market manipulation and abuse through increased data capture, improved analytics and a dedicated "equity manipulation team". 

Persons Discharging Management Responsibility (PDMR) will also be expected to provide additional transparency and engagement in respect of detecting potential insider dealing. 

The FCA is building a regulatory framework to support its ambition to foster a UK net-zero financial centre. The regulator intends to tighten its grip on mis-leading marketing and disclosure around ESG related product and "greenwashing" to protect consumers and promote trust in the market for ESG investment products. 

The FCA will further collaborate with key stakeholders in the ESG sphere through its ESG Advisory Committee to the Board, which it established in December 2022, to execute its ESG responsibilities. The regulator will also finalise and publish its rules on Sustainability Disclosure Requirements and investment labels. 

Data and Technology 

The FCA will increasingly rely on Data and Technology-led regulation programmes this year to improve their intelligence capabilities through automation of analytics tooling, detection of crime and faster responses to consumer harms. The regulator has also invested in cyber security and operational resilience to improve efficiency of its staff and regulated firms. 

We can expect that the FCA will continue to promote innovation and that reporting expected by firms will become more sophisticated, to improve their existing detection capabilities and promote speed and efficiency of supervision and intervention. 

Financial Regulatory Framework 

Finally, the FCA expects to invest £12.7 million in 2023/24 to support its "Preparing financial services for the future" strategic commitment. This forms part of the post-Brexit Future Regulatory Framework (FRF), which will transfer even more responsibilities to the FCA and will reinforce accountability, scrutiny and transparency for regulated entities. 

General Observations 

The Business Plan as pledged to further work that has been ongoing for a number of years in respect of the Financial Promotions Gateway, ensuring the ongoing resilience of firms from both a financial and operational perspective and how it will continued to share intelligence with other agencies to advance its operational objectives. Closer scrutiny of how firms meet the Threshold Conditions was also widely restated across the business plan, with the FCA planning to challenge firms at each stage of their lifecycle, starting from new firm authorisations.  

The FCA's activity is showing no signs of slowdown. To the contrary, during 2022 the FCA issued over 1,800 warnings about potential scam firms, which is 400 more warnings than the previous year. The regulator's headcount has also grown from 3,800 in early 2022 to almost 4,500 at the end of March 2023. Numbers are expected to grow again for the years 2023/24.  DWF have a depth of expert insight on regulatory natters across a range of regulatory topics and would be pleased to discuss with you what the business plan means of your firm and how it should be integrated into your business and compliance strategy this year.  

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• Regulatory Compliance & Investigations

Further Reading

It has now been almost nine months since the implementation of the Consumer Duty for open products, and with further key milestones to come in July 2024, the FCA is demonstrating that it is actively reviewing firm's compliance and overall alignment with the Duty, which will shortly include a review of the annual Governing Body Report.

On March 6, the U.K. government unveiled its Spring Budget, introducing yet more changes to the pensions landscape. Largely, these reforms are a continuation of the so-called “Productive Finance” initiative, which the Chancellor has been championing since Summer 2023, as well as the drive to improve outcomes for defined contribution ("DC") pension savers through both the value for money framework and the lifetime provider model. 

In the Spring Budget 2024 the Chancellor, Jeremy Hunt, made a number of announcements which came in to effect from the beginning of April 2024.

• Financial Services

Summary of the FCA's 2022 to 2025 Strategy and Business Plan 2022/23

Summary of the fca's 2022 to 2025 strategy and business plan 2022/23.

The Financial Conduct Authority (“FCA”) published its strategy for 2022-2025 last Thursday, alongside its latest annual business plan for 2022/23. Whilst the publication of an annual business plan in April is typical (except for last year when it was published in July due to the ongoing Covid-19 pandemic), this year the FCA has also published an accompanying three-year strategy.

2022 to 2025 Strategy

The strategy document emphasises the directional shift that was introduced within the FCA’s 2021/22 Business Plan, which initiated a move away from detailed plans per financial service sector, to a focus on the outcomes the FCA is seeking across all the sectors it regulates. In the Chief Executive’s foreword to the strategy, Nikhil Rathi said “we are now focusing on results rather than being driven by processes”.

The FCA has defined four “consistent topline themes” that cut across both consumers and wholesale markets, which are:

• Fair value – ensuring consumers receive fair prices, quality and that markets sufficiently enable participants to make well informed assessments of value and risks
• Suitability and treatment – products and services sold to consumers are suitable for them and they received good treatment.
• Confidence – markets are resilient to firm failure, operate fairly and thus consumers have sufficient confidence to participate in these markets.
• Access – markets should be resilient, diverse and inclusive.

The FCA’s strategy also introduces three focus areas, those being: reducing and preventing serious harm; setting and testing higher standards; and promoting competition and positive change. These areas are covered in further detail within the 2022/23 Business Plan.

Also, for the first time the FCA has published performance measures such that its own performance can be monitored against the four key outcomes and its commitment to being a more innovative, assertive and adaptive regulator.

Business Plan 2022/23

The Business Plan sets out the regulator’s programme of work for the next 12 months to begin delivering on its three-year strategy.

Against a backdrop of recent and emerging macroeconomic and geopolitical challenges such as Covid-19, Russian invasion of Ukraine and further anticipated inflation increases, this is a challenging time for consumers and markets. There are also the strategic policy challenges of delivering a regulatory Brexit dividend, becoming a world thought leader on environmental, social and governance (“ESG”) matters and delivering on recently announced Government ambitions for the UK to become the world leading centre for fintech innovation, including cryptoassets. The rapid expansion of cryptoassets and digitalisation of financial services create both opportunities and risks. Against this complex and challenging agenda, the FCA is seeking to be better placed to continue to respond to such challenges and opportunities by focussing on outcomes across all sectors and markets. 

Following last year’s Business Plan, the categorisation and definitions of the FCA’s consumer priorities have changed, albeit the essence of the priorities defined in this year’s plan follow similar themes:

• “Ensuring consumer credit markets work well” and “making payments safe and accessible” are aligned to the FCA’s commitment in the 2022/23 plan of “putting consumers’ needs first”;
• “Delivering fair value in a digital age” is in line the commitment “shaping digital markets to achieve good outcomes” ; and
• “Enabling effective consumer investment decisions” is in line with the commitment of “enabling consumers to help themselves”.

The three commitments

1. Reducing and preventing serious harm

• The FCA has committed to “dealing with problem firms”, which will result in the removal of firms from the market if they don’t reach the regulator’s minimum standards
• Improving the redress framework so that it is fairer for consumers and firms from a global perspective
• Improving oversight of Appointed Representatives, following previous communication
• Reducing and preventing financial crime via a holistic, “whole system” response
• Being assertive in relation to detecting market abuse and taking decisive action.

2. Setting and testing higher standards

• Putting consumers’ needs first, starting with the progression of the proposed new Consumer Duty
• Enabling consumer self-service through ensuring promotions are clear, fair and not misleading
• Further developing the FCA’s ESG strategy, including developing a sustainability taxonomy and consulting on regulatory expectations relating to diversity and inclusion
• Minimising operational disruption through operational resilience expectations of firms

3. Promoting competition and positive change

• Future proofing the financial services sector by tailoring rules to benefit UK markets globally and thus strengthening the UK’s position in global markets
• Shaping digital markets to achieve good outcomes.

How the FCA will deliver on these commitments

Keeping with the FCA’s shift towards a focus on outcomes through cross-sector responses, its Business Plan includes common regulatory tools and activities to cross each of the three commitments, which are:

• Authorisation of firms and individuals
• Set rules and standards
• Support competition and innovation
• Empower consumers and firms
• Recognise and reduce harm
• Take quick and effective action.

The FCA has made it clear there needs to be significant investment in its own technology, infrastructure and data analysis to enable it to become a data led regulator. A number of the outcome measures depend on the FCA being able to deliver on its Transformation agenda. This is a significant investment. The last two years of reports and accounts show FCA spending to be on people at about 60% of spend and technology at about 13%. The Business Plan sets out a budgetary increase of 7.3% which is inflationary, changes to responsibilities and changes to national insurance contributions. The question is whether the ambition for transformation is matched by the budget.

What is on the horizon?

In our view, three key policy initiatives to watch out for from the FCA this year and future years are:

• Consumer duty - the FCA expects to publish the feedback statement and any finalised rules and guidance on the proposed Consumer Duty by July 2022 and expect firms to be working to implement these over the course of this year. It is important to point out that the Consumer Duty is not a rerun of Treating Customers Fairly. It is more fundamental and takes a new dimension in a digital world. The recent Discussion Papers by the CMA ‘Online Choice Architecture’ emphasises the importance of digital architecture in consumer protection and in driving effective competition, as well as highlighting some of the challenges.  
• ESG - ESG is a topic that is moving quickly and faster than the global regulatory thinking around it. The FCA published an ESG Strategy in November 2021, however there is still much to develop in this space and the FCA is engaged with industry and regulators nationally and internationally. For consumers, the focus is on minimising the risks of misleading advertising relating to ‘green’ products. For markets, the focus is on the quality and quantity of climate related sustainability disclosures. BDO publishes a Sustainable Reporting Update that may be of interest here .  
• Brexit – HMT will be expecting the FCA to utilise its regulatory powers to create a competitive advantage for London as a global financial centre, as well as the UK as a whole, whilst maintaining market cleanliness and standards.

If you have any questions or  would like to find out more, please contact  Richard Barnwell  or  Leigh Treacy .

Global Financial Regulatory Blog

Insights and commentary on financial regulatory issues and developments impacting business and innovation

FCA’s 2022/23 Business Plan: Key Highlights

As the FCA’s remit continues to grow, the regulator pledges flexibility in the face of global financial and geopolitical headwinds.

By Rob Moulton , Anne Mainwaring , Jaime O’Connell , and Dianne Bell

• Reducing and preventing serious harm: for example, protecting consumers from harm caused by authorised firms, including tackling fraud and poor treatment. The FCA expects to “harness data to assess problems more quickly”, with the aim of preventing harm from happening in the first place.
• Setting and testing higher standards: for example, focusing on the impact authorised firms’ actions have on consumers and markets. The FCA expects the new Consumer Duty to give firms greater certainty about how they should treat consumers as well as flexibility on how they deliver good outcomes.
• Promoting competition and positive change: greater regulatory open-mindedness, for example, by building on the globally copied “sandbox” and introducing a “scalebox”.

The FCA makes several commitments under each focus area. An outline of the work programme for the next 12 months to achieve these ambitions is contained in the Business Plan 2022/23 , along with an indication of how progress will be measured and examples of the FCA’s work. ( See full list of the outcomes and proposed metrics that the regulator plans to develop ) Amongst the broad range of regulatory activities set out in the Business Plan (for example, robust supervision and enforcement, improving the redress framework, enabling consumers to help themselves, and minimising the impact of operational disruptions), some of the key activities for 2022/23 are summarised here.

• Embedding the Consumer Duty
• The Consumer Duty is to be embedded at each stage of the regulatory lifecycle (authorisation, supervision, and enforcement) and will become an “integral part” of the FCA’s regulatory approach. The regulator’s supervisory strategies will be amended to focus initially on the highest priority issues and portfolios.
• The FCA plans to publish rules and guidance on the Consumer Duty by the end of July 2022.
• The FCA will participate in the Financial Inclusion Policy Forum, and will work closely with the government and other bodies to support consumer access to products and services under its consumer protection and competition objectives.
• Strengthening the UK’s Position in Global Wholesale Markets
• Market participants regard the UK as one of the top markets of choice due to its encouragement of innovation is encouraged, and its regulation is viewed as “appropriately evolving” to address new opportunities and risks. The FCA wants to develop a metric to measure market participants’ views on its effectiveness, to maintain the UK’s position, and to ensure market participants regard the regulatory framework as proportionate in terms of speed and cost.
• The FCA’s activities over the next 12 months will include enhancing its capacity to approve listed issuers onto UK capital markets and starting the transfer of the regulatory framework from legislation into FCA rules through HM Treasury’s Future Regulatory Framework.
• The FCA will begin to update the wholesale markets regulatory framework, and will work with Treasury on the review and development of the overseas firms regime. ( See Latham’s recent overview of HM Treasury’s Wholesale Markets Review )
• The FCA will support innovation through a flexible regulatory approach, including the launch of the financial market infrastructure (FMI) sandbox.
• Delivering Assertive Action on Market Abuse
• The FCA wants to improve its perceived effectiveness in promoting market integrity, and increase the number of FCA interventions (broadly defined) for failure of publicly traded issuers to disclose properly.
• The FCA is considering the best way to measure market abuse/misconduct enforcement cases and outcomes.
• The FCA will provide guidance through Technical Notes in 2022/23 (which are consulted on through the Primary Markets Bulletin publications).
• The FCA will deliver the Market Surveillance Refresh project (allowing efficiency improvements in FCA alerting/enquiry analytic tools) and the Markets Data Processor refresh project (delivering market data to the FCA’s alerting and analytic tools).
• The FCA intends to increase its detection capability.
• Fulfilling ESG Priorities
• The FCA wants to combat misleading marketing and disclosure around ESG-related products and improve the quality of climate and sustainability-related disclosures to promote accurate market pricing and help investor decision-making. It hopes to develop metrics to measure the incidence of misleading marketing in ESG products and the improved quality/quantity of disclosures.
• Stakeholders have expressed a desire to see more active investor stewardship that positively influences companies’ sustainability strategies. The FCA will work with other regulators and industry leaders to develop indicators for the effectiveness of stewardship.
• The Business Plan states broadly that the FCA intends to “embed consideration of ESG issues in how we authorise firms and individuals”, which seems to expand the ESG integration mind-set into the general authorisation process.
• In terms of rules and standards, the FCA plans to continue delivering its thought leadership internationally through, for example, its role as co-chair of the IOSCO Sustainable Finance Taskforce and the ongoing work on issuers’ sustainability disclosures. ( See Latham’s recent analysis of the ISSB’s draft global sustainability standards )
• The FCA will take monitoring and enforcement action “as needed” on how firms manage the impacts, risks, and opportunities from ESG issues, including how they ensure customers are treated fairly. The regulator states that it “will develop new interventions as necessary”. Given the previously noted 2022/23 plans for metric development (i.e., disclosure quality/quantity, misleading product marketing, and the use of active investor stewardship for positive ESG outcomes), this scope for intervention will be one of the ways in which the FCA aims to use emerging information.
• Operational Resilience and Disruptions
• The FCA wants to ensure that important business services provided by firms are resilient to operational disruption. During 2022/23, it plans to ensure that the authorisation process takes into consideration how firms that are subject to the Operational Resilience Policy have ensured they meet the expectations of the policy.
• A discussion will be launched with the Bank of England and the PRA on Critical Third Parties (CTPs) in 2022 through a Discussion Paper proposing a new oversight regime. This will involve the supervisory authorities setting resilience standards, a testing approach, and enforcement powers for CTPs. The responses to this discussion will inform a consultation expected to take place in 2023.
• From 31 March 2022 to 31 March 2025, the FCA will assess how able firms are to remain within their impact tolerances. By 31 March 2025 firms must be able to show that they can meet these.

Change and Uncertainty on the Horizon

Considerable change lies ahead, as set out by HM Treasury in its proposed Future Regulatory Framework that will transfer greater powers to the FCA to set rules and to regulate in a way that is tailored to the needs of UK firms, markets, and consumers. The FCA will work with Treasury to design and deliver the new regulatory framework, which supports all of the regulator’s desired outcomes. The FCA intends to measure its success by how effectively it responds to change in its remit and accountability arrangements, as well as how it embeds firms facing requirements from legislation into FCA rules.

The FCA notes that the Business Plan 2022/23 is published at a time when the “external environment is changing rapidly”. This refers to the risks associated with the uncertainty around the long-term impact of Covid, low levels of financial resilience, and rising costs — all of which is set against a backdrop of rising inflation and interest rates and major geopolitical uncertainty. The impact on consumers and firms is expected to be felt over the coming year and beyond. With this in mind, the FCA emphasises that it will monitor emerging issues and “adapt our plans where necessary”.

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FCA Business Plan 2023/24: acting faster to detect and prevent harm

Author: Premlata Fagan

In his latest Business Plan, FCA CEO Nikhil Rathi sets out the FCA’s plans to deliver the second year of the three year Strategy published in 2022. This comes against a backdrop of heightened operational and market risk, and the continuing cost of living pressures facing consumers. Underpinning the FCA’s high level focus areas and commitments is a key theme: acting faster against firms causing harm to consumers and/or the markets and increasing the number of firms it takes action against.   

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FCA sets out three-year strategy and priorities for 2022-23

On 7 April 2022, the FCA published its Business Plan 2022/23 , accompanied by its Three-year Strategy 2022 to 2025 and an Outcome and Metrics document.  

This year’s Business Plan focuses on 13 cross-sector priorities across three focus areas to articulate the outcomes it wants to achieve. The Business Plan is aligned with the three-year Strategy. The three-year Strategy sets out the outcomes that the FCA expects all firms to deliver across its remit, broken down by consumer outcomes and wholesale market outcomes.

Download this At a glance to see a detailed summary of the FCA’s priorities for the next 12 months and what it means for firms.

Download At a glance - FCA sets out three-year strategy and priorities for 2022-23

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• FCA Business Plan 2021/22

New approach, expanding priorities.

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The FCA’s Business Plan continues to be heavily outcomes-focused and there is less sector-specific detail, revealing a conscious change of approach. It notes that the digitalisation of financial services brings profound changes in the way consumers make decisions and global markets operate, that the transition to a net zero economy will require an entirely different approach to markets and investment products, and that persistently low interest rates may lead to consumers taking excessive financial risk or broader systemic risks in wholesale markets.

The plan continues the theme that the current regulatory framework is overly focused on rules and process, and not enough on principles and outcomes. This sentiment is echoed by the addition of Consumer Duty to its existing four consumer priorities. The FCA sees too many resources devoted to redress and remediation, and not enough to empowering consumers to take good decisions and regulatory action to prevent harm and safeguard consumers’ financial wellbeing. We see this driving principle featuring prominently as the FCA continues its transformation programme.

In wholesale markets, the FCA continues its focus on market integrity with the LIBOR transition and prevention of market abuse and financial crime. With more freedom post-Brexit for the UK to tailor rules in the wholesale markets, there is a new focus on effectiveness in primary and secondary markets. In investment management and pensions, the FCA wants fair value and products that meet investors’ needs. It continues to work with the Bank of England and international bodies on the framework to manage liquidity in open ended funds, including money market funds. The FCA also wants improved oversight by principal (regulated) firms over their appointed representatives (ARs).

Unsurprisingly, the priorities across all markets include fraud, financial resilience and resolution, and operational resilience. New and significant entries are diversity and inclusion (within both the FCA and regulated firms) and environmental, social and governance (ESG) issues. The FCA’s international aims have shifted away from Brexit – other than ensuring firms exit smoothly from transitional arrangements – to global standard-setting, open markets and effective cross-border supervision. 

To ensure firms start with high standards and maintain them, the FCA will more intensively assess and scrutinise applicants’ financials and business models, but the application process will be more straightforward. It will also increase its oversight of newly authorised firms (a regulatory “nursery”) and of firms that are growing significantly.

The plan describes how the FCA’s role will change as it develops towards “a more innovative, assertive and adaptive approach”. Whilst these are laudable aims, it will represent a significant challenge for the FCA as it juggles a raft of other regulatory challenges. However, despite this, the FCA has also made a commitment to be more accountable with a promise to report on its progress against metrics to be determined.  

The FCA’s budget will increase by 4%, with the costs of ongoing regulatory activity (ORA) up 4.9%. The FCA appears to have removed its freeze on the fees paid by the smallest firms – a concession that had been in place for the last two years. This is a signal that the FCA is seeking to transition out of its pandemic measures, where appropriate. 

Highlights featured in this update:

Consumer priorities, wholesale markets priorities, cross-cutting priorities, transforming how the fca works and regulates.

Whilst the FCA continues the focus on its four strategic priorities from last year’s Business Plan, it acknowledges that the shape and scope of some of these priorities have changed to reflect changes in consumers’ finances and behaviour. Further, it has added the Consumer Duty initiative as a fifth priority, underlining the intended regulatory impact of the new duty, which is a “raising of the bar” in the treatment of customers. For further details, see KPMG’s paper on the potential impact of the new Consumer Duty.

1)    Enabling consumers to make effective financial decisions

The FCA has broadened out this priority to all consumers (last year it was limited to just investment consumers). However, the outcomes the FCA seeks have not fundamentally changed.

The FCA has made some progress, such as in looking to strengthen financial promotion rules and awareness of ScamSmart. The FCA’s next near-term priorities are:  

• Publishing shortly its Consumer Investments Strategy (which will include how the FCA tackles firms and individuals who cause consumer harm) and a second data report, detailing the FCA’s work to protect consumers
• Creating a “consumer investment coordination group” with the FSCS, the FOS and the Money and Pension Service (MaPS), to gather information on sharp practices and so better target interventions
• Beginning a review of aspects of the rules on the scope and coverage of FSCS compensation

2)    Ensuring consumer credit markets work well The underlying outcomes for this priority are unaltered. In order to achieve these outcomes, the FCA will focus on :

• How firms are providing tailored support to borrowers in financial difficulty
• Reviewing its approach to the debt advice rules to help over-indebted consumers get high-quality advice
• Bringing “Deferred Payment Credit” into its regulatory remit
• Considering possible future changes in credit information markets where consumers can choose to use credit information to make better-informed decisions

3)    Making payments safe and accessible

The FCA has extended both the scope and remit of this priority, placing greater emphasis on consumer protection by ensuring access to payments services and the payments market being competitive and innovative – especially for smaller businesses. The FCA will:

• Focus supervisory activity on ensuring payment services and e-money firms are financially robust and customers understand FCSC coverage 
• Seek to continue to protect access to cash – particularly for consumers in vulnerable circumstances
• Work with HMT to develop policy and recommendations on payments, e-money and crypto-assets

4)    Delivering fair value in a digital age 

The underlying outcomes for this priority are unaltered and much of the FCA’s activity will be a continuation of existing work. However, as it builds its digital markets strategy, it will develop a framework to identify and assess potential harms and benefits arising from the increasing digitalisation of financial services markets. In the meantime, the FCA will focus on:

• Assessing the implementation of the GI pricing practices requirements (January 2022) by using firms’ reporting data to measure success, track market changes and identify firms that continue to engage in price walking
• Continuing to assess the impact that digitalisation can have on competition to help ensure that digital financial services markets operate effectively to generate good customer outcome
• Investigating practices, such as “sludge practices”, which make it difficult for consumers to cancel a product or service online

5)    Consumer Duty

This is a new priority driven from the FCA’s recent consultation on a New Consumer Duty, which signals a “paradigm shift in its expectations” of firms. Therefore, the impact of this publication cannot be under-estimated in terms of its regulatory intentions. The outcomes the FCA is seeking to achieve are that:

• Communications equip consumers to make effective, timely and properly informed decisions
• Products and services are specifically designed to meet consumers’ needs and sold to those whose needs they meet
• Customer service meets the needs of consumers, enabling them to get the benefits of products and services and act in their interests without unnecessary barriers
• The price of products and services represents fair value for consumers

The consultation closes on 31 July 2021 and the FCA will set the proposed new rules or guidance in a subsequent consultation at the end of 2021, with a view to finalising and introducing any new rules before end-July 2022. 

The FCA’s focus in relation to wholesale markets is widening from market integrity to also include market effectiveness and efficiency. The FCA highlights the ”gamefication’ of finance due to the digital access consumers now have to wholesale markets. Given that retail consumers do not have the same protections when accessing wholesale markets directly, it is important that wholesale firms must meet conduct obligations around conflicts of interest, price manipulation and information. 

1) Review of rules in primary and secondary markets

The rules framework supports the needs of investors and companies seeking to raise finance and manage risks through capital markets.

The focus is on improving the effectiveness of the markets. The FCA is consulting on amendments to the Listing rules, including recommendations for the Lord Hill’s UK Listing Review Report , and the proposed rules around special purpose acquisition vehicles (SPACs). The FCA is proposing to extend climate-related financial disclosures from premium listed companies to standard listed companies. In the secondary markets, the FCA is working with HM Treasury to simplify and improve the effectiveness of the on-shored MiFID II/ MIFIR regimes. 

2) LIBOR Transition

Firms and markets complete an orderly transition away from LIBOR to alternative risk-free rates, with customers treated fairly throughout this transition.

With the cessation of non-USD LIBOR at end-2021, the FCA will focus on using its powers to support an orderly transition (i.e. finalising the framework around the use of synthetic LIBOR). Firms should also expect increased monitoring of their transition plans by both the FCA and the PRA. 

3) Market abuse and financial crime

Firms effective in preventing market abuse and reducing the risks of financial crime

No new initiatives are announced, but the FCA will seek to measure the impact of its work in this area.

4) Asset management and non-bank finance

Firms to offer investors products that are fair value, meet their investment needs and offer an appropriate level of protection; marketing and disclosures to be fair, clear and not misleading 

Asset managers should manage liquidity in funds to avoid unnecessary risks to investors and market integrity

Enable investment in less liquid assets for those with a long-term investment view who can cope with the risk of these investments

The FCA will continue to focus on how asset managers ensure value for consumers, increase its supervisory focus on whether disclosures on ESG properties of funds are fair, clear and not misleading, and continue to seek to identify funds that are outliers to their peers (e.g. due to high fees). It will follow up the findings in its June report on governance weaknesses in host Authorised Fund Managers and its work with the Bank of England on liquidity management in open-ended funds and reform of money market funds. It will introduce the new “LTAF” structure, designed to accommodate relatively illiquid assets, and will decide whether to proceed with requirements for notice periods for open-ended property funds.

5) Pension products

Pension providers offer good value products, and consumers use guidance and support to help them make effective choices.

The FCA will be working with the Pensions Regulator (TPR) on reviewing how to best drive value for money in pensions. The FCA wants pension providers to offer good value products and consumers to be able to make effective choices. The FCA will also be consulting on changes for non-workplace pension providers to help ensure consumers are offered an appropriate default solution where they need it.

6) Appointed Representatives regime

Principals and ARs that are competent, financially stable and ensure fair outcomes for consumers when selling products or giving advice.

The FCA is concerned that the oversight of principal firms (which have regulatory permissions) over their appointed representatives (ARs) is not strong enough and leading to unfair outcomes for consumers. The FCA will increase its supervision in this area and consult on cross-sector changes to improve and strengthen elements of the AR regime – this may include fundamental legislative change.

The FCA notes that the seven priorities in the Plan that are across all markets are not exhaustive. It points readers to the Regulatory Initiatives Grid for more information.

1)    Fraud

The FCA’s focus will be on:

• keeping fraudsters out of financial services at the gateway
• stopping regulated firms from facilitating fraud
• detecting and pursuing FCA-supervised and improperly unauthorised/ unapproved fraudsters
• informing and empowering the public to protect themselves

It will conduct proactive surveillance and monitoring, use effective triage to prioritise, disrupt the work of fraudsters and identify the right intervention, remove FCA-supervised fraudsters from the financial system, and work closely with anti-fraud partners to maximise the collective fight against fraud. 

2)    Financial resilience and resolution

• Firms to have appropriate capital, liquidity and reserves to cover outstanding redress liabilities, so they do not fail in a disorderly manner
• Firms to hold financial resources proportionate to the potential harm caused if they do fail, reducing the level of FSCS pay-outs over time
• Scale of compensation liabilities to stabilise in the medium-term and reduce longer-term as firms hold more capital and liquidity, and fewer cause misconduct that requires them to pay redress on a large scale

The FCA will support firms as they adapt to the new Investment Firms Prudential Regime (IFPR), strengthen its data-driven monitoring of the financial resilience of solo-regulated firms, target interventions at firms with weak financial resilience and those that are likely to cause material harm if they fail, continue work to automate and combine financial resilience data with other data on firms, review aspects of the compensation framework to ensure it remains appropriate and proportionate, and tackle the root causes of harm that create compensation liabilities.

3)    Operational resilience

Firms should be operationally resilient against multiple forms of disruption to minimise the harm caused to consumers and markets. Over time, the FCA would expect to see a reduction in the number, type, duration of incidents and the level of harm they cause. The FCA will assess firms’ progress in implementing its 2021 Policy Statement. From April 2022, it will assess how able firms are to remain within their impact tolerances.

4)    Diversity and inclusion

The FCA wants to improve its own diversity and inclusion so it has an inclusive working environment with diverse teams who are confident to share their experience and opinions, its people reflect the society it serves, and regulation supports improved outcomes for different groups in the population. For firms are:

• Regulated firms and listed companies have more diverse representation at all levels
• Regulated firms and listed companies foster cultures that are inclusive so that staff can share their diverse experiences and backgrounds
• Firms design and deliver products that reflect the diverse needs of consumers, offer fair value and are delivered in a fair and accessible way

To support these three outcomes, the FCA expects to see better data collection by regulated firms. It will develop how it measures progress against these outcomes to ensure a consistent approach across financial services.

5)    Environment, social and governance (ESG)

• High-quality climate- and sustainability-related disclosures to support accurate market pricing, helping consumers choose sustainable investments and drive fair value
• Promote trust and protect consumers from mis-leading marketing and disclosure around ESG-related products
• Regulated firms have governance arrangements for more complete and careful consideration of material ESG risks and opportunities
• Active investor stewardship that positively influences companies’ sustainability strategies, supporting a market-led transition to a more sustainable future
• Promote integrity in the market for ESG-labelled securities, supported by the growth of effective service providers – including providers of ESG data, ratings, assurance and verification service
• Innovation in sustainable finance, making use of technology to bring about change and overcome industry-wide challenges

The FCA will:

• Continue its “world-leading” work on TCFD-aligned disclosures for listed companies and asset managers/owners
• Work to address concerns about greenwashing
• Promote standardisation of wider ESG-related disclosures
• Collaborate domestically with the government and industry
• Monitor the exercise of investor stewardship by institutional investors
• Gather market intelligence to gauge how well firms are supported by service providers (such as ESG rating providers)
• Encourage innovation in sustainable finance
• Enhance its role as a facilitator of sustainability in financial markets and firms by acting as a convener, agent of change and role model

6)    International

The FCA says it is committed to robust international standards, strong relationships with authorities around the globe and effective supervision of cross-border financial services. It will be an active member of international standard-setting bodies, participate in the IMF’s 2021 review of the UK, ensure smooth operation of the Temporary Permission Regime and engage with firms to ensure orderly exits from Brexit transitional arrangements.

7)    Market access, equivalence and trade negotiations

• Future trade relationships that support open markets in a way that respects and promotes our objectives and ensures regulatory and supervisory autonomy
• A domestic market access regime that addresses regulatory and supervisory risks from cross-border access, operates effectively post EU-withdrawal and recognises the benefits of open markets

The FCA will provide technical advice to trade negotiations and engage with HMT on its work on the UK’s overseas framework.

Nikhil Rathi, Chief Executive says, “We operate in a world of rapid and disruptive change. To be an effective regulator, we can’t just respond to today’s challenges. We need to prepare for those of tomorrow.” The Plan says that the FCA will be:

• More innovative – taking advantage of data and technology to increase its ability to act decisively in the interests of consumers
• More assertive – testing the limits of its powers and engaging with partners to make sure they bring their powers to bear
• More adaptive – constantly learning and always adjusting its approach as consumer choices, markets, services and products evolve

It expects its approach and delivery of work to exhibit six traits: purposeful, professional, partnering, proactive, pace and pride. The plan does not provide explicit feedback against the four outcomes the FCA set itself last year, but it has set out its first strategic overarching outcomes and metrics to align with its transformation programme:

• Setting the bar high to support sustainable innovation for consumers: publish the aggregate amount by which consumers benefit from its policy work to improve market outcomes.
• Setting the bar high to support market integrity in wholesale markets: continue to monitor, and expect improvements in, its suite of market cleanliness statistics
• Ensuring firms start with high standards and maintain them: monitor. refusal/withdrawal/rejection rates (expected to increase initially) and complaints about newly authorised firms (expected to reduce).
• Using new approaches to find issues and harm faster: monitor the value and volume of FSCS claims.
• Tackling misconduct to maintain trust and integrity: expect an initial increase as firms’ permissions are removed.
• Enabling consumers to make informed financial decisions: expect a reduced number and proportion of calls to the FCA that need to be directed elsewhere and increased effectiveness of its ScamSmart campaigns.
• Diversity and inclusion across the industry: monitor and set targets for itself and drive stronger outcomes across the industry.

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Overview: The FCA Business Plan 2023/24

• Overview: The FCA Business Plan…

As an investment professional, you will no doubt have heard about the Financial Conduct Authority’s annual business plan. Published today (5 April 2023), the plan for the coming year outlines the conduct regulator’s objectives and budgets.

In this short post, you will gain an overview of the FCA Business Plan 2023/24 and insights into the broader content of the publication.

What is the FCA Business Plan?

The Financial Conduct Authority (FCA) shares their business plan each April – usually on the last day of the financial year, in readiness for the start of the next. It outlines the work they intend to do in the following 12 months to support and deliver on the commitments put forward in another FCA publication, ‘ Our Strategy 2022 to 2025 ’.

Produced for the first time in 2022, the FCAs three-year strategy set out the three key focus areas for the coming three years, and thirteen commitments to support them. The three focus areas or ‘themes’ were:

• reducing and preventing serious harm
• setting and testing higher standards
• promoting competition and positive change

The activity and outcomes discussed in the Business Plan are largely focussed on achieving (or working toward achieving) these aims.

“With consumers across the UK struggling with the cost of living and market events causing concern, we’ve put vital changes in place, meaning we’re better set up to face these challenges.” Nikhil Rathi, Chief Executive – FCA

What does the FCA Business Plan cover?

As in previous years, the FCA Business Plan 2023/24 outlines their overall objectives, challenges for the year ahead, focus for 2023/24, plans to deliver on commitments, and budget.

The FCA’s objectives for the next 12-months include:

• securing an appropriate degree of protection for consumers.
• protecting and enhancing the integrity of the UK’s financial system.
• promoting effective competition in the interests of consumers.

The challenges anticipated by the FCA in 2023/24 are:

• their ‘key uncertainties’ which include interest rates and inflation, the risk of unemployment increasing beyond existing projections, the possibility of further declines in disposable income for UK households, and the potential for additional market volatility.
• Wholesale markets
• Cost of living and Consumer Duty

The FCA’s plans for delivering on their commitments in the coming year includes work already started. This is a focus on achieving their aims within those three key areas or ‘themes’.

The first, ‘reducing and preventing serious harm’, includes:

• dealing with problem firms.
• improving the redress framework.
• improving oversight of appointed representatives.
• reducing and preventing financial crime.
• delivering assertive action on market abuse.

Focus two, ‘setting and testing higher standards’, covers:

• putting consumer needs first.
• enabling consumers to help themselves.
• a strategy for positive change – environmental, social, and governance (ESG) priorities.
• minimising the impact of operational disruptions.

Finally, the third focus area, ‘promoting competition and positive change’, discusses:

• preparing financial services for the future.
• strengthening the UK’s position in global wholesale markets.
• shaping digital markets to achieve good outcomes.

The publication closes with a look at the FCA budget for 2023/24, detailing the resources they anticipate needing to carry out planned work for the year. This is comprised of:

• the cost of ongoing regulatory activity (ORA) – core operating activities and staffing.
• their Annual Funding Requirement (AFR) – the total revenue to be generated from the financial industry through things like fees, levies, and financial penalties to fund ORA.
• capital expenditure to develop information and technology systems as well as new operational and regulatory requirements.

“The scale of the FCA ambition to become a data-led regulator means that we are making significant progress across a number of data and digital programmes. These include exploiting our investment in cloud technology, implementing new digital capabilities, and designing new data solutions required by the front line of the business.” Business Plan 2023/24 via fca.org.uk  

You can get more detail on the FCA budget from their annual fees rates consultation paper, the most recent iteration of which was published 5 th April 2023 and titled ‘ CP23/7: Regulatory fees and levies: policy proposals for 2023/24 ’.

What’s next?

You can read the FCA’s 2023/24 Business Plan in full on their website today, by following this link .

Later in the year, the regulator will publish their Annual Report. This will communicate the progress made against the activities and outcomes set out in the FCA Business Plan 2023/24.

Author: Holly Helps, Marketing Manager

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Fundipedia Blog

Summary of the fca’s 2021/22 business plan and what it means for asset managers.

The Financial Conduct Authority has been publishing its annual business plan for close to a decade. But this year’s plan, published on 15 July 2021 — three months later than usual — is radically different to its predecessors. 

The first plan under new CEO Nikhil Rathi, sets out a broad and ambitious vision for the financial services industry’s Covid-19 recovery and the future of regulation in the UK. 

In order to achieve that vision, the FCA plans to implement sweeping changes to how it operates, how it engages with the businesses it regulates, and what it expects from those businesses moving forward.  

Here’s a look at the 2021/22 FCA business plan’s key takeaways, and what they mean for you if you’re an asset management firm. 

Taking the initiative

Without a doubt, the boldest statement in the FCA’s business plan is that it intends to become tougher and more interventionist. 

‘ Profound forces – the pandemic, Brexit, technology, the drive to a greener economy — are transforming the entire landscape of financial services. ‘ writes Rathi in his introductory message . ‘ We need to change the way we do things, and in some cases what we do… The FCA must continue to become a forward-looking, proactive regulator. ‘

The FCA plans to achieve this by making three changes to how it works:

Becoming more assertive

Newly licensed firms and fast-growing firms will be singled out and supervised more closely. At the same time, the FCA will pilot a programme under which firms will lose permissions they don’t use. The policy’s aim is to prevent the halo effect — using the appearance of oversight to make unregulated activities look trustworthy. 

Crucially, the FCA will test the limits of its powers where it feels this is warranted. 

It’s hard to say how far the FCA will be willing or able to go in practice. That said, the intention is to engage with other regulatory bodies and get involved in matters concerning regulated firms, even if they aren’t within its remit or territorial jurisdiction.  

Becoming more adaptive

The FCA is regularly criticised for being too slow to react to scandals. For this reason, it’s going to start continuously adjusting its approach as the industry and consumer preferences evolve. 

The FCA will also be using advanced analytical techniques to prioritise those who should be investigated while working to implement procedures that will facilitate fast-track supervisory responses and enforcement. 

Furthermore, Firms that repeatedly breach the rules can expect to be monitored much more closely.

Becoming more innovative

The FCA plans to invest considerable time, money, and effort in data and technology. 

Needless to say, this is the most far-reaching change it wants to enact, with the aim of transforming how regulated firms are supervised

Putting data at the heart of regulation

The FCA has been stressing the importance of regulatory innovation for many years. The 2021/22 business plan sees it putting a significant chunk of money where its mouth is. 

Over the next three years, the FCA will invest £120 million in data and technology. 

This investment, the FCA estimates, will enable it to supervise firms more effectively and take decisive action swiftly when needed, particularly by allowing it to ‘ review and analyse unstructured data (such as emails, documents and video files) from different sources more efficiently. ‘

Investing in data and technology has another, equally important aim: improving the quality of its analysis and enabling it to act more quickly in case of misconduct. 

For asset managers, the FCA’s goal of automating data collection and reporting is both good and bad news.  

On the one hand, recent regulatory developments like the Sustainable Finance Disclosure Regulation and the new PRIIP KID requirements have increased Firms’ already considerable compliance workload by orders of magnitude. Automating data collection and reporting could help ease this burden and reduce compliance costs, while boosting accuracy. 

The flipside is that, if the FCA is going to deploy technology, firms have to put the right infrastructure in place or risk being unable to comply with its demands. As a result, more than ever before, now is the time to prepare by investing in a comprehensive data management platform . 

A duty of care towards retail customers

The FCA first proposed introducing a customer duty of care in 2020, and launched a consultation paper in May 2021 . 

At the time the business plan was written, the consultation was still underway (it has since closed). Nonetheless, the business plan talks about the policy’s objectives at length. 

The duty of care towards customers, which the FCA refers to as the ‘Consumer Duty’, has two key aims: improving the quality of and access to information, and ensuring customers get fair value from financial products. 

Empowering customers to make better-informed decisions

‘ We want consumers to invest with confidence, understand the risks they are taking and what regulatory protections they have ,’ says the business plan. 

‘ If consumers choose to invest outside the mainstream market, they should do so knowingly. They should understand the additional risks and be able to absorb the losses .’

To this end, the FCA plans to:

• Publish a Consumer Investments Strategy document that will set out how it’ll deal with firms and individuals who harm consumers
• Enhance its fraud detection capabilities
• Run campaigns to educate consumers about the dangers of high-risk investments
• Create a consumer investment coordination group with the Financial Services Compensation Scheme, the Financial Ombudsman Service, and the Money and Pension Service
• Work with the Treasury to enact legislation that creates a new gateway regulated firms will have to pass through before they can approve unregulated firms’ financial promotions

Giving customers fair value

Customers should be confident they’re getting a quality product that meets their needs at a reasonable price, without unnecessary barriers. With this in mind, the FCA will crack down on harmful business practices, including products and services that make it difficult for their customers to cancel online. 

The FCA also intends to investigate the impact of digitisation on competition, tackle insurers’ pricing strategies — particularly the ‘loyalty penalty’ in home and motor insurance — and work with the Pensions Regulator to ensure customers have access to suitable default products. 

It also plans to redouble its efforts to ensure firms assess their customers’ risk appetites appropriately.

‘ Asset managers, ‘ the business plan stresses, ‘ should manage liquidity in funds to avoid unnecessary risks to investors.. They should also enable investment in less liquid assets for those with a long-term investment view who can cope with the risk of these investments.’

Strengthening the wholesale markets

Where the FCA’s focus on the wholesale markets typically revolves around market integrity, the 2021/22 business plan expands this to include market effectiveness and efficiency. 

Over the past year, the FCA has run consultations on amendments to the listing rules and special purpose acquisition vehicles . It’s also proposing extending climate-related financial disclosures from premium to standard listed companies, and working with the Treasury to improve MiFID II / MIFIR now that they can diverge from EU rules. 

In addition to these priorities, the FCA also plans to:

• Ensure the transition away from LIBOR is as smooth as possible, meaning firms can expect increased scrutiny of their plans
• Ensure ESG disclosures are fair, clear and not misleading
• Continue identifying funds that are more expensive than their competitors and finding out why
• Address governance weaknesses in authorised fund managers, liquidity management in open-ended funds, and money market fund reform
• Introduce a new fund structure for illiquid assets
• Decide whether to introduce notice periods in open-ended property funds

Lastly, the FCA will also be looking to strengthen the appointed representatives regime by increasing supervision and consulting on changes that make it fairer for customers. 

As the business plan notes, ‘ We want principals and ARs [appointed representatives] that are competent, financially stable and ensure fair outcomes for consumers when selling products or giving advice .’

The bigger picture

Alongside the specific priorities we’ve covered so far, the FCA’s business plan also sets out a number of overarching, industry-wide goals.

In particular, the FCA plans to:

• Become more proactive about monitoring and curbing fraud
• Increase its focus on Firms’ financial resources and liquidity
• Enhance operational resilience 
• Ensure Firms are more diverse and inclusive, both when it comes to their staff and in terms of the products they offer
• Increase the quality of ESG-related disclosures, take tougher steps to prevent greenwashing, and encourage innovation in sustainable finance
• Enhance international cooperation
• Expand and improve cross-border market access for UK firms

Wrapping up

The FCA is under new management, and the 2021/22 business plan is an uncompromising statement of intent. 

As CEO Nikhil Rathi puts it, ‘ We operate in a world of rapid and disruptive change. To be an effective regulator, we can’t just respond to today’s challenges. We need to prepare for those of tomorrow. ‘

Achieving this endless list of objectives and outcomes is going to take a formidable amount of work on both sides — regulator and regulated. 

More importantly, the bar for asset managers has been raised.

An onslaught of regulatory intervention is on its way. And those who don’t have the right tools in place to tackle them head on risk being swept away by the tide. 

At Fundipedia we’ve created a suite of tools to help you take control of your data, quickly adapt to new reporting requirements, and meet regulatory demands with confidence. 

Book a FREE, no-obligation demo today.