What does the FCA’s latest business plan mean for financial services providers? Let’s have a look at the key objectives and commitments that will shape the supervisory environment this financial year. Remember that the FCA’s key objectives are:
- Protect customers
- Protect integrity of the UK financial system
- Promote effective competition in the interests of consumers
These are supported by a secondary objective to facilitate the international competitiveness of the UK economy. In the business plan, the FCA lays out some key challenges against the backdrop of these objectives, including:
- Higher interest rates and persistent inflation
- Global financial risks
- Geopolitical risks
These are challenges that affect both firms and consumers, and therefore FCA’s operational commitments. The FCA will be monitoring these challenges, with the implication that firms will equally need to be managing these drivers of uncertainty and ensuring their safety and soundness while protecting consumers.
To find out more about the FCA’s focus on customer outcomes in the context of the Consumer Duty, download Protecht’s free How to drive business value by embedding Consumer Duty white paper:
Exploring FCA’s commitments
To achieve the FCA’s objectives, the annual plan includes 13 commitments:
Source: FCA
Protecting consumers is a key objective, and this is woven into many of the commitments. We will put a spotlight on putting consumers first and minimising operational disruptions, and what they mean for firms. First, let’s summarise the other commitments:
- Reducing and preventing financial crime – FCA expects firms to continue to take the lead on addressing scams and fraud. The primary outcomes expected are slowing the growth of investment fraud and losses, lower Authorised Push Payment fraud cases and losses, and reduction in financial crime through supervision. Firms should review their current approaches and effectiveness of controls to manage these risks, including the ability to address AI-based threats.
- Strengthen the UK position in global wholesale markets – Expected outcomes include market participants perceiving the UK as a top market of choice, and support market participants to determine fair value. Initiatives include updating the regulatory framework, specific initiatives to support innovation, and increasing efficiency of settlements.
- Preparing financial services for the future – Implementation of the Smarter Regulatory Framework will continue, including transition of assimilated law into FCA rules where appropriate.
- Dealing with problem firms – The FCA will continue to take a proactive approach to take action against problem firms, including an uplift in auto-detection capabilities. They also intend to identify barriers that constrain FCA’s ability to take action – notably it doesn’t say ‘take action’ on what they identify, but it seems logical this is the next step.
- Taking assertive action on market abuse - The FCA is committed to enhancing its capability to combat market abuse by improving detection across different asset classes, developing advanced analytics, and focusing on market integrity. This effort includes updating data reporting supervision, supporting a proportionate regime for crypto assets, and publishing insights on market cleanliness, aiming to foster innovation while maintaining a balance with regulatory compliance.
- Reducing harm from firm failure - The FCA aims to minimise harm from firm failures by anticipating at-risk companies through data and horizon-scanning, ensuring readiness to protect consumers and market integrity. It also plans to share insights and practices for effective wind-down planning, aiding industry adaptation amidst rising corporate insolvencies expected in 2024.
- Environmental, social and governance (ESG) priorities - The FCA is focusing on supporting the financial sector's transition to net zero and addressing broader sustainability issues by integrating Sustainability Disclosure Requirements and Investment Labels, including anti-greenwashing rules. This includes consulting on Portfolio Management and collaborating with UK and international partners on emerging risks, Transition Finance, and the upcoming 'Nature' regulatory principle.
- Shaping digital market to achieve good outcomes - The FCA is addressing the evolution of digital markets to ensure technologies like AI bring benefits without compromising consumer or market integrity. This includes evaluating AI's impact, fostering innovation while acknowledging risks, and improving the competition landscape in collaboration with regulatory bodies. Efforts also focus on scrutinising digital consumer journeys and practices potentially harmful to consumer interests.
- Improving the redress framework - The FCA aims to enhance the redress framework, ensuring efficient consumer redress and fair value from the Claims Management Companies (CMC) sector, with firms bearing more redress costs. Efforts include updating guidance, reviewing complaints and compensation practices, and collaborating with the Financial Ombudsman and Compensation Scheme to improve practices in shared areas.
- Enabling consumers to help themselves - The FCA is intensifying its efforts to empower consumers to make informed financial decisions, tackling misleading financial promotions and enhancing transparency. They're rigorously assessing financial promotions, leveraging new data sources for swift action against non-compliance, and collaborating on legislative implementations to improve consumer access to reliable financial guidance and support.
- Improving oversight of Appointed Representatives - The FCA is enhancing oversight of Appointed Representatives (ARs) to ensure compliance with its rules, addressing inadequate supervision by principal firms which risks misleading and mis-selling to consumers. This includes enforcing new rules for better oversight, utilising improved data for analysis, and increasing scrutiny on principal firms, especially those at high risk, to uphold market integrity.
Putting consumers’ needs first
The Consumer Duty is now in full swing, which has signalled a significant transformation for firms. The FCA have been proactive in investigations into products or processes where it believes consumers are not receiving favourable outcomes, including fair value in insurance for vehicle write-offs and for Guaranteed Asset Protection Insurance.
The FCA will continue to test firms’ implementation of the Consumer Duty. The biggest shift firms will need to take is cultural. An implementation that focuses on process change without a corresponding shift in mindset is unlikely to withstand scrutiny.
One new activity in FCA’s plan is a review of firms’ treatment of vulnerable customers. Now is a good time to review your policies and practices. How are vulnerable customers identified, and how do your services and products cater to their circumstances? Is this embedded across the product lifecycle and customer service?
A range of other ongoing activities also support this shift, including implementation of rules or consultation on specific products or topics, such as customers in financial difficulty and recipients of debt advice.
Of note is that the budget includes a specific allocation of £5.3M for Consumer Duty, evidencing a clear commitment to this specific initiative. Time will tell whether this year will include any formal investigations or enforcement, but it’s clear that scrutiny will be applied if there is a suspicion that firms are not taking consumer outcomes seriously.
Minimising disruption
Operational resilience rules were specifically implemented to address operational disruptions that can harm consumers. The FCA note their ongoing commitment to deal with firms that cannot meet their standards on operational resilience.
Firms will need to maintain their important business services within impact tolerances from 31 March 2025. With less than 12 months to go, firms can expect scrutiny on their readiness. Firms will need to address any shortfalls in their program, and in particular ensure that:
- Their scenarios processes are adequate
- Governance over their operational resilience program is sufficient
- Change management includes a transition of operational processes to business as usual
Consultation on critical third parties and operational resilience closed in March, so we can expect more discussion throughout the year. This also highlights the importance of firms own approaches to managing third parties that support their important business services, regardless of whether they are systemically important to the sector.
The plan also calls out FCA’s own focus on operational resilience, with the regulator walking the talk.
One of the key outcomes of meeting the operational resilience rules is having a solid understanding of important business services through mapping out the resources required to deliver them. One consideration for firms is to overlay Operational Resilience work when considering Consumer Duty and good consumer outcomes. Are there sub-processes within the important business service that may contribute to poor customer outcomes?
Conclusions and next steps for your organisation
The FCA commitments support their role as regulator over financial services markets and as a conduct regulator. Consider whether any of the FCA’s commitments require a particular focus for your firm based on your operational context. Some key take-aways and actions to consider:
- Consumers remain front and centre
- The plan supports FCA’s principled-based expectations of firms rather than rules-based
- Firms should validate their approaches to vulnerable customers is sufficient
- Firms should verify that they are on track to meet Operational Resilience requirements and adjust plans and resourcing as required
To find out more about the FCA’s focus on customer outcomes in the context of the Consumer Duty, download Protecht’s How to drive business value by embedding Consumer Duty white paper. This free report explores the links between Consumer Duty and operational excellence, providing a blueprint for firms looking to ensure regulatory mandates match with their strategic objectives.