The Financial Conduct Authority [FCA] is the conduct regulator for 56,000 financial services firms and financial markets in the UK. It is also the prudential regulator for over 18,000 of those firms. As such, its current and planned activities are of interest to our members and may influence or otherwise impact the services the Institute provide to members and their employers.
In April, the FCA published its business plan for 2017/18. Alongside this, were published the FCA Mission and, for the first time, Sector Views. The priorities set out in the plan reflect the speed and variety of changes affecting both wider society and financial services.
In his foreword, FCA Chairman John Griffith-Jones states 'There is a clear link between poor culture and poor conduct, and the industry must continue its work to achieve and embed cultural change.'
Below is a high-level summary of these corporate documents. A more detailed synopsis can be accessed here.
The FCA Mission is perhaps more detailed than the usual mission statement. It sets out how and why the FCA prioritises, protects and intervenes. Its intention is to be consistent, efficient and clear in its actions and decisions. The Mission explains how the FCA seeks to serve the public interest, ‘by improving the way financial markets work and how firms conduct their business’. It cites three key factors when making regulatory judgements: its legal obligations, how it can add value, and the needs of affected users. Throughout there is a focus on vulnerable consumers, but this does not take away from the fact that the regulator intends this document to set boundaries for its role, whilst clarifying responsibilities of firms and, to some extent, consumers. The regulator does not expect to operate a ‘zero failure’ regime, nor does it pretend the ‘perfect customer’ exists. Key papers are to be published in the coming months; on the FCA Approach to authorisations, supervision, enforcement and competition, and this Summer a Consumer Approach strategy document. We can also expect a discussion on whether a ‘duty of care’ to consumers should be introduced. This formed part of the Mission consultation and responses showed significant differences in opinions as to the merits. We will continue to follow, and, where appropriate, participate in this debate. Finally, there is the stated intention to review and update the Handbook, but not before the terms of Brexit are clear.
Although it comes at a time of great political and economic uncertainty, the FCA Business Plan 2017/18 contains no real surprises or substantially new themes. There is a split between cross-sector priorities and those specific for each sector. Highlights across these for the retail banking sector include;
- Recognition of the scale of change taking place and impacting on the sector: these include Ring Fencing, MiFID II, Payment Services Directive, SMCR and its further extension, the pace of technological developments, including work on Open Banking, and Brexit; all of which will test the operational resilience of firms;
- Culture and governance: firms must make absolutely clear who is responsible for what and be able to monitor/control this. There is a concern that the positive tone from the top is still hampered by competing objectives at operational levels; the FCA plans to ensure the spirit and not simply the letter of the SMCR is embedded into firms’ business planning. There is specific mention of focusing on those that have not met the timetable, and interest in how third party activities have been dealt with;
- Improving customer outcomes: particular focus is placed on the fair treatment of existing customers [loyalty vs inertia - the FCA is clear that firms should not take loyalty for granted] and vulnerable consumers [the aforementioned ‘Consumer Approach’ document will reveal more on this priority]. The FCA has also just launched its strategic review of Retail Banking Business Models in support of this priority. With regards to the lending market, there are concerns about the anticipated scale of problems from interest only mortgages coming to term, where many customers have no repayment strategy. There are also questions around rising long term arrears and forbearance. An interim report from the FCA’s Mortgage Market Study will be published in summer, and we can expect further monitoring of the implementation of remedies outlined in last year’s Credit Card Market Study.
- Competition and innovation: Project Innovate is deemed a success [new applications are currently invited] and resources from the Advice Unit, established last year, will be published to share insights for firms developing robo-advice.
- Technology: operational resilience remains the watchword, and all high-risk firms will be assessed for resilience to cybercrime. There is a clear concern that those in senior management or control functions do not understand the underlying algorithms of the systems used, and therefore will not have sufficient skills and knowledge to service, maintain them. On the positive, the FCA is working to support technology corridors [e.g.. Leeds-Manchester and Edinburgh-Glasgow].
To read our more detailed synopsis, please click here.