Expert comment on Financial Conduct Authority (FCA) Business Plan 2017/18 and Mission 2017 – Grant Thornton UK LLP
Commenting on today’s release of the FCA’s 2017/18 Business Plan and Mission 2017, David Morrey, Partner at business and financial adviser Grant Thornton UK LLP, said:
”Whilst there were no significant new themes or surprises on prior years, the Business Plan indicates an increased focus on innovation and technology - both as a benefit to firms and consumers and also as a risk. The recognition that innovation may outstrip the ability of management to understand how it is impacting customers and markets, or that automated models might exclude customers who do not fit neatly within product algorithms, provide balance on what has historically been a very positive outlook on technology by the FCA. Alongside these risks the Plan commits the FCA to review cyber security at every high impact firm that it regulates within the next year. The Plan also confirms that Project Innovate and the regulatory sandbox will continue at pace and that the authority will also look at how firms can automate AML and other checks to reduce the cost of regulatory compliance.
“Competition also gets greater focus, both the risks to consumers of too little competition as well as the risk that firms will cut more corners to bolster margins which are under pressure from competition or the general economic environment. Sector specific competition analysis is also a feature with wholesale insurance markets and retail investment platforms both flagged for attention.
“Brexit is mentioned multiple times, but anyone looking for insight to what a post-Brexit regulatory environment may look like will be out of luck. The FCA is supporting government as it negotiates Brexit, is committed to high regulatory standards once it happens, and in the meantime will vigorously act to implement the current slate of new EU regulatory changes, including MiFID II and the EU Benchmarking Regulation.
“As in prior years the Plan contains details of upcoming Thematic Review work, however it is notable for the number of areas and issues where it is indicated some work will take place without defining what (or when) that work might involve. For instance, work on remuneration structures is signalled as is a ‘review’ of motor finance. These could be major pieces of work or relatively minor exercises. This perhaps makes this year’s Plan unusually hard to interpret – will the FCA's approach in some of these areas be light touch or heavy? The Plan gives the FCA more wiggle room to adapt its approach as the year goes on than most of its predecessors.”
FCA’s Mission 2017
“Alongside its Business Plan, the FCA has published its Mission, setting out how it will regulate financial services. This is the conclusion of the consultation launched by Andrew Bailey in October 2016, and aims to bring clarity to the FCA’s role and approach.
“Both the FCA, and before it the FSA, have suffered as a result of their extremely wide remit, and this is a welcome public attempt to place some boundaries around the regulator’s responsibilities. In doing so, it also seeks to clarify the responsibilities of both firms and (to an extent) consumers.
“The Mission contains more concrete statements than many such documents and, while it remains a high-level document, it promises more detail in a series of ‘approach’ documents that the FCA will publish in the coming months.
“Meanwhile, the challenge for the FCA will be to start delivering on the commitments it has made. To do so, it will need to overcome the problems that have beset financial regulation in the past. These include the continuing waves of new regulation (e.g. MiFID II and Ringfencing) and episodes of firm misconduct. As ever, the former will stretch capacity of both firms and regulators, while the latter will test the FCA’s ability to act quickly and proportionately.
“Finally, there is a welcome emphasis on transparency and on measurement of the FCA’s impact and value for money. This should improve the quality of the public debate around financial regulation and the trade-offs involved, which can only be a good thing for us all.”
Please read our full summary of the FCA’s Business Plan 2017-18. This document gives our view on the FCA’s risk outlook and planned activity. Our sector-by-sector analysis will help you pick out those parts of the Business Plan particularly relevant to your firm.