The Financial Conduct Authority have published their Business Plan for 2022/23. David Morrey explains what it means for businesses, and shares own our sector-specific guide.
The Financial Conduct Authority (FCA) Business Plan for 2022/23 takes a different form to its predecessors. It's a shorter summary of priorities and planned activity that relies more on links to other sources, particularly the three-year strategy the regulator has also published today, and the Regulatory Initiatives Grid.
One visible differentiator of this new style is that the plan has ceased to be a standalone document. It's now a webpage with multiple hyperlinks.
Also gone are the sector-specific plans. This may make it harder for an individual firm to quickly identify what's relevant to them. In addition to our usual analysis of what the Plan means for business, we also set out our own guide to sector priorities.
Overview of Business Plan strategic themes
The Business Plan can be seen as a transition away from the FCA’s traditional sector focus towards a more thematic approach, reflecting the regulator’s increasingly wide remit (to be extended again, with crypto and Buy Now Pay Later due to come within the regulatory perimeter).
Within the Plan itself there are few real surprises. This is largely because many of the initiatives it contains have been launched within the past year or so and are still in flight. In that sense the Plan avoids adding materially to the burden of regulatory change already reflected in the Grid.
The Plan frequently refers to the Future Regulatory Framework (FRF), where draft legislation is expected before the summer – giving the FCA a new secondary objective on competitiveness and growth and an additional regulatory principle on climate change and net zero. It will also reduce the role for legislation in the regulatory framework, putting more power to make rules in the hands of the FCA.
The Plan is organised around three focus areas. These are reflected in the new strategy and appear to be how the FCA will describe its priorities moving forward:
Focus 1: reducing and preventing serious harm – dealing with problem firms and the harm they cause
Focus 3: promoting competition and positive change – being globally competitive through high international standards.
Within each of these themes the FCA have provided a narrative on the outcomes they intend to measure to assess their success, repeating prior commitments to hold itself accountable against published performance metrics.
The funding proposals show the ‘like-for-like’ budget increasing by a material 7.3%, with notable increases in spending on cryptoasset businesses and financial promotions. The total funding requirement grows by a more modest 4.3%, reflecting the end of some one-off budget items, such as EU withdrawal spend.
Without providing any new commitments, the Business Plan does set out four areas of focus for its internal transformation:
Investing to become a data-led regulator, building analytical tools, leveraging its new cloud-based data infrastructure, exploring the use of machine learning and AI to identify risks at firms. A data strategy will be published this year
Regulatory decisions have been streamlined with the changes made in 2021 to increase the range of cases the executive can decide without referral to the Regulatory Decisions Committee
Making the FCA more diverse, with a target of 50% of its senior leadership identifying as female and 20% as ethnic minorities by 2025
National location strategy with a Leeds office of c.100 staff and a doubling of the Edinburgh office to 200 staff
The budget earmarked for transformation is modest, raising questions on how much can be actually be achieved on what is an ambitious programme, especially for data. There's no mention this year of the FCA’s 2021/22 commitment to be more aggressive in testing the limits of its powers, an idea that did not seem to give rise to any discernible differences in practice.
Focus 1: reducing and preventing serious harm
Complete the ‘Cancellation of Firm Authorisation Project’ to speed up processes for removing authorisation
Develop an automated approach for identifying simple Threshold Condition breaches
Finalise rules on increased obligations of Principal firms in relation to their Appointed Representatives
Increased Supervision activity on Principal firms
Focus 2: setting and testing higher standards
Finalise rules for the new Consumer Duty
Increased Supervision targeting of financial promotions
Delivering the FCA’s ESG strategy, particularly promoting trust in ESG product marketing and disclosures
Increased Supervision of operational resilience by the FCA Technology, Resilience and Cyber Department
Issue a discussion paper on managing the risk of critical third parties, with a rule consultation to follow in 2023
Focus 3: Promoting competition and positive change
With HM Treasury (HMT), as part of the FRF process, start the transfer of rules from legislation into the handbook
Work with government on a new regime for digital markets
Study digital consumer journeys to understand if they empower customers to act in their best interests
Issue a discussion paper on artificial intelligence in financial services
As this Plan does not categorise it's priorities by sector, we've created our own guide. Sectors that aren't mentioned here have not received specific attention from the FCA.
Long term savings and investments:
Increased Supervision focus on how asset managers ensure value for consumers
Increased Supervision focus on whether asset managers present ESG properties of products fairly
Finalise rules restricting the financial promotion of high risk investments and cryptoassets
Consult on revisions to the pensions transfer redress guidance
Finalise rules for an industry wide redress scheme for British Steel Pension Scheme members who transferred their pension
Supervision to assess the embedding by MIFID firms of the Investment Firms Prudential Regime
Review the prudential requirements applying to firms in the financial advice sector
Banking and lending:
Consult on regulations for use of stablecoins as a payment method and work with government on a wider regulatory framework for cryptoassets
Increased Supervision activity to assess firms’ anti-fraud systems and controls
Market studies to be conducted on market data, beginning with trade data
Develop the regime for overseas firms to access UK markets
Launch the ‘Financial Market Infrastructure’ regulatory sandbox initiative
Deliver the Market Surveillance Refresh Project to improve the quality of market alerts and analytics available to the FCA
Claims management companies:
Finalise rules to prevent ‘phoenixing’ of firms to become claims management companies seeking Financial Services Compensation Scheme compensation for harm caused by their own prior activities