FCA launched its new strategy for 2022 to 2025

What has happened?

In April 2022, the FCA launched its new strategy for 2022 to 2025, intended to improve outcomes for UK consumers. This is available here.

On the same day, its Business Plan for 2022/23 was issued and its Consultation Paper CP 22/7 FCA regulated fees and levies: rates proposals for 2022/23 was published.

What do you need to do?

The FCA states in its strategy document that it is now focusing on results rather than being driven by processes. The strategy sets out, for the first time, the outcomes it expects all firms to deliver. These are, in summary;

Outcomes for consumers

• Consumers receive fair prices and quality
• Consumers are sold suitable products and services and receive good treatment
• Consumers have strong confidence and levels of participation in markets, in particular through (1) minimised harm when firms fail and (2) minimised financial crime
• Diverse consumer needs are met through (I) high operational resilience and (2) low exclusion

Outcomes for wholesale markets

• Market participants are able to make well-informed assessments of value and risks due to appropriate transparency
• Markets are (1) resilient to firm failures and (2) clean with low levels of market abuse, financial crime and regulatory misconduct
• Markets are orderly in a variety of conditions so that participants are able to access a diverse range of services with minimised operational disruptions

It is also undertaking to be tougher on its own performance, collectively and individually. For the first time, it is publishing measures that cover a multi-year period and against which it can be held accountable to support delivery of these outcomes.

Three key areas will be focused on, namely reducing and preventing serious harm (targeting those authorised firms with the most potential to create harm, by bringing on board dozens more staff dedicated to removing problem firms), setting and testing higher standards (based on the forthcoming Consumer Duty), and promoting competition and positive change.

The FCA will give firms greater flexibility on how they deliver good outcomes and will focus more on testing, and requiring firms to test, what their decisions mean for customers.

A diverse and inclusive industry is seen by the FCA as central to achieving the outcomes expected from financial services. Diversity of thought and inclusive behaviours in financial services are expected to help to deliver better consumer and market outcomes including fair value, fair treatment, suitability, confidence and access. Firms need, in the FCA’s eyes, to be sufficiently diverse and inclusive to be able to understand the needs of their customer bases.

Reducing and preventing serious harm

In year 1, the FCA will focus its efforts on dealing with a greater number of problem firms than in previous years. From year 2, it expects to combine its greater capacity with greater ambition, to deal with more complex firms and will use breaches of threshold conditions to stop or restrict the activities of a broader range of problematic firms, even if they pose no risk to consumers or markets.

The FCA will more readily make use of its formal powers to reduce and prevent harm, accepting a higher risk of legal challenge.

It will identify potential problems earlier and carry out redress exercises with firms, where appropriate, so they quickly remedy harm. It is focused on improving firms’ financial resilience so they can cover a larger proportion of their redress liabilities.

See Thistle’s recent blog here on operational resilience for firms. The new rules and guidance in this area came into force on 31^st March this year.

The FCA is taking action to address the harms arising from ARs. It is increasing its supervision work and activity at the gateway to reduce the most significant risks and is also consulting on changes to the regime to clarify and strengthen the responsibilities and expectations of principals and increase the amount and timeliness of information received on principals and their ARs.

See our blog post FCA CP 21/34 – Stronger oversight of Appointed Representatives (ARs).

The FCA will also establish a specialist team to oversee firms whose business is primarily online products.

Setting and testing higher standards

This is to be implemented via the forthcoming Consumer Duty. The FCA will embed the Consumer Duty in its supervision and enforcement, so as to focus on the outcomes that consumers experience.

Promoting competition and positive change

The FCA has undertaken to continue to make better use of data and to act faster and more decisively by

• piloting how to adapt its intelligence and analysis to help spot new problems,
• automating parts of the systems it uses to resolve some problems, but with human judgment at the heart, understanding ‘paths to harm’ – behaviours and events likely to end in consumer harm or markets failing – so it can intervene when these conditions are met, rather than responding once harm has already happened,
• using data to test whether firms’ products and services deliver good outcomes for consumers,
• using data to simulate policy outcomes before publishing rules, and
• sharing data so firms can use it to test new products and business models

It has also undertaken to continue to act more assertively and to test the limits of its powers by

• relying more on tools that have an instant effect when there is immediate harm, rather than launching fuller, longer investigations,
• increasing the number of staff that enforce the threshold conditions,
• taking action against risky firms to send a clear signal to others putting consumers at risk, and
• testing how far it can go to warn consumers directly when it believes that an authorised firm is misleading them about the ‘safety’ of its products or service

CP 22/7

The Consultation Paper includes an increase in the minimum fees consulted on in November 2021. Previously, firms’ minimum fees had remained largely unchanged over the last decade – this increase, which is being phased in over two years, is intended to bring fees in line with the cost of authorising and supervising firms.

Fees for advisers, arrangers and collective investment scheme operators are expected to increase by slightly over 5% between 2021/22 and 2022/23 and those for principal firms by almost 8%. For PSR, EMI and crypto firms, it will be 44%.

The FCA will publish its feedback and rules on fees in a policy statement in July 2022.

How can we help you?

If you’d like to know more about how we can help you with your regulatory planning, relationship with the FCA, fee payments, Appointed Representatives or any other regulatory compliance issues, our specialist team is here to help.

Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.