Financial Services Compliance Blog - Thistle Initiatives

The FCA's move to outcomes-based approach explained

Written by Lorraine Mouat | Aug 21, 2024 11:44:43 AM

The FCA's planned shift to an outcomes-based regulatory approach has sparked significant concern among legal professionals. This new strategy, which focuses on the results of companies' actions rather than prescribing specific processes, aims to provide greater flexibility and foster innovation in the financial services sector. But, as always, the move is not without issue.

Outcomes-based regulation sounds complicated, but it's really just another way the regulator is approaching their role. Instead of strictly following a checklist of rules, they’re now saying, “Let’s focus on the real-world effects—how are we impacting consumers and the markets?” It’s like moving from following a strict recipe to simply focusing on how the dish tastes.

So, what’s driving this shift? The FCA believes that by prioritising outcomes, they can better safeguard consumers, encourage healthy competition, and uphold market integrity. It’s all about ensuring that financial services genuinely benefit people.

But, as with any new approach, there are concerns. Lawyers are now worried that the inherent uncertainty of an outcomes-based approach could create significant challenges for firms. Unlike the traditional rule-based system, which provides clear guidelines and expectations, an outcomes-based framework relies on subjective interpretation of what constitutes a "good outcome." This shift could leave firms uncertain about compliance, leading to potential legal disputes and regulatory interventions.

There is also a worry that focusing too much on outcomes might actually stifle innovation. When regulators emphasise results, companies might play it safe, sticking to what’s already proven rather than exploring new, potentially groundbreaking ideas. It’s like telling a chef, “Stick to plain spaghetti—you know it’s safe and won’t cause any issues!”

The legal experts are also expressing concern that the uncertainty could weaken the UK’s position as a global financial hub - a key topic of conversation. The new government is actively pushing for increased international competitiveness, emphasising the UK as a destination for financial services. However, if firms perceive the regulatory environment as unpredictable, they may be less inclined to invest or expand their operations in the UK, potentially driving business to more stable jurisdictions.

The FCA isn’t alone in this shift. Other countries are also experimenting with outcomes-based regulation. They’re like culinary adventurers, trying out new ingredients and fusion dishes. But they are cautious and want innovation without the risk of disaster. It’s like they’re saying, “Yes, let’s serve up something creative, but make sure nobody ends up sick!”

Ultimately, it’s about finding the right balance. The FCA aims to be the Michelin-starred chef of financial regulation—demanding top quality without the drama. And if they can create cleaner, more transparent markets, it’s a win for everyone.

Navigating this regulatory landscape can be challenging, but you don’t have to do it alone. At Thistle Initiatives, our compliance consultancy services help many of our clients adapt with confidence. We’ll work with you to ensure your business not only meets regulatory expectations but thrives in this outcomes-focused environment. Let us support your journey toward compliance excellence.