[co-author: Dianne Bell]
As the FCA’s mandate continues to grow, the regulator promises flexibility in the face of global financial and geopolitical headwinds.
On April 7, 2022, the FCA released its new business plan as part of a package including a three-year strategy document setting out the results it expects from all businesses in the UK markets. In his introductory message, FCA Chief Executive Nikhil Rathi noted that the regulator’s broad and growing remit means that “prioritization is inevitable”. FCA’s more results-oriented approach means that its commitments for the next three years fall into three areas of focus:
- Reduce and prevent serious harm: for example, protecting consumers from harm caused by licensed businesses, including combating fraud and abuse. The FCA expects to “leverage data to assess issues more quickly”, with the aim of preventing damage from occurring in the first place.
- Setting and testing higher standards: for example, focusing on the impact of licensed business actions on consumers and markets. The FCA expects the new consumer obligation to give businesses greater certainty about how they should treat consumers as well as flexibility about how they perform well.
- Promote competition and positive change: greater regulatory openness, for example by relying on the “sandbox” copied on a global scale and by introducing a “scalebox”.
FCA makes several commitments in each focus area. An outline of the work program for the next 12 months to achieve these ambitions is contained in the Business plan 2022/23, along with an indication of how progress will be measured and examples of FCA’s work. (To see full list of proposed outcomes and measures that the regulator plans to develop) Among the wide range of regulatory activities set out in the business plan (for example, strong oversight and enforcement, improving the redress framework, empowering consumers to help themselves, and minimizing impact of operational disruptions), some of the key activities for 2022/23 are summarized here.
- Integrate consumer obligation
- Consumer obligation must be integrated into each stage of the regulatory life cycle (authorisation, supervision and enforcement) and will become an “integral part” of the FCA’s regulatory approach. The regulator’s surveillance strategies will be modified to initially focus on the highest priority files and portfolios.
- The FCA plans to publish rules and guidance on the consumption requirement by the end of July 2022.
- The FCA will participate in the Financial Inclusion Policy Forum and work closely with government and other bodies to support consumer access to products and services as part of its consumer protection and competition objectives.
- Strengthening the UK’s position in global wholesale markets
- Market participants view the UK as one of the top markets of choice due to its encouragement of innovation, and its regulations are seen as “evolving appropriately” to address new opportunities and risks . The FCA wants to develop a metric to measure market participants’ opinions of its effectiveness, to maintain the UK’s position and to ensure that market participants see the regulatory framework as proportionate in terms of speed and cost.
- The FCA’s activities over the next 12 months will include strengthening its ability to approve issuers listed on UK capital markets and starting the transfer of the regulatory framework from legislation to FCA rules through the future regulatory framework of the FCA. British Treasury.
- The FCA will begin updating the regulatory framework for wholesale markets and will work with the Treasury on the review and development of the foreign business regime. (To see Latham’s recent insight into the UK Treasury Wholesale Markets Review)
- The FCA will support innovation through a flexible regulatory approach, including the launch of the Financial Market Infrastructure (FMI) sandbox.
- Take strong action against market abuse
- The FCA wants to improve its perceived effectiveness in promoting market integrity and increase the number of interventions by the FCA (broadly defined) in the event of failures of listed issuers to disclose properly.
- The FCA is considering how best to measure market abuse and misconduct cases and outcomes.
- The FCA will provide advice through technical notes in 2022/23 (which are accessed through publications of the Primary Markets Bulletin).
- The FCA will carry out the Market Surveillance Refresh project (to improve the effectiveness of the FCA’s alerting/analytics tools) and the Markets Data Processor project (providing market data to the alerting and analytical tools FCA).
- FCA intends to increase its detection capacity.
- Respond to ESG priorities
- FCA wants to tackle misleading marketing and disclosure about ESG-related products and improve the quality of climate and sustainability-related disclosures to promote accurate market pricing and help investors make decisions . He hopes to develop metrics to measure the incidence of misleading marketing in ESG products and improving the quality/quantity of disclosures.
- Stakeholders have expressed a desire to see more active investor management that positively influences corporate sustainability strategies. The FCA will work with other regulators and industry leaders to develop indicators of stewardship effectiveness.
- The business plan generally states that the FCA intends to “integrate consideration of ESG issues into the way we license businesses and individuals,” which seems to extend the mindset ESG integration in the general authorization process.
- In terms of rules and standards, the FCA plans to continue to exercise thought leadership internationally through, for example, its role as co-chair of IOSCO’s Sustainable Finance Task Force and ongoing work on information on the sustainability of transmitters. (To see Latham’s recent analysis of ISSB Global Sustainability Standards Project)
- The FCA will take “as needed” monitoring and enforcement action on how companies manage the impacts, risks and opportunities related to ESG issues, including how they ensure customers are treated fairly. The regulator specifies that it “will develop new interventions if necessary”. Given previously noted 2022/23 plans for indicator development (i.e. quality/quantity of disclosure, misleading product marketing and use of active investor management for ESG outcomes positive), this focus area will be one of the ways in which FCA aims to use emerging information.
- Operational resilience and disruptions
- The FCA wants to ensure that the important business services provided by companies are resilient to operational disruptions. In 2022/23, it plans to ensure that the authorization process takes into account how companies subject to the operational resilience policy have ensured that they meet the expectations of the policy.
- A discussion will be launched with the Bank of England and the PRA on critical third parties (CTP) in 2022 through a discussion paper proposing a new oversight regime. This will involve supervisors setting resilience standards, a testing approach and enforcement powers for CTPs. Responses to this discussion will inform a consultation that is expected to take place in 2023.
- From March 31, 2022 to March 31, 2025, the FCA will assess companies’ ability to stay within their impact tolerances. By March 31, 2025, companies must be able to demonstrate that they can meet them.
Change and uncertainty on the horizon
Significant changes lie ahead, as set out by the UK Treasury in its proposed future regulatory framework which will transfer increased powers to the FCA to set rules and regulate in a way that suits the needs of UK businesses, markets and consumers. . The FCA will work with the Treasury to design and deliver the new regulatory framework, which supports all of the regulator’s desired outcomes. The FCA intends to measure its success by how effectively it responds to changes in its remit and liability provisions, as well as how well it onboards companies facing the demands of the legislation. in FCA rules.
The FCA notes that the Business Plan 2022/23 is being released at a time when “the external environment is rapidly changing”. This refers to risks associated with uncertainty surrounding the long-term impact of Covid, low levels of financial resilience and rising costs – all against a backdrop of rising inflation and interest rates and major geopolitical uncertainty. The impact on consumers and businesses is expected to be felt over the coming year and beyond. With this in mind, the FCA stresses that it will monitor emerging issues and “adjust our plans as necessary”.