Unsurprisingly, Brexit remains the immediate priority for the Financial Conduct Authority (FCA) in its recently published Business Plan 2019/20. This year, other cross-sector work is divided into four continuing areas of focus and - with an eye to the post-Brexit regulatory landscape - three areas of forward-looking strategic challenge. It's pretty much "business as usual" for the sector-specific priorities, with much of the on-going or planned work for 2019/20 relating to familiar themes and existing projects.
The FCA's key industry-wide priorities are explored below, together with a brief overview of some of the continuing or planned activities for its sector-specific priorities.
Brexit – the immediate priority
Unsurprisingly, Brexit remains the FCA's immediate priority. Its on-going work on Brexit will include:
- Continuing to provide the government with technical advice and support;
- Strengthening its global strategic international engagement, as well as developing new relationships with the EU once the UK becomes a third country;
- Carrying on with its engagement with the wider financial services industry to assess the impact of Brexit on both the market and consumers and to monitor firms' contingency plans.
Other industry-wide priorities: continuing areas of focus
The FCA's other cross-sector priorities include four continuing areas of focus, namely firms' culture and governance, operational resilience, financial crime and anti-money laundering (AML), and fair treatment of existing customers.
Promoting and embedding good culture and governance
The FCA confirms its commitment to working with firms to create and consolidate healthy culture, as it strongly believes that good culture results in good conduct. The focus will be on four 'drivers of behaviour' – purpose, leadership, reward and managing people, and governance. This year, it will examine the concept of purpose in financial services in more depth via a new working group and industry roundtables, and it will review the remuneration and recognition practices of firms to ensure that approaches to rewarding and incentivising staff reinforce healthy cultures and do not drive behaviours that would lead to harm to consumers and/or the market. Specific activities also include the extension of the Senior Managers and Certification Regime (SMCR) to all authorised firms in December.
The FCA seeks to develop policy proposals jointly with the PRA/Bank of England in response to feedback received on its July 2018 Operational Resilience Discussion Paper, and to consult on the proposals later in 2019. The proposals seek to provide clear expectations relating to firms' operational resilience.
The FCA will further develop its understanding of cybercrime and wishes to address areas where firms can improve their systems and controls. Specifically, it intends to investigate how firms detect cyberattacks on their key assets, and how they can better their resilience, and will publish findings and feedback by Q4 2019/20. It also intends to use CBEST testing (ethical hacking) on a larger number of priority firms, to test their cyber capabilities. The FCA says that cybercriminals are increasingly targeting smaller firms as they see them as "weaker links" in the financial system. In 2019 the FCA will develop further ways to communicate information to smaller firms.
The FCA will undertake work into assessing the risks posed by third party service providers, and "change management" (such as IT system upgrades or data transfers to a new system), both of which are identified as contributing to incidents of IT disruption. In line with the FCA's findings from its Strategic Review of Retail Banking Business Models, it will also consider whether co-ordinated action on system resilience and effective prevention of financial crime and fraud in retail banking is necessary.
Financial crime and AML
The FCA aims to become "faster, smarter and more efficient" in its delivery of AML work, using intelligence and data (for example data from its annual financial crime return, through which it can monitor trends, which it is considering extending to more firms) to enhance its understanding of risk. It will also be "more intrusive" in assessing the effectiveness of firms' own systems and controls, and will continue its work around new technology solutions for financial crime compliance.
The FCA supports the UK government's Serious and Organised Crime Strategy (published in November 2018), including the reform of the Suspicious Activity Reports regime, which is due to be announced later this year. It is keen to maximise its participation in the recently established National Economic Crime Centre and the Joint Money Laundering Intelligence Taskforce to further enhance its understanding of evolving financial crime threats.
Fair treatment of existing customers: spotlight stays on pricing practices
Following the recent Citizens Advice super-complaint to the Competition and Markets Authority (CMA) on excessive prices for disengaged consumers (the so-called "loyalty penalty") and resultant CMA recommendations to the FCA, it is prioritising its work on cash savings, mortgages and general insurance pricing practices in the year ahead. It's not ruling out price interventions if considered appropriate. Among the specific activities will be publication of the findings from its July 2018 discussion paper on price discrimination in the cash savings market, including further thinking on the idea of a basic savings rate. The extension of Open Banking to savings and collective switching is also up for consideration (see further 'From Open Banking to Open Finance?' below).
Other industry-wide priorities: forward-looking strategic challenges
The FCA also wants to "anticipate and influence" future market development by selecting three areas of strategic challenge across sectors. These are innovation, data and data ethics, demographic change, and the future of regulation.
From Open Banking to Open Finance?
One of the FCA's specific planned activities relating to innovation, data and data ethics is a call for input on the development of Open Finance, due later in 2019 and prompted by the growing data market and technological advances. The FCA points out the potential risk of anti-competitive behaviour by those market players with greater access to data and technological ability, and suggests that consumers may benefit from firms being required to share data more openly (as for Open Banking). It sees the savings sector in particular as an area where Open Banking/Finance infrastructure could be used to increase competition (a point which is also made in relation to fair treatment of existing customers – see 'Fair treatment of existing customers: spotlight stays on pricing practices' above). The findings from its Credit Information Market Study (see 'Sector-specific priorities – retail lending' below) and a review of the effectiveness of Open Banking will also form part of the FCA's Open Finance work. On data ethics, it is planning to publish its views on whether its approach to Treating Customers Fairly (TCF) is sufficient to cover data ethics in financial services.
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