The FCA has released its Business Plan 2023/24; the plan covers the second year in the FCA's three-year Strategy. This is one document among the annual publications issued by the regulator which provide insight into its priorities and focus; for a more comprehensive view, it should be considered alongside the FCA's Annual Report (due to be published later in the year, with an update on the FCA's performance metrics) and its Perimeter Report which sets out where the FCA has identified issues or potential issues with the scope of its remit (now updated quarterly, the latest report was issued in early March). In this blog, we extract key activities which the FCA has in plan for 2023/24 that are expected to have an impact on firms.
How is the plan organised?
In setting out its three-year strategy in 2022, the FCA articulated three key outcome-focused themes:
- Reducing and preventing serious harm;
- Setting and testing higher standards; and
- Promoting competition and positive change.
The Business Plan sets out activities against these three themes from the Strategy, but it also addresses organisational points and some specific areas like cryptoassets and exempt buy-now-pay-later (BNPL). In addition, the FCA says that where its resources allow, it will also focus on four additional – though similar sounding – commitments this year:
- preparing financial services for the future;
- putting consumers' needs first;
- reducing and preventing financial crime; and
- strengthening the position in global wholesale markets.
Throughout the Business Plan, FCA makes frequent references to increasing its use of data and technology to inform its interventions and policy development. This is clearly inward looking for the FCA, though relevant for firms as they could drive an increase in FCA scrutiny and activity in particular areas of policy or with respect to particular activities or firms.
The three outcome-focused themes from the three-year Strategy
Focus 1: Reducing and preventing serious harm
The FCA has six commitments under this focus; these are set out below and we highlight relevant activities:
- Dealing with problem firms:
- The FCA will prioritise action against the riskiest firms and those causing the most harm; it plans to increase the number of firms it takes action against.
- It also plans to expand the types of breach of Threshold Conditions that it takes action against.
- Improving the redress framework:
- The FCA will consult on guidance for firms on redress calculations; review the rules on SME access to the Financial Ombudsman Service (FOS); and make proposals to improve complaints reporting to enable it to better spot issues.
- On compensation, the FCA plans to continue its review of the framework, including looking at the compensation limits and the funding class thresholds.
- Reducing harm from firm failure:
- A new financial resilience regulatory return will be introduced for solo-regulated firms; this was consulted on in October 2022.
- The FCA identifies that its efforts on developing cryptoasset policy will foster financial resilience in this particular sector.
- It also plans to use its powers 'more assertively to start relevant insolvency processes'.
- Improving oversight of Appointed Representatives (ARs):
- This will involve testing that firm have embedded the new rules for ARs. The FCA will also continue to support HM Treasury's work on ARs and will assess whether it should make further interventions.
- Reducing and preventing financial crime:
- The FCA plans to increase its assessments of anti-money laundering (AML) systems and controls.
- The regulator will bolster its resources to support oversight of firms communicating and approving financial promotions, including those for qualifying cryptoassets. (For more on the financial promotions changes, see our articles on the s.21 gateway and on the cryptoassets marketing draft statutory order.)
- Delivering assertive action on market abuse:
- A new dedicated non-equity manipulation team and increased enforcement resources will bolster the FCA's response on market abuse and counter concerns that it does not focus on market abuse in the debt markets. The market surveillance refresh will also continue.
- The FCA plans further work to improve the transparency of dealing by Persons Discharging Management Responsibility (PDMR).
Focus 2: Setting and testing higher standards
The FCA has four commitments under this focus. We set these out below and highlight key activities:
- Putting consumer needs first:
- The FCA will undertake sector-specific supervisory work on the Consumer Duty, including on fair value and sludge practices. The regulator highlights that this will focus on those priorities which it has set out in the sector and portfolio letters. For the Consumer Duty, FCA's initial focus will be on high priority issues and firms. The FCA will invest £5.3m to ensure the Consumer Duty is embedded effectively. (For more on the Consumer Duty, see our collection of articles here.)
- The debt advice rules will be reviewed.
- Building on pandemic-era guidance, the FCA will consult on rule changes to mortgage, consumer credit and overdraft rules with a particular focus on consumers in financial difficulties.
- The regulator will develop the regime for deferred payment credit (DPC) products (also known as exempt BNPL) as these products begin to come within its oversight.
- A new Interventions team will be created in the Enforcement department; it will take 'rapid action where immediate consumer harm is detected'.
- The FCA will also consult on a regime for access to cash once the Financial Services and Markets Bill (FSM Bill) has come into effect. It will continue to monitor branch and ATM closures and conversions; we expect the FCA will particularly expect to see compliance with its October 2022 guidance for firms when they are considering the closure of a branch or the conversion of free-to-use ATMs.
- Enabling consumers to help themselves:
- Activities under this commitment include preparing an application gateway for firms that want to approve financial promotions for unauthorised firms and updating the register accordingly; the FCA will also preparing for the extension of the financial promotions regime to qualifying cryptoassets.
- The FCA also intends to develop its capabilities to monitor social media for illegal financial promotions.
- A strategy for positive change: our environmental, social and
governance (ESG) priorities:
- The FCA foresees a number of regulatory developments under this
commitment, including:
- changes to the Listing Rules to reference the final International Sustainability Standards Board (ISSB) standards;
- a Feedback Statement (FS) to Discussion Paper 23/1 (DP23/1) on ESG governance, incentives and competence which will include proposed next steps;
- final rules following on from CP22/20 Sustainability Disclosure Requirements (SDR) and investment labels (now expected in Q3 of 2023); and
- publication of the FCA's own net-zero transition plan.
- The FCA foresees a number of regulatory developments under this
commitment, including:
- Minimising the impact of operational disruptions (Operational
Resilience):
- As well as continuing to assess how firms are progressing to the March 2025 deadline on operational resilience, the FCA intends to 'Make it clearer to firms how they should report operational incidents to us, including what, when and how they should be reporting' – a CP is planned for Q4 of 2023. (We have published a summary of the UK operational resilience requirements and also maintain an OpRes Hub and multi-jurisdictional timeline of developments.)
- On the critical third parties (CTPs) regime which will be introduced by the FSM Bill, the FCA, PRA and Bank of England (the Bank) will consult further on the regime in 2023. (For more on the CTPs proposals, see our note here).
Focus 3: Promoting competition and positive change
The FCA has three commitments under this focus. We set these out with the key activities:
- Preparing financial services for the future:
- Here the FCA discusses – at a very high level – the replacement of retained EU law (REUL) with Handbook requirements, and additional work which arises as it implements the new secondary international competitiveness and growth objective which arises from the FSM Bill. Firms should note that there are a few points on cost benefit analysis (CBA), including the establishment of a new CBA panel and consulting on a new CBA framework – there is no indication that the FCA plans to make contribution to CBA mandatory.
- The FCA expects to invest £12.7m in 2023/24 on delivery of the Future Regulatory Framework.
- Strengthening the UK's position in global wholesale
markets:
- In addition to working on making changes to regulation under
the Future Regulatory Framework, the FCA also expects to consult
on/continue or conclude consultation on changes relating to:
- the second Markets in Financial Instruments Directive and Regulation (MiFID 2/MiFIR);
- the Prospectus Regulation – in particular, a new public offer regime;
- the Securitisation Regulation;
- the Short Selling Regulation;
- asset management regulation;
- transparency for equity markets, tick sizes, waivers and trade reporting;
- the design and implementation of the consolidated tape;
- the derivatives reporting framework under UK version of the European Market Infrastructure Regulation (UK EMIR); and
- the Wholesale Data Market Study, in particular competition in supply of benchmarks, credit ratings data and market data vendor services.
- The FCA will work with the Bank on the development of the financial market infrastructure (FMI) sandbox which will test distributed ledger technology (DLT) for settlement and trading; this is due to be set up by the end of the year.
- The FCA will also work on the move to trade date + one (T+1) settlement.
- Retail access to capital markets will also be considered; this work will be undertaken alongside the FCA's reviews of disclosure and advice, the aims of which are summarised in Therese Chambers, FCA's Director of Consumer Investments, March 2023 speech.
- In addition to working on making changes to regulation under
the Future Regulatory Framework, the FCA also expects to consult
on/continue or conclude consultation on changes relating to:
- Shaping digital markets to achieve good outcomes:
- The FCA will publish its feedback to DP22/05 The potential competition impacts of Big Tech entry and expansion in retail financial services which will inform the development of an effective competition approach for Big Tech firms in UK financial services.
- It will release the FS to DP22/04: Artificial intelligence (AI) in financial services. This was a joint DP with the Bank and PRA. It is worth noting that the DP predated the Government's AI White Paper and the letter from Secretary of State Michelle Donelan to the Digital Regulation Cooperation Forum (of which the FCA is a member along with the Competition and Markets Authority (CMA), the Information Commissioner's Office (ICO) and the Office of Communications (Ofcom)) regarding the Government's expectations of the approach to regulating AI. Any FS can be expected to incorporate the 'pro-innovation' aims as set out in the Minister's letter.
- The FCA will also continue to focus on digital consumer journeys, and may look further at trading apps. For more insight on this activity, the regulator published information in February, as part of its InvestSmart campaign, which illustrated how it researches types of investor and uses specific techniques to alert different groups of people to risks from investment offers.
- Finally, with HM Treasury, the CMA and the Payment Systems Regulator (PSR), the FCA will continue to work on the future of UK Open Banking.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
