The UK’s Financial Conduct Authority/FCA has recently published its three-year strategy for 2022-2025 to improve outcomes for consumers and in markets throughout the UK.
For the first time the strategy sets out the outcomes that the FCA expects from businesses across all markets. To guard against inconsistent regulation the FCA’s decisions will be “data-based” and focussed on results rather than being driven by processes. The FCA intends to give firms greater flexibility on how they deliver good outcomes and instead will focus more on testing, and requiring firms to test, what their decisions mean for consumers. It will use regulation to address the imbalance in knowledge about financial services between firms and consumers. The shift away from more traditional supervision comes with an increased responsibility for firms to measure and test outcomes themselves, which may require significant changes to the way that firms manage compliance.
The overarching outcomes expected from financial services across all markets and sectors are broken down in the strategy by:
- consumer outcomes (fair value, suitability and treatment, confidence and access); and
- wholesale outcomes (fair value, confidence and access).
The strategy focuses on three key themes, each of which is supported by specific commitments to explain how the FCA will help create the conditions necessary for financial services to deliver the outcomes that the FCA expects. Each commitment is mapped to the overarching consumer and wholesale outcomes.
- Reducing and preventing serious harm
The FCA has made six commitments for reducing and preventing serious harm: dealing with problem firms, improving the redress framework, reducing harm from failure, improving oversight of Appointed Representatives, reducing and preventing financial crime and delivering action on market abuse.
- Setting and testing higher standards
To ensure that firms deliver the outcomes expected, the FCA’s commitments to setting and testing higher standards are: putting consumers’ needs first, enabling consumers to help themselves, an Environmental, Social and Governance/ESG strategy and minimising the impact of operational disruptions.
- Promoting competition and positive change
The three commitments to promote competition and positive change are: preparing financial services for the future, strengthening the UK’s position in wholesale markets and shaping digital markets to achieve good outcomes.
The FCA emphasises the significant and rapid change in financial services and recognises that its approach needs to be more innovative, assertive and adaptive. In developing the strategy, the FCA has considered the rising cost of living in the UK (combined with greater vulnerability of consumers due to the pandemic), how digital transformation is redefining markets (and the need to adapt how it prepares for and responds to new financial products that sit outside of its remit) and the importance of financial services in global economic activity. The strategy will be kept under review so that the FCA can adapt to important changes. With digital services and transformation accelerating, firms will be looking to the FCA to create certainty over the regulatory requirements. Any ambiguity in this respect will impede the pace of change. To embrace new technologies and the host of potential benefits that they offer (such as cost savings and efficiencies, increased revenue and improvements to user experience), firms need certainty over how and when the FCA may act.
The final section of the strategy provides more information about the FCA’s own operations, in particular as to how it is improving its use of data and technology to act faster and more decisively in consumers’ interests.
The FCA’s Business Plan 2022/23 provides more detail of the actions the FCA is taking in the coming year to help deliver on its commitments.