In April , the FCA released their 2023/24 Business Plan (the “Plan”), providing insight into the regulators’ approach to the second year of their 2022 to 2025 strategy (the “Strategy”). As part of the Strategy, the FCA outlined 13 commitments designed to strengthen their approach which were grouped into three focus areas. The Plan centers on work within the three areas:
- Reducing and preventing serious harm
- Setting and testing higher standards
- Promoting competition and positive change
We have selected some of the key details within the Plan and what we expect to see over the next 12 months.
1. Key Challenges for 2023/2024
Given the heightened geo-political tensions and uncertainties within the UK, the economy is experiencing high levels of volatility. The FCA acknowledges this in their Plan, highlighting interest rates, inflation, unemployment projections, declining household disposable income, and market volatility as key uncertainties that may require the regulator to reconsider their plan of action. It is yet to be seen how the FCA will respond to these uncertainties and address the cost-of-living crisis without delving into the effects on global markets.
2. ‘Our Focus 2023/2024’
Location and People
The FCA opened a Leeds office in September 2022 to improve its connection to firms in the north of England, bringing the total number of UK offices to five (London, Edinburgh, Cardiff, Belfast). The regulator had to increase its headcount due to significant delays in application processing, resulting in a growth from 3,800 to 4,500 employees between January 2022 and March 2023. This allowed for increased resource in the Authorisations and Enforcement and Market Oversight Divisions. As a result, there has been a recent reduction in application processing times and more engaged questioning, which is expected to continue improving.
Data and Technology Led Regulation
As part of a wider ambition of the FCA to become a data-led regulator, the Plan outlined a specific objective:
“Complete a major upgrade to our core regulatory system and improve our intelligence capabilities through the automation of analytics tooling, helping us detect and respond to consumer harms faster.”
This will have noticeable and far-reaching ramifications on the relationship between the regulator and authorised firms. We anticipate automated analytics will result in a closer and more ‘personal’ monitoring regime by the FCA, freeing resources from analysis of data to acting on adverse findings or engaging in preventative work.
Cryptoassets
HM Treasury issued a consultation on the 1st February 2023 on proposals for a broader future regulatory regime for cryptoassets. This is the roadmap proposed for the regulation of cryptoassets and the FCA have noted it intends to be heavily involved in consulting with the market.
There has been little to no change in terms of the next steps for the regulation of cryptoassets with the only requirement on firms remaining registration under the anti-money laundering rules.
As of the 3rd April 2023, the FCA have still registered only 41 cryptoassets firms under anti-money laundering rules as they continue to rebut firms who cannot demonstrate robust AML procedures.
3. The Three Focus Areas
Although the developments above are labelled as topics of the FCA’s focus, they are not aligned to the thirteen commitments within their Strategy and so do not fall into one of the three focus areas.
Within the Plan, each focus area is broken down into specific aims and incorporates an all-encompassing list of action points the FCA have planned to achieve them. Below we have highlighted a specific aim and picked out some of the key actions the FCA have committed to over the next 12 months.
| Focus Area | Aims | Key Activities |
|---|---|---|
| 1. Reducing and Preventing Serious Harm | 1. “We aim to protect consumers from fraud and mistreatment and our focus is on protecting consumers from the harm that authorised firms can cause” 2. Dealing with problem firms “Firms who don’t meet our minimum standards (Threshold Conditions) put consumers and markets at risk” 3. Reducing harm from firm failure “Firms with weak financial resilience are more likely to fail” | • Removed/amended over 8,500 potentially misleading adverts in 2022, 14 times more than 2021. During FY2022/23, 23% of firms applying to operate in the UK did not become authorised. FCA issued over 1,800 warnings about potential scam firms during 2022, 400 more than the previous year. Consumer Hub prevented just over £7m being lost to fraudsters. • Enhance proactive and data-led detection of problem firms (higher scrutiny of RegData and Survey submissions). Improve the speed and volume of test cases of Threshold Conditions and subsequently the number of firms they act against to remove them from the regulated market. Expand the types of breaches of Threshold Conditions they act against. • Embedding IFPR, including publishing findings from the implementation and examples of best practice. Data-led approach – Creation of a new financial resilience return for 20,000 solo regulated firms to create a baseline level of information (Discussed in CP22/19 and the Policy Statement is due Spring 2023). Identify harm and reduce it proactively and quickly including: 1. By planning, analysing and responding to the possible financial impacts of the evolving economic environment on firms, particularly those identified by our improved data 2. Assessment and assurance of financial forecasts and prudential requirements at the point of authorisation 3. Assessing wind down plans ahead of authorisation for higher risk business models. Monitoring higher risk business models during the first year after authorisation and during periods of high growth Recent high-profile failures such as SVB, Signature Bank and Silvergate Capital highlight the risks of regulated firm failure. More uncomfortable is the collapse of FTX, an example of firm failure that currently sits outside the FCA’s remit. |
| 2. Setting and Testing Higher Standards | The FCA outlined four commitments for improving their rules and standards: 1. Putting consumers’ needs first 2. Enabling consumers to help themselves 3. Positive Change: FCA approach to ESG priorities 4. Minimising the impact of operational disruptions | Some of the planned actions to be undertaken by the FCA to help ensure consumer needs are put first include: • The FCA reviewing the debt advice rules. Consulting on changes to the mortgage, consumer credit, and overdraft rules to improve outcomes for consumers in financial difficulties. Design a robust and proportionate regime for Deferred Payment Credit (DPC) (Buy now pay later) as they come into the regulatory perimeter. Consultation on draft legislation for this ran until 11th April 2023. Creation of an additional Interventions team within Enforcement that will be ready from day one of the Consumer Duty coming into force to enable rapid action where immediate consumer harm is detected. Following royal assent of the FS&MB FCA to consult on rules to implement a new regulatory regime that supports the future of cash access. Design a new suite of regulatory returns for the consumer credit sector. Supervise bank branch and ATM closures and conversions to help ensure fair treatment of customers. Provide support to the Government as it develops legislation to protect access to cash. • Increase capability to search social media platforms to identify illegal financial promotions faster and in larger volumes. Work with agencies and ‘fin-fluencers’ to educate them about their obligations when promoting financial services. • This is a growing area of focus for the FCA, with demand for greener products and services growing exponentially. However, with this growth and demand comes the opportunity for considerable consumer harm and as such the FCA are having to commit to implementing new regulation as well as reviewing and updating existing measures. Some of the key actions we are waiting on include the FCA; 1. Consulting on changes to the Listing Rules to reference the final ISSB standards once IOSCO has endorsed these and they can be used in the UK 2. Providing a Feedback Statement to the Discussion Paper on ESG governance, incentives and competence, including planned next steps 3. Finalising and publishing the rules on Sustainability Disclosure Requirements and investment labels, and to begin the implementation process. This will strengthen consumer protection and trust in the markets for ESG-related investment products. |
| 3. Promoting Competition and Positive Change | • Preparing Financial Services for the future “Implementing the outcomes of the Future Regulatory Framework (FRF) review to prepare financial services for the future.” This aim underpins the FCA’s new secondary objective being introduced as part of the Financial Services and Markets Bill (“FS&MB”); ‘To facilitate the international competitiveness of the UK economy and its growth in the medium to long term.’ | • This aim underpins the FCA’s new secondary objective being introduced as part of the Financial Services and Markets Bill (“FS&MB”); ‘To facilitate the international competitiveness of the UK economy and its growth in the medium to long term.’ • In advance of the UK leaving the EU, the UK Government chose to perpetuate EU legislation by ‘onshoring’ it – converting EU law as it stood when the UK left the single market into domestic law. In effect creating a UK copy of the EU’s rulebook. For example, the MiFID, AIFMD and MAR rules, now all have UK iterations that can be referenced rather than the original EU Directives and Regulations. • To progress from using a UK copy of the EU’s rulebook for financial services the FS&MB will create the legislative and institutional architecture needed to move away from onshored EU legislation. • Based on the FS&MB in its current form, the legislation will give independent regulators responsibility for firm-facing requirements. For the FCA this programme is referred to as the FRF and aims to replace retained EU law with requirements in the Handbook, tailoring provisions as appropriate to better suit UK markets. • We are starting to see this Plan come to life in some areas, for example the FCA recently published a discussion paper (DP23/2) on improving and updating the UK regime for asset management. Off the back of this DP, we may well see the FCA consult on making changes to the AIFMD when it isvincorporated directly into the Handbook. |
As with every business plan published by the FCA, or any supervisory body for that matter, it remains to be seen how many of the key activities can be achieved over the next 12 months or perhaps instead how much wider geo-political and economic uncertainty necessitates a reprioritisation of resources from the regulator.
How Can Complyport Help?
If you have any questions about the FCA released their 2023/24 Business Plan, or you think your firm may require assistance with any of the proposed upcoming changes, please contact Jan Hagen via jan.hagen@complyport.co.uk to book a free consultation.
About Complyport
Complyport is a market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
We specialise in supporting the UK financial services industry with compliance guidance, advice and best practice including support with:
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