The Financial Conduct Authority (“FCA”) has set out its key priorities for the coming year in its Business Plan for 2018/19, along with its annual Sector Views. Inevitably, the priority for its discretionary activity is preparing for and implementing the changes resulting from European Union withdrawal (“Brexit”).

Additionally, seven priorities cut across different financial sectors and the other priorities listed relate to the seven specific financial sectors the FCA regulates.

This year’s Business Plan reflects the high level of resource the FCA needs to dedicate to Brexit to carry out the following priorities:

• Working with the Government.
• Ensuring an appropriate transition for EEA firms.
• Working with regulated firms and monitoring the risks to FCA objectives.
• Working towards operational readiness.
• Cooperating with international partners.

In addition, the FCA intends to advance some aspects of work to introduce a new duty of care provision for firms, beginning with the launch of an initial Discussion Paper, Feedback Statement and final version of its ‘Our Approach to Consumers’ paper in summer 2018.

Cross-Sector Priority Areas

• Firms’ culture and governance which should drive behaviours and produce outcomes likely to benefit consumers and markets.
• High-cost credit, building on the significant impact already made in the market.
• Tackling financial crime, including fraud, scams and anti-money laundering to make the UK financial services sector a hostile place for criminals and a safe place for consumers.
• Data security, resilience and outsourcing since technology plays a pivotal role in delivering financial products and services.
• Innovation, big data, technology and competition which are driving change in markets.
• The treatment of existing customers to ensure that they do not get less attention or receive poorer outcomes than new customers.
• Long-term savings, pensions and intergenerational differences which reflects the changing UK population and their financial needs.

Sector Priority Focus

1. Wholesale Financial Markets

• Clarifying FCA approach to market integrity
• Reviewing money laundering in capital markets
• Monitoring firms’ compliance with new conflicts of interest requirements
• Addressing operational resilience
• Monitoring firms’ compliance with FCA rules on Initial Public Offerings
• Publishing final rules and FCA approach to industry codes of conduct for unregulated markets

2. Investment Management

• Finalising rule changes following the Asset Management Market Study
• Working with European Supervisory Authorities in the implementation and review of the Packaged Retail and Insurance-Based Investments Products Regulation (“PRIIPs”)
• Consulting on new rules and guidance on liquidity management
• Considering the extension of governance remedies to with-profits and unit-linked funds
• Assisting the Treasury in the development of a new prudential regime for investment firms authorised under the Markets in Financial Instruments Directive (“MiFID II”)
• Publishing research that explores the rise of passive investment

3. Retail Lending

• Assessing creditworthiness in consumer credit
• Launching a Market Study on Credit Information
• Publishing the interim report on FCA Mortgage Market Study
• Reviewing the commission between credit brokers and other firms
• Ensuring the debt management sector works well for consumers
• Reviewing the motor finance market
• Reviewing the retained Consumer Credit Act provisions

4. Pensions and Retirement Income

• Developing a joint pensions strategy with The Pensions Regulator
• Potentially extending the remit of Independent Governance Committees for workplace pension schemes
• Helping consumers avoid scams

5. Retail Investments

• Assessing the impact of the Financial Advice Market Review (“FAMR”) and the Retail Distribution Review (“RDR”)
• Reviewing high-risk and complex investments
• Evaluating FCA interventions on Contracts for Difference
• Publishing report on the Investment Platforms Market Study
• Raising awareness of fraud and scams

6. Retail Banking

• Continuing to help firms prepare for ring fencing
• Developing a payments sector strategy
• Delivering the revised Payment Services Directive (“PSD2”)
• Continuing FCA awareness campaign on the Payment Protection Insurance redress deadline

7. General Insurance and Protection

• Implementing the Insurance Distribution Directive (“IDD”)
• Publishing interim report from the Wholesale Insurance Brokers Market Study
• Concluding initial diagnostic work on general insurance distribution chains
• Publishing the findings from FCA Call for Input on access to travel insurance
• Evaluating the effectiveness of 2015 FCA rules on Guaranteed Asset Protection insurance

Sector Views 2018

The annual Sector Views issued by the FCA cover all the markets it regulates and give an overall view of how each sector is performing, based on the data held by the FCA and its view as at mid-2017.

The FCA describes the sector, the need the sector seeks to fulfil, the issues and developments the FCA are seeing and the impact of change, and are developed in three stages:

1. Understanding the sector.
2. Assessing how the sector is performing and what is driving change in the sector.
3. Identifying the key themes for consumers, firms and the sector more widely.

Data Protection and GDPR related issues

The FCA intends to review the use of data by financial services firms, including:

• machine learning analysis of big data pools;
• algorithmic trading; and
• the wider use of artificial intelligence.

It believes this will help them better assess both potential opportunities and harm and where they may need to intervene.

The FCA will also further develop its relationship with the Information Commissioner’s Office in anticipation of the General Data Protection Regulation (“GDPR”) coming into force in May 2018, with the intention of publishing an updated Memorandum of Understanding (first issued in 2014) setting out how the two organisations will work together in future.

While the ICO will regulate GDPR, complying with GDPR requirements is something the FCA will consider under, for example, the requirements in the Senior Management Arrangements, Systems and Controls (“SYSC”) sourcebook. Under SYSC, firms should establish, maintain and improve appropriate technology and cyber resilience systems and controls.

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Of Relevance to:
All firms

The FCA has published its Business Plan for 2017/18 – which also includes the ‘Risk Outlook’ (page 16) which analyses the wider context the FCA works in and the risks it sees in the market.

The Business Plan focuses on the following seven sectors (including some, but not all, planned FCA activities) which capture all the types of firm regulated by the FCA:

Investment Management

• Further work on liquidity in funds (see Regulatory Roundup 85)
• Final report coming out of the Asset Management Markey Study (see Regulatory Roundup 82)
• Custody banks

Wholesale Financial Markets

• Preventing market abuse
• Competition in investment and corporate banking (see Regulatory Roundup 81)
• Primary markets (see Regulatory Roundup 86 re IPOs)

Retail Investments

• Investment platforms
• Auto advice
• P2P/crowdfunding (lack of awareness of ‘client money’ requirements)
• CFDs (see e.g. Regulatory Roundup 83) – we can expect follow-up work particularly on ‘appropriateness’
• Completion of project assessing suitability of advice and disclosure
• FAMR final guidance (see Regulatory Roundup 74)

The Business Plan also considers:

• Pensions and retirement income
• General Insurance and protection
• Retail Lending
• Retail Banking

In addition the FCA has identified the following cross-sector priorities:

• Firms’ culture and governance
• Financial crime and anti-money laundering
• Promoting competition and innovation
• Technological change and resilience
• Treatment of existing customers
• Consumer vulnerability and access

On the topic of “Technological change and resilience”, the Business Plan confirms that the FCA has created a dedicated Cyber Specialists team to oversee the way that regulated firms manage cyber risk.

Separately the FCA has published its ‘Sector Views’ covering the above seven sectors and which feeds in to the determining of priorities.

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