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The future of UK regulation: the FCA’s new business plan

The FCA has published its 2021/22 business plan. The publication of the plan was slightly delayed, which is perhaps unsurprising given the detail that it provides on the regulator’s plans under its new CEO, Nikhil Rathi.

The FCA are forthright about the challenges that they face – the post-pandemic recovery, Brexit, technological change, the green transition and an expanded regulatory remit.

Over the next year, the regulator will focus on:

  • the proposed new Consumer Duty;
  • improving the effectiveness of wholesale markets; and
  • six cross-market issues – fraud, financial resilience, operational resilience, diversity and inclusion, a more sustainable finance future and international cooperation.

Proposals for reform

Buried within the report are several significant proposals for reform. These proposals include:

  • a simpler authorisation process, but stronger supervision for new firms (a "regulatory nursery") and fast-growing firms (a "regulatory scalebox");
  • a review of all firms seeking to enter the UK via permanent post-Brexit arrangements for foreign firms. Not all firms in the Temporary Permissions Regime will be successful;
  • changes to the financial promotions regime, and related supervision and enforcement;
  • being more proactive in identifying and communicating issues that are outside the FCA’s regulatory perimeter. The Government has committed to annually review the FCA’s perimeter;
  • improved capabilities to collect, analyse and act on supervisory data;
  • supervising whether the ESG attributes of asset managers’ products are fair, clear, and not misleading, and reduce green-washing;
  • investigating how well firms are supported by ESG service providers such as ratings agencies;
  • continuing to identify fund managers that are outliers, for instance in respect of high fees, and working with authorised fund managers and depositaries on remedies;
  • simplifying the pre- and post-trade transparency and commodity derivatives position limits regimes inherited from MiFID II;
  • working with the Pensions Regulator to form a view on how best to drive value for money in pensions; and
  • the adoption of a new set of metrics by which to hold the FCA accountable, including a commitment to reduce the FSCS levy on the industry (charged to cover firm failures and consumers’ losses due to mis-selling).

Overall, the plan signals that the FCA intends to be forward-thinking and activist, even while being mindful of its constraints in time and capacity.

What might this mean for firms?

In practical terms, for many firms this might mean less frequent bilateral engagement with the regulator. Nonetheless the FCA will expect firms to be monitoring and acting on its activities, with stronger supervisory engagement where the FCA deems it to be needed.

The intention to “become a data regulator as much as a financial one” represents a significant shift towards not only utilising data trends to support regulation, but also supervising financial institutions as a species of technology company.

Many firms will be concerned that the FCA is also edging towards becoming a price regulator through the proposed Consumer Duty and via the intention to challenge firms based on the level of their fees.

The intention to “become a data regulator as much as a financial one” represents a significant shift...

Tags

investment management, financial services, esg, pensions, technology, derivatives and trading

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