FCA Business Plan 2021 - 2022

The FCA has published its Business Plan 2021/22 setting out key priorities and a bold vision of its approach to regulating the financial services industry. This should not be a surprise. The FCA has been sending out more than a few indicators that it will not be business as usual. Last year, the FCA had to issue a streamlined version of its Business Plan, owing to the pandemic. This saw many initiatives delayed and implementation timelines pushed back. This Business Plan is the first plan under new CEO, Nikhil Rathi, and follows a number of other changes to the leadership structure, notably the appointment of Sheldon Mills as Executive Director, consumers and competition.

Alongside the Business Plan, the FCA published a speech by Nikhil Rathi, which sets out key concerns for the FCA and provides an overview of the chief aims of the Business Plan. The FCA considers the following challenges are shaping financial services: the rise in vulnerability coming out of the pandemic; rapid technological change; rewriting the UK regulatory framework after Brexit; and transition to a net zero economy. The Business Plan contains FCA priorities for consumer markets, wholesale markets and cross-market issues. The FCA also sets out plans for a new accountability framework for the FCA, containing specific outcomes and metrics for measuring the FCA's progress.

FCA sets out its aims to be:

• more innovative – taking advantage of data and technology to increase its ability to act decisively in the interests of consumers;
• more assertive – testing the limits of its powers and engaging with partners to make sure they bring their powers to bear; and
• more adaptive – constantly learning and always adjusting its approach as consumer choices, markets, services and products evolve.

Accountability

The FCA plans to set goals and report publicly on progress towards achieving them, starting from April 2022. It hopes to have in place a framework that differentiates between:

• consistent top line outcomes and metrics (these stay the same and allow the FCA to deliver its statutory objectives); and
• strategic overarching outcomes and metrics (these are to be set over a multi-year period and reviewed each year).

The FCA's strategic outcomes include the following:

• setting the bar high to support sustainable innovation for consumers;
• setting the bar high to support market integrity in wholesale markets;
• ensuring firms start with high standards and maintain them;
• using new approaches to find issues and harm faster;
• tackling misconduct to maintain trust and integrity;
• enabling consumers to make informed financial decisions; and
• diversity and inclusion across the industry.

In consumer markets, priorities include:

• strengthening rules on financial promotions to protect consumers in relation to investments;
• continuing to improve standards of pension advice;
• making payments safe and accessible;
• delivering fair value in a digital age; and
• progressing proposals for a new Consumer Duty to raise standards in firms’ treatment of consumers.

These priorities are very similar to priorities that the FCA set out in last year's Business Plan, but the FCA states that the shape and scope of some of these priorities have changed to reflect changes in consumers’ finances and behaviour.

In wholesale markets, priorities includes:

• following the UK’s exit from the EU, continuing to develop plans to make primary and secondary markets work better while maintaining high standards; and
• continuing to support the smooth transition away from sterling LIBOR to alternative risk-free rates.

 The FCA also sets out the most important cross-market issues: fraud; financial resilience; operational resilience; improving diversity and inclusion; enabling a more sustainable financial future; and international cooperation.

FCA Approach

The FCA outlines plans to become more effective, faster and more targeted and sets out information on specific initiatives in this regard:

• a systematic review of wholesale regulatory regimes to ensure they align with the needs of the UK market and are at least equivalent to those in the EU; 
• introducing a more robust gateway for new firms consisting of higher standards and greater scrutiny of firms' financials and business models;
• stronger oversight for newly authorised firms (a regulatory "nursery"); and
• stronger oversight of firms via a new Regulatory Scalebox, as recommended in the Kalifa Review.

Market access, equivalence and trade negotiations

The FCA will advise the Government in relation to cross-border access for financial services. The outcomes it is seeking include:

• future trade relationships that support open markets in a way that respects and promotes the FCA's objectives and ensures regulatory and supervisory autonomy; and
• a domestic market access regime that addresses regulatory and supervisory risks from cross-border access, operates effectively post-Brexit and recognises benefits of open markets.

The FCA expects to:

• provide technical advice on Free Trade Agreement negotiations and on negotiations for a Mutual Recognition Agreement on financial services with Switzerland; and
•  continue to engage with the Treasury on the Financial Services Act and on its Call for Evidence on the UK’s overseas framework.

Diversity and inclusion

The FCA recently published a discussion paper on diversity and inclusion (see our briefing here). In the Business Plan, the FCA reiterates its vision that:

• regulated firms and listed companies have more diverse representation at all levels;
• regulated firms and listed companies foster cultures that are inclusive so that staff can share their diverse experiences and backgrounds; and
• firms design and deliver products that reflect the diverse needs of consumers, offer fair value and are delivered in a fair and accessible way.

Enabling consumers to make informed financial decisions

The FCA sets out a range of outcomes it would like to achieve in this regard and also sets out initiatives such as:

• a three year Consumer Investments Strategy (this will include how FCA deals with firms and individuals causing consumer harm) and a second data report, detailing FCA work on protecting consumers from investment harm;
• consulting on rules for high-risk investments and authorised firms that approve financial promotions (see our briefing here); and
• continuing to work closely with HM Treasury on changes to the regulatory framework for firms approving financial promotions (see our briefing here) and consulting on any relevant Handbook changes.

Consumer duty

The Business Plan also sees the FCA set out next steps in relation to a proposed Consumer Duty (see our briefing here). The FCA confirms it will issue a consultation paper and expects to finalise and introduce any new rules before the end of July 2022. The Business Plan sets out outcomes the FCA wants to achieve in this area:

• communications that equip consumers to make effective, timely and properly informed decisions about financial products and services;
• products and services that are specifically designed to meet consumers’ needs and sold to those whose needs they meet;
• customer service that meets the needs of consumers, enabling them to get the benefits of products and services and act in their interests without unnecessary barriers; and
• the price of products and services represents fair value for consumers.

Authors: Bradley Rice and Bisola Williams