FCA publishes its 2023/24 Business Plan
On 5 April 2023, the FCA published its 2023/24 business plan setting out its strategy for the year ahead (the Plan). The Plan should be read alongside the Financial Conduct Authority’s (FCA) three year strategy document, which was published on 7 April 2022.
Firms should expect a more assertive and adaptive regulator who will intervene early in a targeted manner in order to protect consumers, the market and ensure an orderly wind down of firms that fail. Areas of focus include the implementation of the Investment Firm Prudential Regime (the so-called IFPR), the consumer duty regime, recovery and resolution planning, ESG, financial crime and the appointed representative regime, which continues to be an ongoing area of concern for the FCA.
Key Areas of Focus
Dealing with Problem Firms
The FCA is focused on continuing to develop and enhance its “data-led assertive capabilities” to proactively identify firms who do not meet minimum standards. The FCA intends to be less risk averse and take more robust action in order to send a strong message to firms. This will consist of, amongst other things:
- conducting specific complex Threshold Conditions test cases to identify if current legislation and policy is working. Where they don’t, the FCA will look to make changes to help meet its aims;
- continuing to identify and cancel firms that do not meet Threshold Conditions quickly and at scale, removing them from the regulated market (this appears to be an extension of the FCA’s work in proactively contacting firms who do not appear to be carrying on regulated activities to cancel their authorisation voluntarily; or face the consequence of being cancelled by the FCA); and
- expanding the types of breaches of Threshold Conditions where it will take action.
Reducing harm from firm failure
The recent resolution of Silicon Valley Bank and interventions in relation to Credit Suisse underlines the market uncertainty and the heightened risk of firm failure. The FCA recognises that firms do fail but wants to minimise the harm and loss to customers and markets as a result.
The FCA expects firms to be financially resilient; client assets and funds to be appropriately held so they can be returned quickly, and fully in the event of firm failure; and financial and other stresses to be identified and rectified speedily. The FCA intends to introduce a new regulatory return requiring 20,000 solo-regulated firms to provide a baseline level of information about their financial resilience. This feeds into the FCA’s data-led approach to regulation which the FCA considers will better help it identify financial and other stresses which may cause failure; but will also be additional information for firms to provide.
Key activities that the FCA will continue during 2023/24 includes:
- embedding the IFPR such as the ICARA, the remuneration code and reporting (including publishing implementation finding and best practice examples);
- using its powers “more assertively” to start relevant insolvency processes to reduce harm; and
- monitoring higher risk business models shortly after authorisation and during periods of high growth.
Improving Oversight of Appointed Representatives
The FCA introduced new rules for the Appointed Representative (AR) regime which took effect on 8 December 2022. The aim of the new rules is to improve principal oversight of ARs, increase the information principals provide to the FCA and raise standards across the financial services sector. The FCA’s activity in the AR sector will continue and principal firms should expect more engagement from the regulator and greater scrutiny of AR arrangements. The FCA said that it will start testing that firms are properly embedding the new rules across the AR regime in 2023/24.
The FCA will also continue to increase engagement with principal firms as they appoint ARs and carry out “robust assessments” of authorisation applications by prospective principal firms. The FCA also intends to undertake more assertive supervision of high-risk principals, including greater use of regulatory tools and enforcement action.
The FCA will also be supporting the Treasury’s work on the responses to their Call for Evidence which ran until March 2022 and propose legislative changes as necessary. The Call for Evidence was an information gathering exercise on how market participants use the AR regime and how effectively the regime works in practice.
Reducing and preventing financial crime
This remains a key area of focus for the FCA. The FCA wants to tackle investment fraud, the growth in APP fraud cases and losses; and reduce money laundering through the firms regulated by the FCA. The use of data by the FCA will play a key role in achieving these outcomes. Firms should also be increasing their own use of data to identify and stop financial crime.
The FCA intends to:
- increase the use of data to better identify firms which are more susceptible to receiving the proceeds of fraud and ensure that they are doing more to stop the flow of illegitimate funds;
- increase the volume of proactive assessments of firms’ AML systems and controls; and
- ensure that it has effective oversight of firms communicating and approving financial promotions (including crypto assets when it comes within scope) and that firms only do so if they have the relevant competence and expertise.
The FCA also recognises the need to upskill itself and has been investing in additional skills to enable it to deliver on the widened scope of the financial promotions regime.
Consumer Duty and Putting Consumer Needs First
The FCA has allocated £5.3 million to overseeing the implementation of the Consumer Duty. While this is only 0.77% of the FCA’s total annual funding budget of £648.2 million, it is a significant amount to be allocated to a single initiative as compared to the other initiatives set out in the FCA’s budget.
This funding will allow the FCA to undertake sector-specific supervisory work. It will also allow the creation of an additional “Interventions” team within Enforcement, which will be available from day one of the Consumer Duty coming into force and available to respond where immediate consumer harm is detected.
In addition, the FCA intends to consult on changes to the mortgage, consumer credit, and overdraft rules to improve outcomes for customers in financial difficulties.
The FCA has said that it will design and begin to deliver a robust and proportionate regime for Buy-Now Pay-Later products as they come into the regulatory perimeter. While timings have not been stipulated in the Business Plan or in the Treasury’s most recent consultation, we do not expect the rules to be implemented before 2024.
The FCA will actively monitor how firms and listed companies are implementing ESG disclosures requirements.
Final rules and a policy statement on the SDR requirements appliable to managers and AIFMs are expected in Q3 2023. Please see our previous alert for further details. The FCA is expected to consult on applying the SDR to overseas funds and products in due course.
We are expecting the FCA to consult on changes to the listing rules to reference the final ISSB standards.
The FCA continues its work on diversity & inclusion and will provide a Feedback Statement to the Discussion Paper on ESG governance, incentives and competence, including planned next steps.
The FCA will work closely with stakeholders on delivering the outcomes of the future regulatory framework and the Edinburgh Reforms. Amendments to the fund regulatory framework should be expected following the publication of its discussion paper in February 2023.
Should you have any questions or require further advice on the impact of the Business Plan on your business, please contact a member of our team.