FCA business plan flags potential enforcement targets in the UK

The FCA has published its business plan for 2019/2020. Again, emphasis is placed on the FCA’s work to ensure an orderly transition post Brexit, but there are a range of other focus areas for the next 12 months, which will provide the FCA with a challenging workload. There are eight cross-sector priorities (including handling Brexit withdrawal) and specific priorities for each of the seven sectors that the FCA regulates. 

It’s not surprising that the FCA is focusing on Brexit transition and international cooperation as one of its key priorities. It will continue to work towards a smooth transition for the financial services sector, consider equivalence of standards going forward and increase participation in international bodies with the aim of continuing to influence international conduct standards. 

Of the other seven cross-sector priorities the following will be familiar from previous business plans and recent activity:

• work on firms’ culture and governance, focusing on the four drivers of purpose in a meaningful culture, leadership, remuneration and other people management, and governance; 
• ensuring the fair treatment of firms’ existing customers by monitoring firms’ practices, including the information they give prospective and current customers, and further price intervention is not ruled out;
• developing the work being done on operational resilience in the light of feedback on the July 2018 discussion paper and focusing on the key causes of cyber incidents/disruption identified in the 12 months up to September 2018 (around a fifth caused by system upgrades/transfers, 17% by failures at third party service providers and 14% by cyber-attacks); and 
• combating financial crime and improving anti-money laundering practices, by enhancing the use of intelligence gathering, technology and data, as well as engaging with multiple agencies and government bodies.

And there are three strategic priorities, which we have seen elements of in the FCA’s work before but that have been reframed: 

• the future of regulation;
• ensuring that innovation and the use of data work in consumers’ interests; and 
• examining the intergenerational challenge in financial services.

The FCA is already working on simplifying and future-proofing its Handbook but, beyond updating the Handbook to operate post-brexit, Brexit is also identified as an opportunity to consider the future of UK regulation to pursue the FCA’s outcome objectives in a “smarter” way. 

We have already seen activity by the FCA to promote innovation and testing of new technology, for example in the regulatory sandpit project, and considering demographic change, for example the FCA’s work on consumer credit standards and pension advice for working age people and the treatment of interest only mortgages, fraud prevention for those with pension pots available to spend and review of the annuities market for people of retirement age. The last two priorities mentioned above build on this previous work. 

The FCA also sets out planned work and priorities for each of the investment management, retail lending, pensions & retirement, retail investments, retail banking, insurance and wholesale markets sectors. It’s notable that the FCA’s competition work features heavily in the majority of these sectors, indicating a continued focus on market-based review work, and perhaps the likelihood of more competition enforcement (following the FCA’s first competition enforcement outcomes). 

In addition, it’s possible to discern potential targets for enforcement from express reference or inference in the business plan. Across all sectors these include cultural failings or a failure to correct shortcomings, failings in handling cyber incidents (particularly where outages are prolonged or customer communications are unclear), and inadequate systems for preventing AML, bribery and corruption. In the retail sectors, targets for enforcement include unsuitable advice on pension transfers and high risk investments, unaffordable retail lending, and sale of unsuitable products and conflicts in general insurance sales. And in the wholesale sectors, the focus appears to be on compliance with implemented European legislation (such as MiFID II and the Market Abuse Regulation), delayed or misleading primary market disclosures, cross-market manipulation, abuse in the fixed income markets and insider dealing in equities.