At a Glance
The UK’s Financial Conduct Authority (the FCA) has recently published its Business Plan for 2024/25, setting out its business priorities for the year ahead. The Business Plan includes 13 commitments which support the realisation of the objectives in the FCA’s 3-year strategy for 2022 to 2025 (the FCA Strategy).
To recap, the FCA Strategy sets out three areas of particular focus:
- reducing and preventing serious harm;
- setting and testing higher standards; and
- promoting competition and positive change.
While the Business Plan refers to many ongoing / pre-existing initiatives, this blog sets out our 5 key takeaways.
1. Reduction and Prevention of Financial Crime is the FCA’s number 1 commitment: The Business Plan identifies plans to reduce the growth of investment fraud, APP scams and the incidence of money laundering through regulated firms. The FCA will continue to strengthen its supervision of firms’ sanctions systems and controls, its engagement with the National Economic Crime Centre, and its proactive supervision through the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). It will also increase investment in systems to support its intelligence and data led approach to enforcement, and to enable targeting of higher risk firms and activities.
2. Supervision of firms’ implementation of the New Consumer Duty remains a priority: The FCA considers effective implementation of the New Consumer Duty to be critical to its commitment to put consumers’ needs first. While the duty came into force last year for products and services still on sale to new consumers (or available for renewal), from 31 July 2024 the duty will extend to both open and closed products.
We might expect to see the first cases of FCA investigations or enforcement activity in relation to the new duty. In its Policy Statement 22/9, the FCA stated that it expected firms’ implementation of the new duty to be “iterative”, and that “initially, [it] will focus on tackling the most serious misconduct.” As time passes, the FCA may become increasingly proactive in its enforcement approach with rising expectations of compliance.
3. There will be a review of firms’ treatment of vulnerable consumers: In a climate of high (albeit falling) inflation and global financial risk, the FCA is keen to protect vulnerable consumers. It refers to the work it has already undertaken in relation to cost of living pressures and reminds us that the New Consumer Duty will require firms to consider the needs of all consumers to provide a positive outcome, including those who are vulnerable.
Protection of vulnerable consumers will stay high on the FCA’s agenda following its recent announcement of a review of firms' treatment of customers in vulnerable circumstances. It will share its findings from that review by the end of 2024.
4. We may see changes to the redress framework: The FCA wants to see more efficient and appropriate redress, and for regulated firms to bear more of the cost of redress. Although the Business Plan does not elaborate in much detail, it commits to continued cooperation with the Financial Ombudsman Service (FOS), the Financial Services Compensation Scheme and Pensions Regulator through the Wider Implications Framework. The Wider Implications Framework provides a structure for regulators and their management teams to work together to best deal with issues which could have wider implications across the industry.
Regulated firms will be particularly interested in how the FOS interprets and applies the New Consumer Duty under its jurisdiction to decide what is “fair and reasonable”, and whether its interpretation is consistent with that of the FCA. This will be of even greater importance since the FOS’ jurisdiction cap has increased to £430,000 for complaints brought on or after 1 April 2024.
The FCA has various redress options at its disposal but has historically rarely used them, instead preferring to rely on firms to compensate consumers proactively and voluntarily under DISP 1.3.6G. In circumstances where firms fail to offer voluntary redress, we may see the FCA mandating industry wide redress schemes (s.404 FSMA), single firm redress schemes (s.55L FSMA), or require restitution of consumers (s.384 FSMA).
The FCA has hinted that it may be more inclined to rely on its powers to impose mandatory redress schemes. In its Policy Statement 22/9, the FCA said that if it identified serious misconduct in breach of the New Consumer Duty, it would use its “deterrent and remedial powers… [which] could include … securing redress for customers…” The joint executive director of enforcement and market oversight also commented in a recent speech that the FCA will “prioritise compensation to consumers over fines where that is the right thing to do.”
5. ESG compliance remains in focus: In keeping with the UK’s net zero transition targets, the FCA intends to support the financial sector through integration of the Sustainability Disclosure Requirements and Investment Labels. The FCA’s Anti-greenwashing rules and guidance come into force on 31 May 2024. The FCA also plans to expand the regime and launch a consultation on portfolio management this year.
For more information on the FCA’s anti-greenwashing guidance, see our firm’s November 2023 blog, here.
