Summary of the FCA's 2022 to 2025 Strategy and Business Plan 2022/23

The Financial Conduct Authority (“FCA”) published its strategy for 2022-2025 last Thursday, alongside its latest annual business plan for 2022/23. Whilst the publication of an annual business plan in April is typical (except for last year when it was published in July due to the ongoing Covid-19 pandemic), this year the FCA has also published an accompanying three-year strategy.

2022 to 2025 Strategy

The strategy document emphasises the directional shift that was introduced within the FCA’s 2021/22 Business Plan, which initiated a move away from detailed plans per financial service sector, to a focus on the outcomes the FCA is seeking across all the sectors it regulates. In the Chief Executive’s foreword to the strategy, Nikhil Rathi said “we are now focusing on results rather than being driven by processes”.

The FCA has defined four “consistent topline themes” that cut across both consumers and wholesale markets, which are:

Fair value – ensuring consumers receive fair prices, quality and that markets sufficiently enable participants to make well informed assessments of value and risks
Suitability and treatment – products and services sold to consumers are suitable for them and they received good treatment.
Confidence – markets are resilient to firm failure, operate fairly and thus consumers have sufficient confidence to participate in these markets.
Access – markets should be resilient, diverse and inclusive.

The FCA’s strategy also introduces three focus areas, those being: reducing and preventing serious harm; setting and testing higher standards; and promoting competition and positive change. These areas are covered in further detail within the 2022/23 Business Plan.

Also, for the first time the FCA has published performance measures such that its own performance can be monitored against the four key outcomes and its commitment to being a more innovative, assertive and adaptive regulator.

Business Plan 2022/23

The Business Plan sets out the regulator’s programme of work for the next 12 months to begin delivering on its three-year strategy.

Against a backdrop of recent and emerging macroeconomic and geopolitical challenges such as Covid-19, Russian invasion of Ukraine and further anticipated inflation increases, this is a challenging time for consumers and markets. There are also the strategic policy challenges of delivering a regulatory Brexit dividend, becoming a world thought leader on environmental, social and governance (“ESG”) matters and delivering on recently announced Government ambitions for the UK to become the world leading centre for fintech innovation, including cryptoassets. The rapid expansion of cryptoassets and digitalisation of financial services create both opportunities and risks. Against this complex and challenging agenda, the FCA is seeking to be better placed to continue to respond to such challenges and opportunities by focussing on outcomes across all sectors and markets.

Following last year’s Business Plan, the categorisation and definitions of the FCA’s consumer priorities have changed, albeit the essence of the priorities defined in this year’s plan follow similar themes:

“Ensuring consumer credit markets work well” and “making payments safe and accessible” are aligned to the FCA’s commitment in the 2022/23 plan of “putting consumers’ needs first”;
“Delivering fair value in a digital age” is in line the commitment “shaping digital markets to achieve good outcomes”; and
“Enabling effective consumer investment decisions” is in line with the commitment of “enabling consumers to help themselves”.

The three commitments

1. Reducing and preventing serious harm

The FCA has committed to “dealing with problem firms”, which will result in the removal of firms from the market if they don’t reach the regulator’s minimum standards
Improving the redress framework so that it is fairer for consumers and firms from a global perspective
Improving oversight of Appointed Representatives, following previous communication
Reducing and preventing financial crime via a holistic, “whole system” response
Being assertive in relation to detecting market abuse and taking decisive action.

2. Setting and testing higher standards

Putting consumers’ needs first, starting with the progression of the proposed new Consumer Duty
Enabling consumer self-service through ensuring promotions are clear, fair and not misleading
Further developing the FCA’s ESG strategy, including developing a sustainability taxonomy and consulting on regulatory expectations relating to diversity and inclusion
Minimising operational disruption through operational resilience expectations of firms

3. Promoting competition and positive change

Future proofing the financial services sector by tailoring rules to benefit UK markets globally and thus strengthening the UK’s position in global markets
Shaping digital markets to achieve good outcomes.

How the FCA will deliver on these commitments

Keeping with the FCA’s shift towards a focus on outcomes through cross-sector responses, its Business Plan includes common regulatory tools and activities to cross each of the three commitments, which are:

Authorisation of firms and individuals
Set rules and standards
Support competition and innovation
Empower consumers and firms
Recognise and reduce harm
Take quick and effective action.

The FCA has made it clear there needs to be significant investment in its own technology, infrastructure and data analysis to enable it to become a data led regulator. A number of the outcome measures depend on the FCA being able to deliver on its Transformation agenda. This is a significant investment. The last two years of reports and accounts show FCA spending to be on people at about 60% of spend and technology at about 13%. The Business Plan sets out a budgetary increase of 7.3% which is inflationary, changes to responsibilities and changes to national insurance contributions. The question is whether the ambition for transformation is matched by the budget.

What is on the horizon?

In our view, three key policy initiatives to watch out for from the FCA this year and future years are:

Consumer duty - the FCA expects to publish the feedback statement and any finalised rules and guidance on the proposed Consumer Duty by July 2022 and expect firms to be working to implement these over the course of this year. It is important to point out that the Consumer Duty is not a rerun of Treating Customers Fairly. It is more fundamental and takes a new dimension in a digital world. The recent Discussion Papers by the CMA ‘Online Choice Architecture’ emphasises the importance of digital architecture in consumer protection and in driving effective competition, as well as highlighting some of the challenges.
ESG - ESG is a topic that is moving quickly and faster than the global regulatory thinking around it. The FCA published an ESG Strategy in November 2021, however there is still much to develop in this space and the FCA is engaged with industry and regulators nationally and internationally. For consumers, the focus is on minimising the risks of misleading advertising relating to ‘green’ products. For markets, the focus is on the quality and quantity of climate related sustainability disclosures. BDO publishes a Sustainable Reporting Update that may be of interest here.
Brexit – HMT will be expecting the FCA to utilise its regulatory powers to create a competitive advantage for London as a global financial centre, as well as the UK as a whole, whilst maintaining market cleanliness and standards.

If you have any questions or would like to find out more, please contact Richard Barnwell or Leigh Treacy.