Getting to grips with FCA priorities

FCA business plan summary

The Financial Conduct Authority (FCA) has set out its priorities for the next 12 months, and the direction of change it expects from financial services firms. Martin Kisby, Director of Risk and Compliance from Lenvi explores what this means for the industry.

There are four key areas that the Financial Conduct Authority (FCA) is intent on focusing on over the next 12 months. Firstly, it wants to see stronger evidence of financial services firms putting customers’ needs first. Secondly, it is committed to tackling financial crime. Thirdly, it aims to future-proof financial services against emerging harms. And in addition, it will seek to strengthen the UK's position in global wholesale markets. 

These are obviously all positive objectives for the sustained success of the industry, but they do also come with heightened responsibilities for financial services firms, who are already having to adapt to the challenging post-pandemic landscape of the cost-of-living crisis, and the surge in consumer vulnerability.

The first of the four priorities listed above, which were set out in the FCA’s recently published 2023/24 Business Plan, underlines the significance of Consumer Duty, which comes into effect on 31 July. This has clearly put some firms under pressure as they scramble to meet tighter requirements to gather and analyse customer data in order to protect and support the vulnerable. However, as with most challenges, it also provides an opportunity. By encouraging a smarter, more proactive approach to gaining insights from customer data, Consumer Duty should help to enhance the competitive performance of many organisations. The push to ‘put customers’ needs first’, and introduce root cause analysis of persistent customer complaint issues, offers significant potential for business growth and efficiency, particularly as the technology in this field is now exceptionally good.

Meanwhile, as the cost-of-living crisis drives up the threat of financial crime, everyone within financial services needs to step up vigilance in data analysis. The good news is that there are now very effective digital tools for managing risk through identifying suspicious patterns of behaviour, particularly in the business loans sector.

Ramping up international competitiveness

The latest FCA Business Plan also builds on the strategy it launched last year, which set out three operational objectives:

• Secure an appropriate degree of protection for consumers.
• Protect and enhance the integrity of the UK financial system.
• Promote effective competition in the interests of consumers.

In addition to these, an extra objective ‘to facilitate the international competitiveness of the UK economy and its growth in the medium to long term’ is being added through the Financial Services and Markets Bill which, at the time of writing, was before the House of Lords. This includes sharpening operational effectiveness through continued improvements to the authorisations processes, and providing more opportunities for UK financial services companies to invest, innovate and expand.

Challenges for the consumer

Another big push from the FCA lies in what it calls ‘data and technology led regulation’. As the FCA builds on its investment in cloud technology, implementing new digital capabilities and designing new data solutions, it expects the industry to demonstrate the same mindset. 

The Business Plan also sets out what the FCA believes to be the key challenges in the months ahead:

1. Interest rates and inflation.
2. The risk that unemployment increases more than currently projected.
3. Potential for further declines in real household disposable incomes.
4. Potential for further market volatility.

Once again, the focus here is clearly on the customer, and how these economic challenges may affect consumer vulnerability. The direction from the FCA is that firms will be scrutinised to ensure that they “treat customers fairly, support those in difficulty and give them the information they need to make good decisions”.

The FCA says it is “committed to becoming a more assertive, adaptive and innovative regulator”, placing big expectations on both itself and the industry for the months ahead. The firms that flourish best in this environment will be the ones that fully embrace the challenges (and opportunities) around KYC, data and technology. We are already helping several clients with this, and we may be able to help you too. Don’t get left behind.

Summary FCA Priorities for 2023/24

• Preparing financial services for the future – working with the Treasury to implement the new regulatory framework so we can address emerging harms more efficiently.
• Putting consumers’ needs first – to improve consumer protection and standards for all consumers and ensure our support for struggling consumers remains a priority.
• Reducing and preventing financial crime – prioritising this will also help protect consumers to an extent and consumers in vulnerable circumstances specifically, as they may be more susceptible to fraud. This also supports our commitment of ‘Putting consumers' needs first’.
• Strengthening the UK's position in global wholesale markets – to help ensure that the UK continues to be seen as one of the leading global markets of choice and strengthen our ability to respond to market volatility.