Business Plan 2020-21: FCA remains vigilant to potential misconduct

The Financial Conduct Authority (FCA) has this week published its annual Business Plan. Unsurprisingly, the emergence of COVID-19 has significantly impacted the organisation’s ability to set out its strategic focus for the next three years. While the Plan sets out the areas of priority on which it intends to focus in this period, it recognises that it may be months before the FCA is able to focus fully on the activities set out in the Plan and that the issues to be addressed may change significantly over the coming months.
 

It sets out its five key priorities over the next one to three years:

• Transforming how the FCA works and regulates.
• Enabling effective consumer investment decisions.
• Ensuring consumer credit markets work well.
• Making payments safe and accessible.
• Delivering fair value in a digital age.

The Plan is significantly shorter than usual and the impact, and potential impact, of COVID-19 on the FCA’s ability to engage in any meaningful planning is evident on every page. However, the following points are likely to be of particular interest to regulated firms and individuals:

• The FCA will remain vigilant to potential misconduct. The Plan sends a clear warning that those who seek to exploit the current crisis – for example, by engaging in market abuse, capitalising on investors’ concerns or by reneging on commitments to consumers – will face the full force of its powers.
• As part of its commitment to tackle financial crime, the FCA has committed to:
  • Making greater use of data to identify firms or areas that are potentially vulnerable.
  • Continuing to take enforcement action where it uncovers serious misconduct, particularly where there is a high risk of money laundering.
  • Consulting on extending the Financial Crime Data Return to more firms to help strengthen its risk-based supervision as part of the wider Anti Money Laundering (AML) strategy.
  • Testing how well (through OPBAS) professional body supervisors in the legal and accountancy sectors have embedded AML strategies.
• The FCA has committed to making faster and more effective decisions. While there is lack of detail as to how this will be achieved, the Plan refers to investing and developing its capabilities to enable it to make swift, confident and well-informed decisions. This signal will be warmly welcomed by firms and individuals who have been awaiting decisions by the regulator in respect of outstanding matters.
• The Plan makes it clear that it expects firms to have higher standards of governance and greater control over individuals in their distribution chains to tackle misconduct prejudicing consumers’ interests. This gives a clear steer that where consumer detriment has potentially arisen, firms will be expected to demonstrate that, at the highest levels within the firm, they had taken appropriate steps to minimise the risk of misconduct taking place.
• Building on recent work on operational resilience, the FCA intends to set new requirements upon firms to strengthen operational resilience. The impact of COVID-19 has naturally brought particular focus on firms’ ability to minimise the adverse impact of disruptive events on consumer interests and market integrity.
• The Senior Managers & Certification Regime (SM&CR) was extended to all solo-regulated firms on 9 December 2019. The FCA indicates in the Plan that it intends to focus on four key culture drivers – purpose, leadership, approach to rewards and management and governance – and how effective these are being in reducing potential harm. See our related blogs: Senior Managers and Certification Regime.

Finally, the Plan sets out the key outcomes it is seeking to deliver by working with those in wholesale financial markets, investment management, retail banking and insurance.

In wholesale financial markets, the key outcomes which the FCA wishes to achieve are:

• Orderly transition from LIBOR – it is important that firms transition before the prospective end of LIBOR after the end of 2021 and treat customers fairly.
• Clean markets that make it difficult to commit market abuse and financial crime – the FCA will continue to evaluate and adapt supervisory and enforcement strategies to respond to external changes, such as the impact of EU withdrawal on UK and EU coordination and co-operation arrangements (including data sharing), COVID-19 and technological developments.
• Wholesale markets that deliver a range of good value, high-quality products and services to market participants.
• Markets remain orderly in a range of market conditions:
  • FCA actively focusing on this in light of the global COVID-19 crisis.
  • Preparing for the impact of the ending of the EU exit transition period.
• Markets meet users’ needs. Improving market effectiveness remains a key focus, including through enhancing governance and accountability through the SM&CR.

The focus for the investment management sector is upon ensuring that investors get high-quality and fair value products and services.

Within the insurance sector, the FCA has identified that the principal drivers of harm are unfair pricing practices in personal lines insurance, unsuitable and poor value products and undesirable remuneration practices in firms. It makes it clear that the key outcomes it is looking to achieve are the delivery of suitable products, consumers not being unfairly excluded from certain products and services and operational resilience.

In retail banking, it is recognised in the Plan that harm in the sector is often caused by financial crime, weak operational resilience and poor access to services for consumers. Weak governance and oversight in smaller banks is also driving harm. The FCA wants firms to build greater resilience to economic crime through sustainable improvement in their systems and controls so that they can spot, disrupt and stop these activities. See our related blog: COVID-19: Scams, short-selling and more.

Though the plan confirms that it may be “weeks or months before we are in a more stable position and can turn ourselves fully to the activities in this plan”, this is not an invitation for those in the sector to take a step back from their regulatory responsibilities and operational compliance. If there is any doubt as to this a final note is sounded: “we will not compromise on our expectations of firms”.

further information

For further information on the issues raised in this blog post, please contact a member of our criminal team.

About the author

Jill Lorimer is a partner in our Criminal Litigation team and has an extensive track record in advising firms and individuals facing regulatory and criminal investigations by the Financial Conduct Authority (FCA). Jill has particular expertise in advising firms who are, or who may be, under the scrutiny of the FCA and in taking a proactive approach to head off potentially adverse action. She also advises individuals applying to be FCA approved persons as well as those whose approved status is at risk.