This blog provides an overview of the FCA’s 2018/19 Business Plan. It discusses the key cross-sector priorities the FCA identifies and compares them to those in the previous year’s business plan, noting dropped, changing and new priorities. It also outlines the FCA’s sector priorities for 2018/19.
Alongside the business plan, the FCA also published its 2018 Sector Views – the FCA’s annual analysis of how each sector is performing – covering retail banking, retail lending, general insurance and protection, pensions and retirement income, retail investments, investment management and wholesale financial markets.
Notably, the UK’s withdrawal from the EU is called out as a top priority, over and above any cross-sector or sector priorities. The FCA notes that they will have to dedicate extra resources to this programme of work, and that this will mean reduced activity in other areas as a result.
New elements, and areas of continuity, in the Business Plan
The 2018/19 Business Plan contains some new or updated cross-sector priorities, carries over some priorities, and drops one priority from last year’s business plan, as summarised below:
- The priorities on “Firms’ culture and governance”, “Treatment of existing customers” and “Financial crime and anti-money laundering” remain unchanged from last year’s business plan, although the latter now also includes a focus on scams and fraud.
- Last year’s “Technological change and resilience” priority is carried over across two new priorities: “Data security, resilience and outsourcing”, and “Innovation, big data, technology and competition”. Last year’s theme of “Promoting competition and innovation” is also captured in the second of these. Notably, the new aspects of these priorities are data security and big data, suggesting the FCA will be increasingly focused on firms’ use of both consumer and regulatory data and how they protect it. Outsourcing also features in the title of the FCA’s new priority, suggesting that the regulator will also be looking at firms’ scrutiny of and arrangements with third party suppliers. For further information, see our blog on technology and the FCA business plan.
- There are two new priorities, one on “Long-term savings, pensions and intergenerational differences” and the other on “High cost credit”, suggesting a renewed focus on firms operating in these markets.
- Finally, last years “consumer vulnerability and access to financial services” priority is no longer listed as a cross-sector priority. In our view, this represents a shift to consider vulnerability as a core part of the FCA’s work and supervisory approach. This new approach is evidenced by the continued citing of vulnerability as a driver of a number of the business plan’s pieces of work.
The EU Withdrawal process, the top priority for this year’s plan, is expected to take up a lot of the FCA’s resources, and Andrew Bailey acknowledges that it will affect “the amount of work [the FCA] can undertake in other areas”. The FCA’s work on Brexit will involve advising the government on withdrawal issues, making the withdrawal legislation (including the temporary permissions regime) and the rulebook fit for purpose, understanding firms’ plans for future operations and how this could affect consumers, and cooperating with EU and global regulators and supervisors.
“Consumer vulnerability” is no longer listed as a cross-sector priority in this year’s Business plan. However, vulnerability continues to be important to the FCA, and forms a part of numerous pieces of the FCA’s work. In our view, this shift does not signal any diminution of the priority FCA attaches to vulnerability but instead represents the FCA taking a more business-as-usual approach, by embedding vulnerability across its day-to-day activities.
The Business plan notes a number of priorities and pieces of work that will touch upon vulnerability:
- Technology and innovation could leave the more vulnerable in society at a disadvantage, and the FCA says it expects firms to develop plans to deal with those that are more vulnerable.
- In the field of high-cost credit, the FCA highlights the action it has taken to protect potentially vulnerable consumers by putting in place new rules for high-cost short-term credit firms, as the FCA considers the harm caused by high-cost credit to disproportionately affect vulnerable customers.
- In the retail lending sector, the FCA is concerned about the risk to customers in vulnerable circumstances, especially in the debt management sector, and will review practices and publish a report in the first quarter of 2019.
- In the general insurance sector, the FCA will continue to look at the ability for travel insurance consumers with existing conditions to access the market, and will publish a Feedback Statement on its Call for Input on Access to Insurance in the summer of this year.
In “Firms’ culture and governance”, a priority carried over from last year’s Business Plan, the FCA will maintain its focus on finalising the rules for the extension of the Senior Managers and Certification Regime (publishing a Policy Statement in the summer), establishing a public register of individuals captured by the Senior Managers and Certification Regime (SM&CR) and other important individuals in firms regulated by the FCA, and will take a broader look at all firms’ remuneration schemes and to identify the potential or actual harm from the remuneration schemes of firms that are not subject to the FCA’s Remuneration Codes.
“Financial crime (fraud & scams) and anti-money laundering (AML)”, is also carried over from last year, with the FCA’s continued work on fraud & scams now called out in the title. Work here will focus on ongoing supervision to tackle money laundering, building a better picture of money laundering, taking account of FATF Mutual Evaluation recommendations, raising awareness of fraud and scams and collaborating with law enforcement partners and other agencies to tackle these issues.
In the “Data security, resilience and outsourcing” priority, the FCA has indicated it will look at operational resilience, and assess the strength of firms’ governance, strategy, system architecture and culture. The FCA expects to strengthen its supervisory assessment of the highest impact firms and carry out focused thematic work with lower impact firms. It will also look at outsourcing arrangements, with a focus on understanding the impact of an outsourcer offering services to multiple firms, and the risks that may result from this concentration. Finally, work on resilience will consider the effect on the risks of cyber-attacks and data breaches of ring-fencing and the implementation of PSD2, and the FCA will also monitor the roll-out of the Competition and Markets Authority recommendations to measure consumer understanding of resilience.
In the field of “Innovation, big data, technology and competition”, the FCA affirms its commitment to encourage innovation. It will continue to assist firms in testing, commercialising and scaling up innovative concepts through the FCA Innovate Programme and the regulatory sandbox, and will work with interested regulators worldwide on the potential creation of a global sandbox. It will also increase its testing and adoption of RegTech and advanced analytics for its own regulatory work. The FCA also commits to analysing firms’ use of data, and will carry out work on Initial Coin Offerings (ICOs) and cryptocurrencies, especially through its participation to the Cryptoassets Task Force in the context of the UK FinTech Sector Strategy. It also commits to publish new rules for consultation on crowdfunding and publish an update on its review of retail banking business models.
The “Treatment of existing customers”, the third priority directly carried over from last year, will see continued work on pricing practices in retail general insurance, and the FCA moving to regulate claims management companies (CMCs), including assessing their role, alongside brokers and motor insurers, in claims inflation. The FCA also plans to evaluate the extent to which data from their value measures pilot, which is intended to help consumers make informed decisions on their insurance needs, has influenced behaviours. The FCA will also look at improving competition in the current accounts and cash savings markets, and at alternative dispute resolution access for SMEs.
In “Long-term savings and pensions and intergenerational differences”, a new cross-sectoral priority in this year’s Business Plan, the FCA has announced it will complete its Retirement Outcomes Review and will consult on proposed remedies. It has also warned firms it will “not hesitate” to intervene if it sees firms providing unsuitable pension transfer advice. Finally, it will further explore non-workplace pensions, whether there is competition on charges and if barriers exist to consumers choosing more competitive products. The FCA will also research undersaving for retirement, and will look at which consumer groups are most at risk of experiencing a shortfall in their expected retirement provision.
In “High-cost credit”, another new cross-sectoral priority in this year’s Business plan, the FCA will explore alternatives to high-cost credit and potential barriers to their expansion, and examine firms’ pricing for rent-to-own services, including charges for add-ons like insurance. It will also look at home-collected credit, and whether repeat-borrowing could work better for consumers, and will consult on potential changes. The FCA will also look at catalogue credit and potential concerns about high levels of arrears, and at how the complexity of these products can affect consumers. Finally, it will look further into arranged and unarranged overdrafts. The FCA will consult in May 2018 on measures to address low customer engagement, promote competition and improve transparency, and may consult later in the year on any additional measures potentially stemming from evidence and insight from the its Strategic Review of Retail Banking Models.
The business plan also notes a number of key activities related to each of the FCA’s Sectors.
In wholesale financial markets, the FCA plans to:
- Clarify their approach to market integrity by publishing their “Approach to Market Integrity” document;
- Undertake a thematic review of the harms caused by money laundering in capital markets;
- Monitor firms’ compliance with MIFID II conflicts of interest rules related to research unbundling, best execution, and restriction of payment for order flow;
- Look at the operational resilience of trading venues, benchmarks and other services;
- Considering the effectiveness of primary and secondary markets, including monitoring firms’ compliance with the IPO rules made last year; and
- Formally recognise some industry codes of conduct.
In the investment management sector, the FCA will:
- Continue to implement remedies from its Asset Management Market Study;
- Look at the impact of PRIIPs and contribute to the European Commission’s post-implementation review;
- Consult on new rules and guidance related to firms’ liquidity strategies
- Look at strengthening governance through SM&CR;
- Provide technical assistance to the Treasury during negotiations on proposals for a new prudential regime for investment firms; and
- Look at the impact of the growth in passive investment.
In the retail lending sector, the FCA will:
- Publish a Policy Statement on rules related to assessing creditworthiness;
- Launch a market study on credit information and Credit Reference Agencies (CRAs) in Q4 of 2018;
- Publish its Mortgage Market Studies interim report in Q2 of 2018, with a view to publishing final findings and next steps later in 2018/19;
- Publish the findings of its thematic review looking at credit brokers’ commission and other remuneration models towards the end of 2018;
- Publish the findings of its thematic review of debt management providers in Q1 2019;
- Finish its review of the motor finance market by the end of 2018; and
- Review the Consumer Credit Act 1974 retained provisions, on which the FCA intends to publish an interim report.
In the pensions and retirement income sector, the FCA will:
- Publish its joint Pensions Strategy with The Pensions Regulator and jointly host a series of stakeholder events and a webinar;
- Look at extending the remit of Independent Governance Committees of workplace pension schemes; and
- Work to help consumers avoid scams, including working with the Treasury and Department for Work and Pensions.
In the retail investments sector, the FCA will:
- Review the impact of FAMR and the RDR in 2019;
- Continue to review firms’ robo-advice models;
- Carry out a programme of work to tackle incidences of consumers entering into high-risk investments which are unsuitable for their needs;
- Continue to focus on harm in markets for contracts for differences, spread betting and binary options, including consulting on whether to apply ESMA’s measures banning these products from retail consumers on a permanent basis (the FCA notes that it supports ESMA’s agreed EU-wide temporary product intervention measures announced in March 2018);
- Publish the interim report of its platforms market study in summer 2018; and
- Continue to raise awareness of fraud and scams (the FCA notes an increase in fraudulent investment firms advertising online and on social media, and an increased risk of online investment fraud to younger consumers).
In the retail banking sector, the FCA will:
- Continue to help firms prepare for ring-fencing;
- Develop a payments sector strategy, including undertaking diagnostic work on payment fraud;
- Supervise and build an understanding of the business models of “Account Information Service Providers” and “Payment Initiation Service Providers”, which are brought into FCA regulation by PSD2; and
- Continue to prompt consumers to claim for PPI ahead of the 29th August 2019 deadline. The FCA intends to publish, before the end of 2018, an interim report providing findings on the performance of its PPI campaign and key supervisory reviews of, and interventions in, firms’ treatment of consumers.
In general insurance and protection, the FCA will:
- Publish interim findings on wholesale insurance brokers by the end of 2018;
- Conclude the first phase of its diagnostic work on value in insurance distribution chains, reporting findings and next steps in the second half of 2018;
- Focus on protecting vulnerable customers;
- Look at firms’ application of IDD rules over product design and oversight; and
- Evaluate the effectiveness of the FCA’s 2015 rules on guaranteed asset protection (GAP) insurance.
You may also be interested in our blog on the PRA’s 2018/19 business plan, which can be read here.