FCA makes its expectations clear for the remainder of 2020


INSIGHT
Published
Jun 17th '20
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The Financial Conduct Authority (FCA) has summarised its thoughts in relation to Covid-19, and set out its expectations for 2020, in a speech given at a virtual conference earlier this month.

 

The presentation, given by the FCA’s Megan Butler, examined how the industry has responded to the coronavirus crisis. It also stressed the need to focus on the longer-term as we move away from the immediate ‘incident response’ stage.

 

Butler also detailed examples of firms acting less than ethically during the crisis, and stressed that the regulator will continue to respond robustly to any regulatory breaches.

 

The financial services sector’s response to Covid-19

Operationally, the industry is seen to have responded well to the crisis. The challenge of adapting to remote working and a new landscape, almost overnight, has been significant; something we explored in our blog on how prepared Compliance professionals were for Covid-19.

 

Overall, though, the FCA believes that the industry has held up well. Butler reported that “There has been no significant erosion of clients’ access to services, business continuity arrangements appear to be working and “glitches” have been worked through.”

 

The regulator itself has also adapted, postponing all ‘non-critical’ work in March and putting out regular updates for firms on its actions to mitigate and respond to the impact of the pandemic.

 

As it moves towards a future of operating in a ‘new normal’, the FCA will continue to focus on the priority areas set out in its 2020-21 Business Plan (read a summary of that in our blog on the FCA’s current priorities).

 

When it comes to adapting these objectives to the coronavirus, Butler confirmed that the regulator’s priorities are to ensure:

 

  • there is a good level of operational resilience
  • we understand firms’ financial resilience so that firms can fail in an orderly manner
  • markets can function enabling price formation and orderly trading activity
  • customers are treated fairly
  • customers are aware of the risk of, and protected from, scams

 

What does the FCA expect of firms currently?

In the speech, Butler focused on the regulator’s expectations around firms’ financial and operational resilience.

 

Operationally the FCA:

 

  • Expects all firms to have fully-tested contingency plan to deal with major events. Operational resilience has long been a focus for the regulator; last year it published a consultation paper on the topic, setting out proposals for how firms can strengthen their resilience.

 

The Authority is currently reviewing the contingency plans of a wide range of firms, in conjunction with the Bank of England.

 

  • Encourages firms to document the resources that underpin their critical business services, and as a result understand “where vulnerabilities may exist in their people, processes and technology and allow them to consider if further investment is required.”
  • Wants firms to keep a focus on operational resilience as circumstances chance and guidance evolves.
  • Needs firms to use the inbuilt flexibility in the FCA’s rules to support consumers, taking into account customers’ individual circumstances.

 

When it comes to financial resilience, the regulator wants:

 

  • The wealth management sector to share the FCA’s focus on the preservation of client assets and money.
  • Firms to understand how financial pressures could lead to customer harm, for example, “increasing the likelihood of financial crime, poor record keeping, market abuse and unsuitable advice and investment decisions”, and how market volatility “could reveal previous mis-selling, increasing complaints and redress.”
  • Any firms that exit the market to “minimise any delay in the return of client money and custody assets, and to take action ahead of time to prevent shortfalls in what they should be holding on their clients’ behalf.”

 

Pinpointing key outcomes

We looked recently at how you can achieve the FCA’s 6 consumer outcomes, which underpin many of its regulations. In her speech, Butler reiterates the regulator’s belief that “a regulatory approach that focuses on outcomes will allow us to be clear at a time when uncertainty, market dynamics, innovation, societal and legislative changes are all transforming the financial landscape.”

 

Consequently, the FCA wants ‘all firms to take consumer and market outcomes into greater account when they design and deliver services’ and plans to communicate with greater clarity on the outcomes it expects firms to achieve, in order to help them deliver on these.

 

Continued shortcomings highlighted

Some firms continue to fall short of the regulator’s standards; Butler called out specifically the firms that have closed down companies and started up new ones in order to try and avoid their liabilities to customers, and those that have pre-emptively set up new entities, applying for authorisation before complaints and liabilities at their existing entities had crystallised.

 

The speech stressed the FCA’s determination to take action if it sees bad practices. Butler said that: “If you are considering this course of action, be aware that we will be on to you and we will use all the regulatory tools available to us to stamp it out.”

 

We’ve previously looked at the range of penalties the FCA can enforce, including significant fines.

 

Looking to the future

Butler closed by sharing thoughts on the future of regulation, in an industry that continues to evolve and where technology and data have become ‘ever more central to how financial services are designed and offered’.

 

Regulators, she noted, ‘need to be agile during times of change’; she links this to the FCA’s increasingly outcomes-based approach.

 

While rules remain important, Butler acknowledged that ’the number and complexity of rules in the Handbook can make it hard for firms to interpret our expectations and the outcomes we want to see achieved’.

 

This is an area the regulator will continue to consider, to check that the current regulatory framework delivers not just against rules but against the intended outcomes for financial services customers.

 

In closing, Butler said that: “We will capture the lessons from this emergency about delivering quickly. But we also need to look at our entire system, from the data and intelligence we collect, how we decide which firms and individuals to allow to operate and how we supervise them, to how we ensure that unacceptable firms and individuals are stopped and removed from the regulated sector as quickly as possible.”

 

What can firms do to deliver on the FCA’s expectations?

Clearly, the regulator is revisiting its own approaches to ensure they remain appropriate and valuable in an ever-changing landscape – and currently, against a background of crisis.

 

Firms that want to ensure they continue to live up to the FCA’s expectations need to be clear on its rules and guidance – for instance, around financial promotions, which is often where consumers have their first interaction with regulated firms.

 

How can we help firms?

LS Consultancy has wealth of experience in reviewing financial promotions and can do so on a one-off or on an on-going basis.

 

We are also skilled in reviewing and assessing your financial promotion procedures and can assist you to establish the necessary framework to help future compliance with regulatory requirements.

 

LS Consultancy offer a complete solution with a range of self-service, cost effective, Regulatory Compliance and Marketing products and solutions that are uniquely suited to supporting firms.

 

Explore our full range today.