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28 Mar 2024

The FCA's 2024/25 business plan – Some key takeaways for firms

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The FCA's latest Business Plan for 2024-25 had just been published. They make a number of forward- looking "Commitments". We touch upon some of those plans and express some views on what they may mean for firms (our observations appear in italics).

Reducing and preventing financial crime

The FCA say they will continue to take a data-led approach to identify potential harm for supervisory and/or enforcement action. Their reference to supervisory action perhaps reflects the increasing use of firm supervision as a tool to tackle financial crime.

This will include continuing to take assertive action to tackle scams and fraudulent websites. The FCA will also continue to work with partners to support system-wide improvements as well as using their powers through the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to improve standards in the legal and accountancy sectors.

The outcomes they say they want to achieve are:-

  • slowing the growth in investment fraud victims and losses – both cases and quantum.
  • slowing the growth in Authorised Push Payment (APP) fraud cases and losses – this neatly dovetails with the Payment Systems Regulator (PSR) and the Bank of England's introducing a mandatory reimbursement scheme for victims of APP fraud which enters into force later this year.
  • reducing in financial crime by lowering the incidence of money laundering through the firms we supervise directly and by improving the effectiveness of supervision by professional body supervisors.

In 2024/25, the FCA intend to increase investment in their systems to use intelligence and data more effectively within its financial crime work to target higher risk firms and activities. They say their key activities in this area will be:-

  • using their powers to disrupt, pursue and sanction those committing and enabling financial crime.
  • improving their capabilities to identify and request platforms and remove unauthorised financial promotions, associated websites and social media accounts.
  • raising awareness of fraud through their consumer campaign.
  • active engagement with partners including the National Economic Crime Centre (NECC) to strengthen the system-wide response to financial crime.
  • expanding their intelligence-gathering capabilities and analytics to better spot and track more potentially fraudulent activity and reduce the average amount of money lost to scams.
  • strengthening their proactive supervision through the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to drive improvements in the legal and accountancy sectors.
  • focusing on proactive assessments of anti-money laundering systems and controls for firms deemed higher risk – the criteria for identifying higher risk firms is not made clear.
  • using data to target the firms that are more susceptible to receiving the proceeds of fraud and ensure they do more to stop the flow of illegitimate funds – they do not identify which firms or classes of firm.
  • strengthening their supervision of firms’ sanctions systems and controls.

So financial crime, and particularly fraud, money-laundering and sanctions breaches remain near the top of their agenda, and firms should expect further, detailed scrutiny of the financial crime systems and controls, including "enforcement" by supervision.

Putting consumers’ needs first

The FCA refer to the (not so new) Consumer Duty as representing a step change in their expectations of firms, highlighting also that from 31 July 2024, firms will need to ensure that both open and closed products are delivering the right outcomes for consumers – this back book exercise is looming and firms should be acting now – it may well be challenging to apply the duty retrospectively. They say they will continue to focus their interventions where there is greatest risk of harm or where more work is needed by firms to identify and address gaps and to meet the higher standards of the duty. Their wider work also includes their response to cost-of-living pressures, financial inclusion, access to cash and addressing consumer difficulties in accessing the financial products and services they need.

Their intended outcomes reflect the 4 "outcomes" required to comply with the Consumer Duty around products and services, price and value. consumer understanding and consumer support.

They refer specially to firms acting in good faith towards consumers, avoid causing them foreseeable harm and enabling and supporting them to pursue their financial objectives. They want to ensure consumers are sold products and services that meet their needs, characteristics, and objectives, and that they pay a price for products and services that represents fair value; poor value products and services must either be improved to deliver fair value or removed from markets.

The FCA also want consumers to be equipped with the right information to make effective, timely and properly informed decisions about their products and services, and receive good customer service. One other particular focus is on firms' support for consumers to sustainably manage their debts – this focus on the Consumer Duty has yet to develop into more formal investigations and enforcement, but it is doubtless coming.

The FCA say they will carry out multi-firm work and market studies across different sectors to drive up standards e.g. unit-linked pensions and long-term savings products and looking at how swiftly the insurance industry responds to claims, including specifically in relation to vulnerable customers – we expected the FCA would use market studies to police the Consumer Duty – firms should expect more of the same. The FCA say they will specifically review firms’ treatment of customers in vulnerable circumstances – firms should be looking at this now, making sure they have done enough to satisfy the FCA's concerns in relation to this client sub-set.

The FCA's plans for 2024/25 also include (among other steps):-

  • supervisory work to test firms’ implementation of the Consumer Duty/improve firms’ delivery of good consumer outcomes. This will include complaints-handling and root cause analysis, consumer support journeys, consumer understanding, fair value and closed products and services.
  • continuing work to ensure people with savings receive a fair deal and are kept informed of better rates.
  • finalising changes to their mortgage, consumer credit, and overdraft rules to improve outcomes for consumers in financial difficulty.
  • implementing new rules to ensure consumers and businesses have reasonable access to the cash and continued supervision of branch closures.
  • undertaking an impact evaluation of the effect of their interventions for persistent debt following their Credit Card Market Study.

Dealing with problem firms

Another FCA commitment is dealing with problem firms. They say that they continue to proactively detect and take action against problem firms and individuals and that ongoing work will include:

  • increasing their auto-detection capabilities of problem firms and individuals.
  • quickly identifying, and where necessary cancelling, those firms that do not meet Threshold Conditions – this might suggest that in the current economic downturn, the FCA will be keeping a close eye on firms' financial well-being, and we may say a more interventionist approach. ICARAs/Wind- down Plans will need to be up to date and compliant.
  • using the full range of regulatory tools to prevent harm to consumers and markets.
  • identifying any barriers in their regulatory framework that might constrain their ability to take action – it is not clear what the FCA are alluding to here, but it is clear that they consider there are some unhelpful constraints – more information would be useful.

Taking assertive action on market abuse

Another commitment concerns taking assertive action on market abuse. The FCA say they will significantly increase their capability to tackle market abuse. Their ongoing work this year will include:

  • increasing their ability to detect and pursue cross-asset class market abuse. The FCA say they will also build on their advanced analytics capabilities such as network analysis and cross-asset class visualisations. They will develop improved market monitoring and intervention in Fixed Income and Commodities, covering both market abuse and market integrity – firms would be well-advised to ensure their own suspicious transaction surveillance captures cross asset class manipulation.
  • as part of the SRF process (HM Treasury's Smarter Regulatory Framework) , the FCA will issue a discussion paper on transferring the MiFID data reporting regimes for transactions (RTS 22), and reference data (RTS 23). They say they will assist in delivering a proportionate market abuse regime for Crypto Assets and the PISCES facility (the Private Intermittent Securities and Capital Exchange System which will allow privately held companies to open "intermittent trading windows" for shareholders to sell existing shares through its platform).

The FCA also say they will extend their data reporting supervision approach to the European Market Infrastructure Regulation (EMIR), the Securities Financing Transactions Regulation (SFTR) and Orderbook regimes.

The FCA will also publish the results of their peer review of market abuse systems and controls in providers of Direct Market Access (DMA) – this promises to be an interesting analysis for those providing and those using DMA – we have seen previous enforcement cases which have focussed on this market. The FCA will publish revised Market Cleanliness Data in Q3 2024, which will capture more anomalous trading compared to their existing metrics.

Reducing harm from firm failure

The FCA will aim to minimise the adverse impact of firm failure on customers and markets – we are likely to see more firms failing in the current downturn so this in bound to be an area of focus, and the FCA themselves allude to the need to respond to and manage the impact of severe market shocks, especially given the current environment and their expectation of an increase in corporate insolvencies is expected to persist in 2024.

The FCA claim they will continue to use data and horizon-scanning mechanisms to anticipate firms that are at risk of failure and make sure they can respond appropriately in the event that they do to protect consumers and ensure market integrity.

They do add that they will also continue to support industry by sharing relevant information they identify through their data, the new financial resilience return and their everyday work, such as examples of good and poor practice of wind down planning – this might be difficult on a firm specific basis given the S.348 FSMA confidentiality constraints.

Improving the redress framework

One point of note is their reference to their continuing to work on historic discretionary commission arrangements in the motor finance market, they aim to set out their next steps on this in Q3 2024.

Minimising the impact of operational disruptions

The FCA focus on operational disruptions, saying firms still face a high, and growing, level of cyber threats and operational resilience risks, against a complex geopolitical backdrop. They are also seeing increasing levels of systemic risk build up in the system due to reliance on critical third parties. The FCA continue to deal with firms that cannot meet their standards on operational resilience and highlight that from 31 March 2025, all relevant firms will need to maintain their important business services without intolerable harm to consumers and markets.

They also intend to publish a consultation paper clarifying their expectations on how firms should report operational incidents to us – clearly, they do not think the existing reporting requirements do enough to ensure that firms are responding effectively to minimise harm to consumers and markets.

The Consultation Paper will also propose new rules to address the systemic risk that critical third parties present to the financial sector.

We have not covered all of the FCA's Business Plan "Commitments" in this summary, but we think what we have highlighted is more than enough for firms to think about.

Author David Capps

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