Introduction
On 19 March 2024, the FCA published its 2024/25 Business Plan detailing its key areas of focus for the coming year.
The FCA’s areas of focus for the year ahead takes into account the uncertain economic and geopolitical environment and the new regulatory framework.
They are also based on this year being the final year of the FCA’s 2022-2025 strategy which set out the following objectives: (1) reducing and preventing serious harm; (2) setting and testing standards; and (3) promoting competition and positive change.
We look at key elements of the Business Plan and highlight the preparation firms should undertake to avoid becoming the subject of FCA regulatory action, including enforcement proceedings.
The FCA’s focus for 2024/25
The FCA’s areas of focus for the year ahead include:
- protecting consumers by testing if firms are meeting the high standards set by the Consumer Duty, supporting consumers’ long term financial wellbeing through the Advice Guidance Boundary Review, and making sure pension products deliver value for money.
- ensuring market integrity by monitoring risks in markets and taking action where appropriate, as well as continuing to invest in data and technology to support rigorous market oversight.
- promoting effective competition to deliver good out outcomes for consumers and identifying where more effective competition can better deliver fair value outcomes under the Consumer Duty.
FCA commitments
The FCA will continue to deliver its 13 public commitments, with a focus on:
- reducing and preventing financial crime
- putting consumers’ needs first
- strengthening the UK’s position in global wholesale markets
Other notable commitments for the coming year include:
- Environmental, social and governance (ESG) priorities
- Improving oversight of Appointed Representatives (“AR”)
The FCA’s other commitments (which are not dealt with in this article) include preparing financial services for the future, dealing with problem firms, reducing harm from firm failure, shaping digital markets to achieve good outcomes, improving the redress framework, enabling consumers to help themselves, and minimising the impact of operational disruptions.
Reducing and preventing financial crime
The FCA referenced two national strategic documents, the Economic Crime Plan and the Fraud Strategy, and noted how its supervision and regulation play an important role in achieving the national ambition to reduce and stop financial crime.
The FCA stated that it will continue to take a data-led approach to identify potential harm for supervisory and/or enforcement action, including continuing to take assertive action to tackle scams and fraudulent websites. The FCA will also use its powers through the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to improve standards in the legal and accountancy sectors.
In addition, the FCA will start and/or continue the following activities (some of which are included below) over the coming year to achieve its outcomes, including slowing the growth in investment fraud victims and losses, slowing the growth in Authorised Push Payment (APP) fraud cases and losses, and reducing financial crime:
- increasing investment in FCA systems to use intelligence and data more effectively within its financial crime work, so it can target higher risk firms and activities.
- using its powers to disrupt, pursue and sanction those committing and enabling financial crime.
- focussing on proactive assessments of anti-money laundering systems and controls for those firms deemed higher risk.
- 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.
- strengthening its supervision of firms’ sanctions systems and controls.
Financial crime and particularly fraud, money laundering and sanctions breaches remain a key priority for the FCA in the coming year.
How should firms prepare?
Firms should expect further detailed scrutiny of their financial crime systems and controls and would be well advised to ensure that these systems and controls are compliant with relevant legislation and regulations, and meet the FCA’s expectations, to avoid any potential regulatory scrutiny.
Putting consumers’ needs first
The Consumer Duty came into force last year for products and services still on sale to new customers or available for renewal by existing customers, which the FCA says “…represents a step change in our expectation of firms”. From 31 July 2024, firms will also need to ensure that closed products are delivering the right outcomes for consumers.
The FCA’s Business Plan states that it will continue to focus its interventions on where there is the 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 Consumer Duty.
Among its planned activities, the FCA will assess firms’ treatment of customers in vulnerable circumstances and will continue its supervisory work to test firms’ implementation of the Consumer Duty (including complaints handling and root cause analysis, consumer support journeys, fair value and closed products and services). It will also continue its work to ensure people with savings receive a fair deal.
How should firms prepare?
We have not yet seen Consumer Duty failings developing into formal investigations or enforcement action, however we anticipate such action being taken in the near future with the most serious breaches being prioritised.
Firms should ensure that they have fully implemented the Consumer Duty for their open products and services (and are taking steps to implement the Consumer Duty for closed products and services, so that they are ready by 31 July 2024 deadline) and where firms have identified that they may not be delivering good outcomes to consumers, those firms are implementing corrective measures in a timely manner to show the FCA that they are acting on their Consumer Duty responsibilities.
Strengthening the UK’s position in global wholesale markets
The FCA wants the UK to continue to strengthen its position in global wholesale markets and to host markets which support the domestic economy and growth. To do this, the FCA will encourage innovation and evolving markets by supporting industry work on T+1 settlement to increase efficiency, as well as delivering its set of Primary Market policy reforms (including concluding its review of the Listing Regime and publishing proposals for a new public offer and admission to trading regime).
Taking assertive action on market abuse
The FCA states that it will significantly increase its capability to tackle market abuse, including (1) increasing its ability to detect and pursue cross-asset class market abuse, (2) developing improved market monitoring and intervention in Fixed Income and Commodities, covering both market abuse and market integrity, and (3) assisting in delivering a proportionate market abuse regime for Cryptoassets.
How should firms prepare?
Firms should ensure that they have surveillance systems to capture cross asset class manipulation.
Environmental, social and governance (ESG) priorities
The FCA will integrate the Sustainability Disclosure Requirements and Investment Labels across the market, including the anti-greenwashing rule which will require all sustainability-related claims made by authorised firms to be fair, clear, and not misleading.
How should firms prepare?
Whilst this rule only takes effect from 31 May 2024, firms should start considering how they are going to integrate this now.
Improving oversight of Appointed Representatives (“AR”)
The FCA’s 2024-25 Business Plan reminds principal firms that they are responsible for ensuring their ARs comply with FCA rules, however many principals fail to adequately oversee their ARs’ activities. As a result, consumers are at risk of being misled or mis-sold, while misconduct by ARs in the financial sector can undermine market integrity.
The FCA references the new rules and guidance which came into effect on 8 December 2022 (which can be found here) and aim to improve principals’ oversight of their ARs, increase the information they give the FCA and raise standards across financial services to enhance consumer protection and help protect markets.
The FCA will, over the coming year, continue to target its resources through deeper analysis of existing data and using improved data covering all ARs and continue to strengthen its scrutiny and engagement with principal firms as they appoint ARs. The FCA will also continue its assertive supervision of high-risk principals through its regulatory tools and take appropriate enforcement action.
How should firms prepare?
The oversight of ARs by principal firms appears to remain a key area of concern for the FCA and accordingly, principal firms should ensure they have properly adjusted to the new regime.
What should firms do next?
As set out above, over the next year, the FCA will be scrutinising firms’ systems and controls in key areas such as financial crime and market abuse, as well as ensuring that firms have implemented the higher standards of the Consumer Duty and are meeting the new ESG and AR regimes.
Now is an opportune time for firms to assess their financial crime and market abuse systems and controls and customer journey processes, as well as ensure that they have properly adjusted to the new AR regime. It is also a good time for firms to consider how they are going to integrate the FCA’s Sustainability Disclosure Requirements and Investment Labels in line with the FCA’s final rules and guidance (which can be found here). Given that these areas are key priorities for the FCA, any shortcomings could lead to supervisory (i.e., VREQs, VVOPs, etc.) and/or enforcement action.
Please do get in touch if you would like us to carry out any assessments on your systems and controls, and/or would like to discuss how the FCA’s plans for the coming year could affect your business and any mitigating steps you could take.
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