FCA 3 Year Strategy - 3 Key Takeaways

Today the FCA has published its three-year Strategy along with its Business Plan for the coming 12 months. Naturally, they are intertwined. The Strategy has three areas of focus:

1. Reducing harm.

They will attempt to do this by:

• Refocusing their attention on “problem firms”

• Improving the redress framework

• Reducing harm from firm failures

• Improving oversight of appointed representatives

• Reducing and preventing financial crime

• Delivering assertive action on market abuse

2. Setting and testing higher standards.

They will attempt to do this by:

• Putting consumers’ needs first

• Enabling consumers to help themselves

• Championing and prioritising ESG

• Minimising the impact of operational disruptions

3. Promoting competition and positive change.

They will attempt to do this by:

• Preparing financial services for the future (flexibility around UK rules)

• Strengthening the UK’s position in wholesale markets

• Shaping digital markets to achieve good outcomes

So What?

The Strategy document and the Business Plan contains a lot of useful information. We’ve picked out three key themes that run through both documents that Compliance professionals and senior managers should take note of.

1. Compliance functions have the opportunity to be bold.

The FCA is clear that outcomes are what it is interested in. “We are now focused on results rather than being driven by processes.” Their logical view is that an outcomes-based approach guards against inconsistent regulation. They state that they will have “greater regulatory open-mindedness”. This is in line with previous soundbites from the FCA where they have used words such as “purposeful”, “efficient” and “courageous” in relation to controls.

We see this as a green light for firms to explore more effective ways to reach the right outcomes and shrug off dated practices that are inefficient and do not achieve their purpose. And we see this regularly with firms – doing things a certain way because they have always been done that way – for example business wide risk assessments. So, for the progressive compliance officer, this is actually quite exciting, a real opportunity to bring controls back to purpose.

2. Consumer duty is going to be huge.

Consumer Duty is written all over the Strategy paper. In terms of impact to firms, arguably bigger than MiFID. Firms need to be assessing the impact on their businesses now as the changes that may need to happen could take years to implement and embed. We see Consumer Duty as an opportunity for first and second line functions to work closer together to ultimately provide better outcomes for consumers.

We see governance and culture as being pivotal to success in relation to adapting to the Consumer Duty. Those firms with a sound governance structure and a culture that takes compliance seriously will not only be able to implement change more quickly, they will also realise some of the commercial benefits of the Duty. The FCA note that a firm’s culture and governance “can be the root cause of both harm and of positive outcomes”. We would therefore recommend getting your Governance right before embarking on the changes required under the Duty. The first step in this would be an objective evaluation of the effectiveness of your Governance arrangements.

Connected to Consumer Duty and something high on the FCA’s priority list is diversity and inclusion. Firms will be consistently challenged on this going forward. And it has moved on from conversations around raw numbers of employees in a certain profile. Having a diverse group of employees feeding into the design of a product for example should ultimately result in better outcomes for consumers. So, in relation to diversity and inclusion, we would ask firms whether they are living this in reality, in its widest sense as articulated by the FCA?

3. The FCA will get tougher on firms that don’t meet their expectations.

This message is consistent throughout the Strategy. The FCA say that they “will continue to act more assertively and test the limits” of their powers. Therefore, firms need to take heed of these regulatory soundings and adjust their approaches accordingly. Doing things as you’ve always done them, probably won’t cut the mustard.

If you’d like to discuss how to be ‘bold’ with your compliance framework or would appreciate a conversation around how Consumer Duty will impact you, please get in touch.