Post by: Charles Hastie, Regulatory Head at Clutch and former Supervisor for the FCA.
The Financial Conduct Authority published its Annual Business Plan last week. This is where the FCA sets out its priorities for the year and how it expects to achieve them. The contents of the Plan are not binding, but it is unusual for the FCA to deviate from its intentions significantly. The furore early this year over the FCA’s decision to discontinue a review into culture change programmes was exacerbated by the fact that the review had been flagged in the 2015/16 Business Plan.
So what are the key takeaway points?
The role of the FCA
A key message from the press release is that the FCA will balance the need to address past issues with the need to ensure that the regulator does not stifle the businesses it regulates. So whilst CEO Tracey McDermott acknowledges the need to “tackle problems of the past” she also refers to the FCA taking a “sustainable” and “proportionate” approach that does not “inhibit developments in the future”.
There is a prominent acknowledgment in the Business Plan that firms are investing heavily to meet new regulatory requirements and new customer demands. Ms. McDermott says that whilst the FCA will impose new requirements when needed, where “benefits do not justify the costs”, regulation may be removed or adapted.
It’s a reminder that the FCA’s overall objective – to make markets work well – is a constructive one, and that the FCA intends to take a balanced approach.
Fintech, innovation and cyber-crime
The constructive theme continues as the FCA refers to its ‘Regulatory Sandbox.’ This will allow Fintech start-ups to test out products in a safe environment, without immediately incurring all the normal regulatory consequences of engaging in the activity in question. This reflects a commitment the FCA has to promoting effective competition in financial services.
The Business Plan also highlights the risks associated with new technology. It says attacks are likely to be successful and firms may not have adequate defences or effective plans to identify and respond to them. The FCA will be co-ordinating its approach to industry cyber-risk with the Bank of England and Treasury, whilst providing educational tools to help firms deal with cyber-risks. We have seen cyber-crime becoming an increasing area of focus for regulators and enforcement agencies globally.
Accountability, culture and governance
This topic again features as an FCA priority. With the Senior Managers Regime now in place, the FCA intends to use the new responsibility maps and statements to drive supervisory work, informing proactive engagement with the firm. The importance of remuneration as a driver for good conduct is emphasised and we expect this to be a key topic for firms’ supervisory meetings with the FCA.
We noticed that when the Business Plan discusses its priorities for 2016-17, Enforcement does not generally feature a great deal. The exception is Financial Crime and AML. Here the FCA is unequivocal, stating that material weakness in AML controls will be met with Enforcement action and/or business restrictions.
Charles Hastie is Regulatory Head at Clutch Group, working out of the company’s London office. Charles harnesses his long-standing regulatory investigation experience to develop strategic solutions for Clutch’s financial services clients. He establishes ongoing liaisons with key opinion leaders, government officials, and regulatory bodies to ensure that significant developments in the field are monitored and relayed to clients. For more information, contact Charles at Charles.Hastie@clutchgroup.com.