1. What is the FCA's 2021/22 business plan?
The FCA's 2021/22 business plan (the "Business Plan") was published on 15 July 2021 (see here). It provides areas of focus for the FCA in both consumer and wholesale markets, as well as a number of cross-cutting priorities including diversity and inclusion and ESG. It is the first business plan under new CEO Nikhil Rathi who joined in October 2020, and focuses on the FCA becoming a more "innovative, assertive and adaptive" regulator.
2. Are we entering a new era of regulation?
Harking back to the Wheatley era, the Business Plan is replete with robust rhetoric that demonstrates the type of regulator Mr Rathi is intending to lead. Firms should expect a tougher, more proactive and robust regulator that is not afraid to take a risk and push the boundaries and limits of its own powers.
The Business Plan is preceded by a decision by the FCA Board in April 2021 to "recalibrate the degree of legal risk the organisation is willing to take", and firms should expect the FCA to take action even in cases where the legal position is not necessarily clear.
3. Consumer markets
While consumer protection is not a new priority for the FCA, with the Covid-19 pandemic leaving 4 million more people financially vulnerable, there is an increased focus on regulating consumer markets. The Business Plan sets out strategies for consumer campaigns on scams and high-risk investments, as well as plans to strengthen the rules on financial promotions.
The FCA has also confirmed it will progress proposals for a new consumer duty, first consulted on in May 2021 (see here). The aim is to set clearer and higher standards for regulated firms' culture and conduct, so that customer interests are put at the centre of business models.
4. Review of the Financial Services Compensation Scheme (the "FSCS")
The FCA will undertake a review of the scope and coverage of the FSCS. Details of the review will be published within the next 12 months, but the FCA wants the compensation policy framework to be appropriate, proportionate and to take into account changes in the market. In the longer term, the FCA aims to reduce payouts from the FSCS, wanting firms to have appropriate capital reserves to compensate potential liabilities themselves.
It is perhaps unsurprising to see a significant review of the FSCS being undertaken by the FCA, especially in light of the recent criticism the FCA and the FSCS received for their handling of the collapse of London Capital & Finance PLC, and the lack of provision of compensation for a large number of affected investors.
5. Diversity and inclusion and ESG
The FCA will continue to monitor and publish key indicators of diversity within the FCA and will develop how it measures regulated firms' progress against diversity outcomes, to ensure a consistent approach across the financial services sector. The FCA has made clear that it will support delivery of the Women in Finance Charter, the Parker Review and other economy-wide initiatives. This commitment to diversity and inclusion follows the joint discussion paper published by the FCA, the Prudential Regulation Authority and the Bank of England earlier this month, which discusses how the pace of change on diversity and inclusion in the financial sector can be accelerated, and the role regulatory bodies can play to support that change.
The FCA has further committed to supporting the Government's pledge to achieve a net-zero economy by 2050, by adapting its regulatory framework to enable a market-based transition to net-zero. One way in which the FCA plans to do this is by consulting with asset managers, life insurers and FCA-regulated pension schemes on new disclosure rules aimed at assisting consumers to choose sustainable investments.
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