FCA affirms priorities in latest Business Plan

The FCA published its 2024/25 Business Plan on 19 March 2024, detailing its priorities and plans for the year ahead.

The Business Plan sets out how the FCA will deliver on its strategy, as it enters the third and final year. The strategy is based on three themes - (1) reducing and preventing serious harm, (2) setting and testing higher standards, and (3) promoting competition and positive change - and is underpinned by 13 commitments.

This year, the FCA plans to focus on three priority commitments: (1) putting consumers’ needs first, (2) reducing and preventing financial crime, and (3) strengthening the UK’s position in global wholesale markets. The regulator has not highlighted ‘preparing financial services for the future’ as a priority as it did last year, following progress on implementing the Smarter Regulatory Framework over the past 12 months.

The regulator acknowledges ongoing economic and geopolitical uncertainties, and is monitoring challenges such as higher interest rates and persistent inflation, global financial risks and geopolitical risks.

What does this mean?

This year’s plan is characterised by continuity, as the FCA focuses on delivering the third and final year of its strategy. Acknowledging the breadth of change enabled by the Edinburgh Reforms, and ongoing work to repeal EU law under the Smarter Regulatory Framework, there are limited new initiatives.

Nonetheless, firms should note the FCA’s continued focus on financial crime, consumer outcomes and wholesale market reform.

Consumer needs - The FCA will continue its extensive supervisory work to test firms’ implementation of the Consumer Duty and drive better consumer outcomes, through multi-firm work and market studies.

As previously highlighted in its life insurance portfolio letter (September 2023), the FCA plans to look at unit-linked pensions and long-term savings products to test the transparency of charges across value chains, how firms assess product value, and their response where they identify unfair value. It also plans to carry out multi-firm work on how swiftly the insurance industry responds to claims, including where customers are more likely to show characteristics of vulnerability (as previously signalled in its personal and commercial lines insurance portfolio letter).

Wholesale markets - The FCA will continue to progress work implementing the outcomes of the Wholesale Markets Review and Edinburgh Reforms. This includes completing reforms to the Listing Regime, publishing proposals for the new Public Offer and Admission to Trading Regime, and finalising revised frameworks for commodity derivatives and non-equity transparency. The FCA confirms its commitment to consult on changes to the rules on paying for investment research, implementing the consolidated tape for bonds, and deciding on the approach for an equities tape.

Other areas of focus include supporting industry work on T+1 settlement changes and tokenisation, and working with HM Treasury on launching the PISCES platform and Digital Securities Sandbox. The FCA also highlights work to improve its responsiveness to episodes of heightened market volatility, and to tackle market abuse, particularly in the fixed income and commodity markets.

Financial crime - The regulator will continue to proactively assess the anti money laundering systems and controls of those firms deemed higher risk, and to strengthen its supervision of firms’ sanctions systems and controls.

The FCA also plans to increase investment in its systems this year, to further its data-led approach to target higher-risk firms and activities. It says it will expand its analytics and intelligence-gathering capabilities to better spot and track potentially fraudulent activity.

In addition to the three priorities covered above, we would also particularly draw firms attention to work planned under the following two commitments.

Shaping digital markets to achieve good outcomes - The FCA is continuing to assess the impact of AI on UK markets to better understand the risks and benefits, re-affirming its ‘pro-innovation and technology-agnostic approach’. The regulator adds that it will continue to robustly investigate digital consumer journeys and firms using sludge practices.

Improving the redress framework - The FCA highlights plans to consult later this year on guidance for how firms deal with redress, and on complaints reporting. It also plans to publish a response to the Advice Guidance Boundary Review (AGBR) discussion paper in the next 12 months, and has set aside £1.9m for this work.

£11.3m

The amount the FCA plans to invest in the Smarter Regulatory Framework over the next 12 months, the largest single amount allocated to a specific initiative this year.

FCA Business Plan 2024/25

What do firms need to do?

Ensure adequate resourcing and governance of in-flight regulatory change programmes, and be prepared for more significant reforms next year.

Be prepared for continued supervisory scrutiny of consumer outcomes.

The focus on continuity provides some surety for firms in an already packed regulatory agenda. Firms can invest with confidence in change programmes for in-progress reforms, and the plan underlines the need to ensure these are adequately resourced and have appropriate oversight and governance in place.

Firms should engage in upcoming reform initiatives highlighted by the FCA (such as the AGBR and wholesale market reforms), and factor these into business-wide strategic and operational planning. They should also be prepared for a more significant change programme from the FCA in a year’s time, when it is due to publish its new strategy and following the UK general election.

Firms should keep abreast of changes, especially in wholesale markets, given the pace and scale of the reforms. In particular, firms should engage with a forthcoming discussion paper on MiFID reporting and data requirements, and a further update on the FCA’s approach to a consolidated tape for equities.

In-scope firms should be prepared for continued supervisory interventions on the Consumer Duty, particularly on complaints handling and root cause analysis, consumer support journeys, consumer understanding, fair value, vulnerable customers, and closed products and services. Insurance firms should note the FCA’s upcoming work on claims handling, and fair value in unit-linked pensions and long-term savings products.

“The FCA drives home its focus on financial crime including market abuse, and its extensive work using the Consumer Duty to drive better outcomes. It also underlines its commitment to existing regulatory proposals such as the Advice Guidance Boundary Review, and new initiatives such as T+1 settlement changes, where there is a strong steer for the industry to engage.”

_{Andrew Strange

Director, PwC}