The Business Plan, published on the 18th April, sets out the FCA’s priorities for the year ahead and all regulated firms are expected to review it as part of their business as usual activity. It incorporates the Risk Outlook, which assesses emerging risks to the FCA’s objectives. This is the first Business Plan since Andrew Bailey became the CEO and he has stamped his mark on the document both in terms of size (it is twice as big as the last one) and content (it contains more detailed analysis of cross sector and individual sector risks).
Key points from the business plan
The FCA has highlighted six cross-sector risks:
- Firm’s culture and governance
Ensuring culture and governance frameworks help deliver appropriate customer outcomes
- Financial crime and anti-money laundering (AML)
Firms must have robust AML procedures but they should not cause unintended consequences (e.g. excessive account opening delays)
- Promoting competition and innovation
A regulatory environment where consumers and firms grasp the opportunities of competition while maintaining consumer protection
- Technological change and resilience
Including making sure firm’s systems become more resilient to cyber-attacks and systems outages
- Treatment of existing customers
Closed-book customers do not receive less attention than new customers
- Consumer vulnerability and access to financial services
Ensuring markets work well for vulnerable customers and firms treat vulnerable customers fairly
Additionally, the FCA has called out issues specifically aligned to the seven sectors it supervises. Here are some of the main issues, listed by sector:
Pensions and retirement income
- Consumers cannot or do not want to get adequate advice
- Pension Freedoms mean customers are at greater risk of being targeted by scams
- Customers cannot access or compare pension products easily
- Low levels of cultural change might mean firms do not give appropriate consideration to their customers
- Insufficient operational resilience due to legacy IT systems
- Poor controls leading to firms failing to identify and properly manage money laundering risks
- Consumers in financial difficulty being treated unfairly by firms
- Existing customers may suffer detriment through poor firm conduct
- Inadequate affordability assessments leading to poor customer outcomes
General insurance and protection
- IT failures, data protection issues and risk of cyber-attacks leading to customer detriment
- Customers receiving poor advice
- Customers choosing unsuitable products by focusing on price rather than suitability
- Advisers giving insufficient consideration to total costs resulting in customers getting poor value for money
- Investors with modest means lacking access to or awareness of the benefits of advice
- Consumers receiving unsuitable investment advice
- Weak price competition leading to investors paying too much for investment management services
- Inadequate governance leading to poor product design and oversight of portfolios
- Poor advice from investment consultants
Wholesale financial markets
- Firms failing to manage conflicts of interest effectively
- Firms failing to manage financial crime risks effectively
- Effective competition is undermined by the abuse of market power in some areas
Considerations for firms
It goes without saying that firms need to ensure that they digest the detail within the Business Plan in order to understand where the FCA is planning to focus its attention.
Firms should pay close attention to both the cross sector and individual sector risks that apply to their firms.
Key questions firms should consider include:
- What issues identified by the FCA apply to our firm?
- How are we planning to respond to potential thematic reviews in light of the announcements within the Business Plan?
- Are we confident that we are meeting regulatory expectations in these areas?
- If we are, what management information could we use to demonstrate this?
- If not, what are we doing to improve our processes?
This analysis should be disseminated to relevant committees, and up to board level. This is the FCA’s key publication, and firms’ senior management and board(s) should be able to satisfy themselves that the issues identified by the FCA are effectively addressed within their business.
Firms need to consider the thematic reviews announced in the Business Plan; some of which are not scheduled to start until 2018. It is imperative that firms assess how effective they are in these areas now, to ensure that they are not the subject of potential regulatory action if they are included in the thematic review.
The FCA has been relatively prescriptive in relation to the outcomes it is seeking for each of the sectors it supervises. Ultimately, firms should consider if they are achieving these outcomes – and, if not, firms will need to take appropriate action to ensure that they are well positioned to do so going forward.