On 5 April 2023, the FCA published its Business Plan for 2023/24, outlining its work over the next 12 months to help deliver its commitments in the second year of its 3-year strategy.
The Business Plan highlights that, while there are some positive developments in the UK economy, the FCA expects the economic and geopolitical environment to remain highly uncertain over the year ahead, including a heightened risk of firm failure. Key uncertainties include high-interest rates, inflation, unemployment, declines in incomes, and market volatility. This month’s newsletter summarises the key themes from the Business Plan.
Alongside the strategic themes of reducing and preventing serious harm, setting and testing higher standards, and promoting competition with positive change, the FCA sets out four critical commitments below in addition to 13 other commitments.
- Preparing financial services for the future
- Reducing and preventing financial crime
- Putting consumers’ needs first
- Strengthening the UK’s position in global wholesale markets
The business plan highlights some upcoming themes summarised below, which are most likely to impact the work of GRC professionals in the year ahead and beyond.
The Consumer Duty
The new Consumer Duty comes into force on 31 July 2023 and requires firms to act to deliver good outcomes for retail customers. The FCA has significant funding earmarked for Consumer Duty, which it plans to use for sector-specific supervisory work.
The Business Plan states that through this supervisory work, the FCA will “identify, assertively supervise and effectively enforce against activities which undermine effective competition and good consumer outcomes”. It is anticipated that the FCA will open investigations and commence enforcement action where it deems that regulated firms have taken insufficient action to comply with the Consumer Duty.
Financial and Operational Resilience
The Business Plan states that regulated firms should invest in their operational resilience, in light of a growing level of cyber threats, operational risks and a complex geopolitical backdrop. While the FCA has always focused on the financial resilience of firms to ensure where necessary, wind down can happen without causing harm—operational resilience is a relatively new priority that became highly relevant during the 2020 global pandemic. The FCA will start assessing firms’ operational resilience ahead of the 2025 deadline for firms to demonstrate that they can remain within specified operational impact tolerances.
One of the FCA’s primary areas of focus is the reduction and prevention of financial crime. This focus combines the FCA’s aim to reduce scams and frauds for retail consumers and reduce the incidence of money laundering through firms. The FCA plans, among other things, to increase its proactive assessment of firms’ anti-money laundering (AML) systems and to control and develop the data-led analytical tools used in its AML supervisory work. The Business Plan also re-emphasised the FCA’s ongoing work to supervise AML within crypto asset firms, a sector of increasing importance for the FCA. The multiple references to AML within the Business Plan show that it remains a priority for the FCA.
Enforcement against Market Abuse
The FCA plans to deliver decisive action on market abuse. This plan has two important strands: first, to ensure that firms are resilient to market abuse and second, to deter wrongdoers by imposing sanctions. Specifically, the FCA plans to invest in the investigation and prosecution of fixed-income and commodities market manipulation, with a focus on very high-risk firms.
Market abuse has always been an important area for the FCA, but this year’s Business Plan indicates that it has new, tangible plans to address this issue. If effective, these should result in new market abuse investigations opened, which may ultimately result in more civil and criminal insider dealing investigations and prosecutions.
Oversight of Appointed Representatives (“AR”)
The FCA will continue with its action to tighten supervision in the principal/AR space. The Business Plan confirms that there will be further engagement and scrutiny in this area from a regulatory perspective. The FCA criticised Principals for not adequately overseeing their ARs’ activities, putting consumers at an increased risk of being misled. Principals must become familiar with the FCA’s new rules and guidance to ensure compliance and minimise the risks associated with their ARs’ possible misselling to consumers. Reporting for principal firms under the new regulations will become fully effective later this year.
Financial Regulatory Framework Finally, the FCA expects to invest £12.7 million in 2023/24 to support its “Preparing financial services for the future” strategic commitment. This forms part of the post-Brexit Future Regulatory Framework (FRF), which will transfer even more responsibilities to the FCA and will reinforce accountability, scrutiny and transparency for regulated en