FCA tears up the rulebook: how should businesses think, speak and act?

In the midst of the initial response to Covid-19, the Financial Conduct Authority (FCA) published its 2020/21 Business Plan last month that demonstrates a step change in direction for the regulator in pursuing its goal to put the consumer at the heart of its strategy.

The level of self-censure was a notable shift, with the FCA suggesting its past approach has been suboptimal and its tactics are not serving consumers in the best possible manner. This has long been the sentiment across the City, but now the regulator itself is changing. So how should firms treat this new direction?

Outcomes in focus

Outcomes have become key for the FCA, which states unequivocally, but not quite apologetically: “The current framework is too focused on rules and process, and not enough on principles and outcomes.” Its new-look plan for 2020/21 goes on to highlight the fact there is too much resource and effort spent on redress and remediation, rather than empowering consumers to make good decisions, supported by appropriate safeguarding protections.

The FCA has long been a process- and rules-based organisation, leading to accusations of being slow to act and not delivering results that benefit the end users. This business plan demonstrates a vastly different approach under the interim leadership of Christopher Woolard. This ‘new FCA’ appears flexible and willing to work with the markets it supervises to fix problems before they develop.

Firms should approach this statement of intent with an open mind and be willing to highlight areas of concern. By showcasing the regulator’s guiding principles, firms will find an FCA that understands how working collaboratively is in everyone’s best interests.

However, do not take this statement to mean that the FCA will not pursue redress where necessary. Especially in the ongoing circumstances surrounding the coronavirus outbreak, the FCA will take a dim view of firms that seem to be exploiting the situation or taking advantage of distressed consumers. The FCA has not weakened and if anything, its enforcement action will target the worst offenders with renewed vigour.

Looking inwards

The FCA has also promised to reinvent the way it operates and how it handles and uses the swathes of data and intelligence it receives, while increasing its own integration. Clearly, the regulator feels left behind by advances in the market and sees the benefits of harnessing data intelligently.

What this will entail, even the regulator is unsure, but nothing appears sacred as the FCA reformats processes and looks to conduct itself in a more efficient and streamlined manner. Once it figures this out, expect quicker decisions via focused and targeted data requests on specific issues.

Small firms in the spotlight

Placing smaller firms firmly on notice, the FCA states it is shifting its focus towards “smaller firms”. By doing so, the FCA is suggesting that, on the whole, the larger established names in the market have robust compliance processes that are broadly operating within its rules and principles.

While initiatives such as the Senior Managers and Certification Regime have put the onus on firms and individuals to take responsibility, this next step shows the importance of the market as a whole, and the FCA will not solely focus on seeking redress for redress’ sake. Smaller firms have been placed on notice and the FCA will be looking into their processes, the value they deliver to clients and customers, and their leadership.

What to expect from “One FCA”?

Through the 2020/2021 Business Plan, the FCA is seeking to move on from its own past. So, how should firms approach this ‘One FCA’, while keeping in mind that the underlying purpose has not shifted?

Going forward, we are going to see a more inquisitive regulator: a regulator that is seeking to change itself and use data and intelligence in a more nuanced way, while also being in tune with the public sentiment. The FCA itself does not know where exactly this will lead, with a new permanent CEO still to come, who may want to stamp their authority in a differing manner.

Asking the right questions, revisiting internal and client-facing processes will be key practical steps to consider as a result of this Business Plan. Can you demonstrate client interests are being served effectively, and are you transparent and honest about how you achieve this? Could you improve processes and showcase your proactivity when clients appear in trouble?

The FCA wants a more responsible and engaged financial services industry that takes an active role in the lives of customers. This Business Plan is the first step from the regulator to ask firms to step up as the nation faces up to its biggest challenge of modern times. How firms react will be telling, and those that get it wrong will be judged by their mistakes with limited sympathy.