On 9 April 2018, the Financial Conduct Authority (FCA) published its annual Business Plan. The Business Plan gives some helpful insights into the FCA’s intentions and priorities for the year ahead. It will be particularly interesting this year to see whether special projects relating to Brexit have any impact on the FCA’s enforcement agenda.
It is no surprise that Brexit-related matters are a prominent feature of this year’s Business Plan.
High on the FCA’s agenda for its Brexit-related work is providing governmental support, in particular, to any transitional arrangement with the EU-27. The regulator identifies two potential issues here: first, in relation to firms regulated in the UK that operate across the European Economic Area (EEA); and second, EEA firms with a presence in the UK. The FCA states that it is prepared to “take action where appropriate” in relation to any transitional arrangements that impact UK-regulated firms and their users. Further, the regulator will work to “ensure there is an appropriate transition to a future model” for the regulation of EEA firms.
FCA enforcement priorities
In order to undertake the additional Brexit workload, the FCA states that it will be “reprioritising, delaying or reducing non-critical activity”. While this sounds abstract, what is clear is that budgetary constraints will force the regulator’s hand. The FCA has budgeted £30m for its Brexit-related work, and intends to fund £14m of this through the delaying and reducing of non-critical work.
It is unlikely that any of the scaling back will be permitted to impact on the activities of supervision and enforcement, and in those respects it is likely to be business as usual.
The Business Plan helpfully sets out some areas of focus for FCA enforcement activities.
Andrew Bailey, FCA chief executive, states in this year’s Business Plan that the regulator will focus on areas where “intervention will have the most impact”. This suggests the FCA will maintain its enforcement activity in areas of cross-sector focus.
We see FCA enforcement being particularly focused on three key areas:
1) Senior Managers and Certification Regime.
The SMCR is being extended to all Financial Services and Markets Act 2000 firms – around 47,000 firms will be covered in total.
Of the 13 fines imposed by the FCA during 2017, eight were against individuals, and this trend of personal accountability seems set to continue. The FCA has made it clear it expects robust governance and will hold individuals accountable for their actions or those of their staff.
This is an important stream of work for the FCA in its efforts to encourage a shift in the culture of institutions and to keep the focus on the tone from the top.
2) Financial Crime/Anti-Money Laundering.
A further cross-sector priority for the coming year is financial crime and anti-money laundering. The FCA wants to increase consumer protection and hold London’s financial markets up as an example of a healthy regulatory system.
In doing so, the regulator states that it will “use the full range of supervision and regulatory enforcement tools” at its disposal.
This will require the financial regulator to work with international and supranational agencies given the complex and global nature of the UK’s financial markets. The regulator is keen to ensure that post-Brexit Britain will continue to meet, and set, international standards on financial crime. Further, the FCA is currently undertaking diagnostic work in the e-money sector. The FCA has already confirmed that crypto-currency derivatives are capable of being financial instruments under Mifid II and therefore constitute a regulated activity. This is a fast-moving area and the FCA will see this as an opportunity to lead the pack in terms of the international approach to this sector.