Regulation  

FCA: Regulation has to evolve

With the FCA's Sector Views also acknowledging the shift to a low-carbon economy as a driver in the UK economy, and the need to respond to this within the remit of consumers' financial decisions, the move towards more regulatory scrutiny over ESG in the retail market is inevitable.

Within the Sector Views report, the FCA pointed to its existing work with the Treasury, which will chair a Taskforce of UK regulators, including the FCA, to ensure a coordinated approach on climate-related initiatives and to examine the most effective way to approach disclosure. 

The Bank of England is also planning to conduct a stress test in 2021 that will test the UK financial system’s resilience to the physical and transition risks of climate change.

The FCA report stated: "These developments are likely to affect firms’ and consumers’ planning and decision-making".

Moreover, it commented that technology is changing how some consumers engage with and use financial services products, which not only provides new solutions that can benefit consumers but also "raises new risks such as the potential for data misuse, cybercrime and misselling, as well as ethical issues over data use."

Brexit also is likely to play a significant role in the future development of financial regulatory policy. According to the FCA: "Leaving the EU will also mean we have more responsibilities. It will affect how we oversee markets, supervise firms and make policy.

"While the close and interconnected nature of UK and EU markets means changes to the EU regulatory framework will continue, the UK is no longer directly involved in EU decision making.

"This places a premium on developing new ways to engage internationally and we are looking at how we can continue to work with EU institutions, including the European Supervisory Authorities, and other EU regulators after we exit."

But the FCA pledged to help the UK financial services to overcome these obstacles.

The Sector Views 2020 report also stated: "Financial markets will have to adapt to these transitional shifts, new business models and market developments as well as societal changes. Consumers should be enabled to make the best choices, while innovation should aim to increase competition and improve consumer outcomes, foster inclusion and reduce consumer vulnerability."

simoney.kyriakou@ft.com