In its business plan 2022-2023, published today (April 7), the FCA launched a new three-year strategy to improve outcomes for consumers.
The strategy focuses on three key outcomes: reduce and prevent serious harm, set higher standards and promote competition.
A key focus of the strategy is shutting down problem firms which do not meet basic regulatory standards, and the FCA is recruiting 80 people to work on the initiative.
It hopes this will protect consumers from potential fraud, poor treatment and create a better market.
The regulator will also, for the first time, hold itself accountable against published outcomes and performance metrics.
Nikhil Rathi, chief executive of the FCA, said the regulator was now focusing on results rather than being driven by processes.
“Our strategy sets out, for the first time, the outcomes we expect all firms to deliver across our markets. We will also be tougher on our own performance, collectively and individually. For the first time, we are publishing measures that cover a multi-year period and against which we can be held accountable to support delivery of these outcomes.
“Prioritisation is inevitable, not least due to our broad and growing remit, but our decisions will be data-based. And an outcomes-based approach guards against inconsistent regulation. The increased cost of living – with consumers more exposed to risk and more reliant on financial services – makes addressing these issues more urgent.
“And, as we invest in our technology platform, we are recruiting more staff in more parts of the UK, focusing on diversity and new capabilities.”
Rathi said the FCA has increased efforts to stop firms with inadequate harm prevention controls from entering markets. So far, it has recruited 95 people to improve the process for authorising firms.
“Now we are targeting those already-authorised firms with the most potential to create harm, by bringing on board dozens more staff dedicated to removing problem firms,” he added.
Rogue firms
The FCA said it will “act faster” to remove firms who do not meet its minimum standards for consumer and will improve its capacity to intervene when firms can’t meet threshold conditions.
The regulator will focus further on removing or sanctioning firms which can’t or won’t meet standards.
In year one, it will focus efforts on dealing with a greater number of problem firms than in previous years, followed by dealing with more complex firms in year two.
As part of its focus on reducing harm, the FCA said would look to improve the redress scheme and make it fairer by reviewing firms at the authorisation gateway.
“We aim to minimise the fallout from failing firms,” it said. “Firms should be financially resilient and recover quickly from disruptions.”
The regulator said it wanted firms to meet their financial resource requirements so they can conduct business, wind down and, where applicable, fail without causing significant harm to consumers and market participants.
Another outcome it wants to achieve is to ensure client assets and funds are appropriately held so if the firm fails, they are returned as quickly, and as whole, as possible.
The FCA is developing a metric to monitor the accuracy with which it can identify firms' resilience to financial or other stress and rectify the situation accordingly.
It will achieve these outcomes through setting rules and standards on firms such as embedding the new investment firms prudential regime, inputting into developing crypto policies and developing standards for consumer investments firms promoting the need for wind down plans.
It will identify harm and act to mitigate it quickly by using data dashboards to identify reduce harm emerging issues.
The FCA said: “We want more consumers who have suffered harm to have access to fair redress before firms fail.
“We are therefore focused on improving firms’ financial resilience so they can cover a larger proportion of their redress liabilities.
“However, we do not run a zero-failure regime so firms may fail owing consumers redress, and in some cases the FSCS may be called upon. This should only be as a fund of last resort, a compensation scheme that is appropriate and proportionate in its scope and funding.”
The regulator said it will measure success by over time reducing the proportion of redress liabilities that insolvent firms leave in the system and stabilising the FSCS levy over a multi-year period.
“In the short term, we may see FSCS redress payments increase as our interventions take effect. However, in the long-term, as firms’ conduct improves, we expect to see fewer redress claims, including to the FSCS, as we would expect there to be less harm.”
sonia.rach@ft.com
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