The year 2020 proved to be an extremely challenging time for British financial services, with the pandemic representing one of the greatest shocks to the world’s economies. Covid-19 has brought forward a new world of financial services with new complexities and challenges. In a bid to successfully meet these challenges, the Financial Conduct Authority has said their approach will need to change post-Covid.
Speaking at an industry gathering last month, the FCA chairman, Charles Randell, highlighted five things the regulator needs to do differently “in order to transform the FCA to be as effective as it can be in this new world”.
As part of its transformation, the FCA plans to take new approaches in five key areas:
- Focusing on the gateway
- Focusing on the basics
- Focusing on the outcomes
- Reshaping regulation
- Reshaping themselves
Focus on the gateway
One of the FCA’s priorities is to ensure regulated firms are ‘’good enough’’. The number of firms the FCA regulates has more than doubled over the past ten years and continues to grow, with some firms exploiting their regulated status. The review into London Capital & Finance highlighted the risks from firms which exploit the “halo effect” of FCA authorisation.
Regarding this, Charles Randell commented, “This means that we not only need to be rigorous with firms at the point when they apply; if we do authorise them, we need to know whether they are using their authorisation and what for; and we need to quickly remove the authorisations of firms which are not using them or which are misusing them’.
“Being tougher and more effective in these gateway activities will reduce what has been called the “60,000 firm problem”.
“We know what we have to do – and we are already acting, so that a firm with FCA authorisation will have to ‘use it or lose it.”
Focus on the basics
In 2019 the FCA underlined four priorities for basic consumer protection: safe and accessible payments; sustainable credit; clear and safe investment choices; and fair product terms, including price.
“We will continue to focus on them because, frankly, none of these aspects of consumer financial services is yet in a satisfactory place.” said Randell.
Focus on the outcomes
The third big change the FCA intends to make as part as its transformation, is to focus more on outcomes. They also require firms to do the same and focus on customer outcomes.
“Firms must identify if consumers are trapped in a cycle of unaffordable debt and take action to break that cycle…If they do not, we must be ready to take strong enforcement action against both the firm and the senior managers who are accountable for product design and consumer outcomes.
‘’In order to play our part in producing these outcomes, we need to collect and use the right data from firms, joining those data up with a cross-organisational strategy to intervene more promptly.
‘’It’s easy to talk about outcomes-based regulation but experience shows it’s hard to deliver.’’ said Randall.
In order to pivot to a greater focus on outcomes in a rapidly changing world, the FCA believe the approach of regulators and legislators needs to change. In his presentation, Randell highlighted the speed of change in the industry, particularly with the rise of digital services. He spoke of the difficulty of using detailed laws and rulebooks, which take a long time to change, to tackle a world of digital activities which are changing faster and faster.
“In order to regulate in this world, we need to be more agile and confident in using our principles for businesses to take action against those firms which are not doing the right thing,” he said.
“We also need to use the additional speed and scope to adjust our rules which we have, now that the UK has left the European Union. Not to undermine the standards of consumer protection which European rules require, but to deliver equivalent or better outcomes more effectively.”
Reshaping the FCA
In its focus to reshape themselves, the FCA has made several changes so far. These include the appointment of a new executive director for authorisations, and two executive directors for consumer and market sectors, which the FCA believes will strengthen their focus on outcomes.
They have also appointed their first chief data, information and intelligence officer to help the FCA make better and faster use of information and intelligence.
Randell added: “Just as I am cautiously optimistic about progress in tackling the coronavirus, I’m cautiously optimistic that these changes to the FCA will deliver what we want them to.”
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