The FCA Business Plan for 2016/17 outlines 7 priorities that are carried over from last year: pensions, financial crime, wholesale markets, advice, innovation/technology, culture/governance, and treatment of existing customers. The plan emphasizes continuing themes of complex business models, acting in customers' interests, and encouraging new technology. Key responses include implementing new regulations on markets and financial crime, focusing on culture and accountability, and protecting customers in advice, pensions and insurance. Brexit is also addressed, with the FCA considering potential short-term market volatility and longer term consequences depending on future UK-EU relations.
3. • Many issues presented in this year’s Business Plan are carried over
from last year’s list of key priorities for the FCA
• Ever increasing focus on individual accountability at firms
• Risks and rewards regarding innovation and development of
technology
• Increased development of ‘alternative’ approaches
Introduction
“Our aim is to identify and respond promptly and
effectively to emerging issues, before they cause
significant harm or grow in scale”
5. Continuing common themes
Culture and controls
Increasing complexity in business models
Act in the interests of existing, as well as new customers
Technological innovation and encouraging new business
‘Boards have a critical role in setting the ‘tone from the
top’. We expect them to take responsibility for their firm’s
culture, ensure it remains high on firms’ agendas and that
the tone is replicated throughout the firm.’
6. • Pensions
• Financial crime and anti-money laundering
• Wholesale financial markets
• Advice
• Innovation and technology
• Culture and governance
• Treatment of existing customers
FCA 2016/2017 risk outlook priorities
7. Pensions
• Consumers unwilling or unable to contribute to pensions
• Choices facing consumers are increasingly complex
• Variety of options available create different risks
• High costs and uncapped fees in pension products
disproportionately reduce consumer funds
Risks
• Review on retirement incomes
• Developing a cap on early exit charges
• Educating consumers on scams
• Reviewing the effectiveness of IGCs
• Consumer protection model for the secondary annuities market
Responses
8. Financial crime
• Firms with weak checks and controls
• Reduction in investment in systems and controls - online
financial crime & cyber attacks increasing
• Banks de-risking restricts access to financial markets for
consumers
• Vulnerability of consumers to fraudsters; in particular pensions
Risks
Responses
• Implementation of 4MLD
• The Financial Crime Data Return
• Enforcement
• Drive to encourage whistleblowing
• Responding appropriately to de-risking
9. Wholesale financial markets
• Market volatility as uncertainty about the global economic outlook
continues
• Financial results being prioritised over good conduct
• Continuing poor management of conflicts of interest, particularly
around trader controls in wholesale banks
Risks
• Introduction of MAR
• MiFIR asset reporting
• SMR across entire industry
• Implementation of MiFID 2
• Asset management market study report
Responses
10. Advice
• Consumers need support / accessible advice to a range of
options
• Consumers not using paid-for advice due to cost
• Complex, opaque charging structures used by advisers
discourages consumers
• Sales over suitability
Risks
• Supervisory focus on advice
• Implementation of the recommendations from FAMR
Responses
11. FCA Response:
Innovation and Technology
Regulatory
‘Sandbox’
Operational
resilience
work
‘Big data’
review
Supporting
‘robo advice’
• Adoption of technology limited by infrastructure vulnerabilities
• Firms remain reliant on complex IT systems
• Tighter margins leading firms to outsource more
• Cyber-attacks increasing
12. • Poor cultures result in poor outcomes
• Business models and governance arrangements not aligned with
values and good conduct
• Incentive structures too short term
• Weak governance and lack of accountability
FCA Response:
Culture and governance
SMR
Performance
management
focus
Remuneration
Ongoing
dialogue with
industry
13. • Moving existing customers into more expensive products
• Growing number of over-indebted mortgage holders
• Restructuring products
• Applying unjustified exit/switching fees
• Consumers’ weak bargaining position
FCA Response:
Treatment of existing customers
Consider CMA
findings
Additional work surrounding
long-standing customers in life
insurance sector
Follow-up to
cash savings
market study
14. • Barely mentioned in the business plan
• Breaking free from the shackles or more scope for FCA gold plating?
• Difficult ‘untangling’ process guaranteed
• Future of passporting would be unclear
Brexit – more or less regulation?
‘The UK’s referendum on remaining part of the European
Union will take place on 23 June 2016. As part of our
normal activities, we are considering the issues that may
arise, and that could have the potential to impact our
objectives. This includes considering the immediate and
short-term consequences of any vote to leave the EU, such
as the potential for increased market volatility. The longer
term consequences of any vote to leave would depend on
the UK’s eventual relationship with the EU, which would
depend on the outcome of negotiations between the UK
Government and the EU.’
15. A flavour of things to come….
Programme of ongoing activities
Retail Investments
• Inducements and conflicts of
interest review
Wholesale Banking & Investment
Management
• Asset management market
study
Retail Banking
• Packaged bank account review
Retail Lending
• Competition in mortgage sector
• Mortgages: embedding MMR
• Credit card market study
Pensions & Retirement Income
• Retirement outcomes review
• Annuities sales practices
review
16. What it means for you
• The focus remains on consumers and the implementation of regulatory
change
• Culture is still very much top of the agenda – SMR is coming to all firms
• Review and improve your processes around:
• conflicts of interest
• financial crime and AML
• corporate governance
• The development of new technology and innovation for consumers are at
the forefront of what the FCA wants to achieve