The FCA has released its Business Plan 2023/24; the plan covers the second year in the FCA’s three-year Strategy. This is one document among the annual publications issued by the regulator which provide insight into its priorities and focus; for a more comprehensive view, it should be considered alongside the FCA’s Annual Report (due to be published later in the year, with an update on the FCA’s performance metrics) and its Perimeter Report which sets out where the FCA has identified issues or potential issues with the scope of its remit (now updated quarterly, the latest report was issued in early March). In this blog, we extract key activities which the FCA has in plan for 2023/24 which are of interest for the FinTech sector. A full summary of the Business Plan is available on our FSR and CCI Notes blog here.
How is the plan organised?
In setting out its three-year strategy in 2022, the FCA articulated three key outcome-focused themes:
- Reducing and preventing serious harm;
- Setting and testing higher standards; and
- Promoting competition and positive change.
The Business Plan sets out activities against these three themes from the Strategy, but it also addresses organisational points and some specific areas like cryptoassets. Throughout the Business Plan, FCA makes frequent references to increasing its use of data and technology to inform its interventions and policy development. This is clearly inward looking for the FCA, though relevant for firms as they could drive an increase in FCA scrutiny and activity in particular areas of policy or with respect to particular activities or firms.
The three outcome-focused themes from the three-year Strategy
Focus 1: Reducing and preventing serious harm
The FCA has six commitments under this focus – these are set out below and we highlight relevant activities:
- Dealing with problem firms:
- The FCA will prioritise action against the riskiest firms and those causing the most harm; it plans to increase the number of firms it takes action against.
- It also plans to expand the types of breach of Threshold Conditions that it takes action against; the Threshold Conditions are the minimum requirements that firms must meet to obtain authorisation for carry on regulated activities and to continue to carry on those activities.
- Reducing harm from firm failure:
- A new financial resilience regulatory return will be introduced for solo-regulated firms; this was consulted on in October 2022.
- The FCA identifies that its efforts on developing cryptoasset policy will foster financial resilience in this particular sector.
- Reducing and preventing financial crime:
- The FCA plans to increase its assessments of anti-money laundering (AML) systems and controls.
- The regulator will bolster its resources to support oversight of firms communicating and approving financial promotions, including those for qualifying cryptoassets. (For more on the financial promotions changes, see our articles on the s.21 gateway and on the cryptoassets marketing draft statutory order.)
- Additional commitments under this focus are: improving the redress framework; improving oversight of Appointed Representatives (ARs); and delivering assertive action on market abuse:
Focus 2: Setting and testing higher standards
The FCA has four commitments under this focus. We set these out below and highlight key activities:
- Putting consumer needs first:
- A new Interventions team will be created in the Enforcement department; it will take ‘rapid action where immediate consumer harm is detected’.
- Enabling consumers to help themselves:
- Activities under this commitment include preparing an application gateway for firms that want to approve financial promotions for unauthorised firms and updating the register accordingly; the FCA will also preparing for the extension of the financial promotions regime to qualifying cryptoassets.
- The FCA also intends to develop its capabilities to monitor social media for illegal financial promotions.
- Minimising the impact of operational disruptions (Operational Resilience):
- As well as continuing to assess how firms are progressing to the March 2025 deadline on operational resilience, the FCA intends to ‘Make it clearer to firms how they should report operational incidents to us, including what, when and how they should be reporting’ – a CP is planned for Q4 of 2023. (We have published a summary of the UK operational resilience requirements and also maintain an OpRes Hub and multi-jurisdictional timeline of developments.)
- On the critical third parties (CTPs) regime which will be introduced by the FSM Bill, the FCA, PRA and Bank of England (the Bank) will consult further on the regime in 2023. (For more on the CTPs proposals, see our note here).
- A number of activities are set out under the FCA’s fourth commitment – a strategy for positive change: our environmental, social and governance (ESG) priorities.
Focus 3: Promoting competition and positive change
The FCA has three commitments under this focus. We set these out with the key activities:
- Strengthening the UK’s position in global wholesale markets:
- The FCA will work with the Bank on the development of the financial market infrastructure (FMI) sandbox which will test distributed ledger technology (DLT) for settlement and trading; this is due to be set up by the end of the year.
- The FCA will also work on the move to trade date + one (T+1) settlement.
- Retail access to capital markets will also be considered; this work will be undertaken alongside the FCA’s reviews of disclosure and advice, the aims of which are summarised in Therese Chambers, FCA’s Director of Consumer Investments, March 2023 speech.
- Shaping digital markets to achieve good outcomes:
- The FCA will publish its feedback to DP22/05 The potential competition impacts of Big Tech entry and expansion in retail financial services which will inform the development of an effective competition approach for Big Tech firms in UK financial services.
- It will release the FS to DP22/04: Artificial intelligence (AI) in financial services. This was a joint DP with the Bank and PRA. It is worth noting that the DP predated the Government’s AI White Paper and the letter from Secretary of State Michelle Donelan to the Digital Regulation Cooperation Forum (of which the FCA is a member along with the Competition and Markets Authority (CMA), the Information Commissioner’s Office (ICO) and the Office of Communications (Ofcom)) regarding the Government’s expectations of the approach to regulating AI. Any FS can be expected to incorporate the ‘pro-innovation’ aims as set out in the Minister’s letter.
- The FCA will also continue to focus on digital consumer journeys, and may look further at trading apps. For more insight on this activity, the regulator published information in February, as part of its InvestSmart campaign, which illustrated how it researches types of investor and uses specific techniques to alert different groups of people to risks from investment offers.
- Finally, with HM Treasury, the CMA and the Payment Systems Regulator (PSR), the FCA will continue to work on the future of UK Open Banking.
- The third commitment under this focus is preparing financial services for the future; the FCA’s activities under this commitment focus mainly on developing the post-Brexit regulatory framework.
For further information, please contact:
Chris Ninan, Partner, Herbert Smith Freehills
chris.ninan@hsf.com
