The FCA 2020 Business Plan and What it Means from a Financial Crime Control Perspective

On 7 April 2020, the Financial Conduct Authority (FCA) published its annual business plan 2020/21 (the Business Plan), detailing its strategic vision and the key priority areas the FCA plans to work on over the next 1 to 3 years.

The Business Plan has been published at a time the UK, like the rest of the world, is facing unprecedented challenges as a result of the Coronavirus (COVID-19) pandemic, the resulting lockdown measures and the as-yet-unknown but long-term impact on society. COVID-19 is having a severe impact on the UK economy and is creating major financial challenges to businesses, families, and individuals across the country.

As a result, the FCA reviewed and adapted its Business Plan, in particular with regards to its short-term focus, delaying certain non-urgent activities to ensure firms don’t get unduly distracted from their immediate priorities. The FCA shares in the Business Plan some measures taken in response to the COVID-19 crisis in order to protect and support consumers, firms and markets. It also highlights that it will review the Business Plan and may adapt the priorities further if necessary.

Overall, the message of the FCA remains unchanged, with fair customer treatment and well-functioning markets remaining the long-term regulatory priority of the FCA.

Key messages of the Business Plan
Short term – COVID-19

The impact of COVID-19 has made developing the Business Plan harder than normal. 

The immediate priority of the FCA is to ensure that consumers and firms receive the support they need from financial services businesses, that vulnerable people are protected against  emerging scams, and that firms regulated or supervised by the FCA receive the necessary guidance to understand what is expected from them. Key for regulated institutions, with regards to the guidance provided, are provisions regarding mortgage payment holidays, the guidance on the Government’s Coronavirus loan schemes, and in particular, how lenders should assess affordability and the FCA’s expectations for general insurance providers.

Relevant from a prioritisation and resourcing perspective for regulated entities is the FCA’s announcement to delay all work that is not critical to protecting consumers and market integrity. This will come as a relief, especially for operational teams who have been stretched beyond boundaries due to reduced workforce, business continuity measures such as remote working in place and increased workload due to the various government aid schemes. It should be kept in mind that this respite is only temporary. Firms will need to consider postponed or delayed activities in their future resource and priority planning. 

Key Priorities over the Next 1 – 3 years

The Business Plan identifies five key priorities to ensure the FCA can meet its current overall objectives — four of the priorities are external to the agency and one focuses on the internal transformation of the organisation to meet the changing and challenging regulatory and economic landscape in the longer term, and to become more outcome/results driven. It also touches upon the challenge of leaving the EU and the new political, legal and economic environment that Brexit will create for firms and regulators. 

  1. Transforming how the FCA works and regulates:
    a. Create a more integrated “One FCA” to deliver better outcomes for consumers, markets and firms.
    b. Develop a Data Strategy to understand markets and consumers and act quickly in identifying and removing harm, reducing the regulatory burden on firms.
    c. Work better and more closely with partners and stakeholders to plan for future of financial regulation in a post-EU withdrawal, tech-enabled world. 
  2. Enabling effective consumer investment decisions.
  3. Ensuring consumer credit markets work well.
  4. Making payments safe and accessible.
  5. Delivering fair value in a digital age.

Financial Crime

The Business Plan outlines in some detail how the FCA will work across sectors in areas that have a broad market impact, particularly financial crime. The FCA reiterates that it will start to implement changes on how to reduce financial crime in line with its commitments made in the 2019 National Economic Crime Plan, which was developed to provide a collective articulation of the actions being taken by the public and private sectors to ensure that the UK cannot be abused for economic crime.

In this respect, the Business Plan specifically mentions fraud and ensuring that firms meet the requirement of having effective systems and controls to detect, disrupt and reduce risks of fraud and financial crime as a priority. This ties in closely with the COVID-19 priorities, as the FCA has highlighted an increased risk of fraud as fraudsters attempt to exploit the uncertainty created by the current situation. 

Additionally, the FCA intends on making greater use of data to identify firms and areas that are vulnerable to financial crime risks and discusses the newly implemented registration and supervision regime for crypto-asset activities. It also stresses that firms must continue to maintain and monitor their controls around all aspects of financial crime. 

Impact of the FCA Business Plan on financial crime prevention efforts

While the Government has issued various initiatives to support consumers and businesses such as the Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme and the Bounce Back Loan scheme; the roll-out of these schemes will be implemented through UK financial institutions identified as accredited lenders. 

There are over 5.9 million private sector businesses in the UK (more than 99% are small) and many of these businesses will be eligible for support under one of the schemes, should they require it. In addition, the banking and finance industry is providing additional support, such as capital and asset finance repayment holidays, limit increases on existing overdrafts and reduced or no fees on new facilities.

The rollout of these schemes will lead to substantial pressure on operational functions and resources within financial institutions. Given the time pressure in servicing these applications, these may need to be prioritised over other business-as-usual activities, with resources diverted from other — at the moment seen as less critical — functions.

This may result in an increased business and control risk, and thus a dilemma that financial crime teams are faced with, as financial crime controls may be less robust than normal: Significant volumes of new customers will need to be onboarded in a short period of time in order to make payments under the government schemes. At the same time, operational teams face resource constraints as a result of COVID-19, due to staff illness/unavailability, limitations of remote-working capabilities and reallocation of staff. This will place significant strain on financial crime teams to not only manage the short-term challenges, but also to mitigate the related money laundering and fraud risks that may arise in the future. 

It has been discussed in the media that fraudsters and money launderers are already exploiting the current situation for their future operations. Any short-term deviation from stringent financial crime controls may present fraudsters, money launderers and terrorist financiers with opportunities to avoid being detected as they would be under normal circumstances. Also, additional weaknesses in existing financial crime controls may become apparent and could be exploited by criminals in the future. 

The Business Plan states that firms must keep in view the need to maintain effective systems and controls to minimise the impact of financial crime risks whilst simultaneously managing the fast and efficient release of funds. From the perspective of a Head of Financial Crime, this will be a tremendous challenge. 

What Next?

The world is changing. 

Firms right now are focussing on the immediate challenges of COVID-19. They need to keep in mind, however, what the future impact of their decisions on their financial crime exposure will be and how to make their financial crime risk management set-up more resilient and robust going forward. 
As we transition to “the new normal”, this would be an opportune time for financial crime teams to: 

  1. Conduct a targeted lookback of customers onboarded during COVID-19 to rectify any control shortcomings resulting from an expedited onboarding process;
  2. Review and adjust transaction monitoring rules, as both expected customer behaviour and transaction patterns for money laundering activities are likely to have changed; and
  3. Reflect on the lessons learned from the COVID-19 crisis and their firm’s response and update their business continuity plans accordingly to be better prepared for future events. 

The transition to the new normal will be challenging. Understanding financial crime risks and potential gaps and developing a prioritised action plan will be essential to navigate through this period. 

Special thanks to Joseph Abraham for contributing to this article.

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