The UK FCA’s 2021/2022 Business Plan: Innovation, Assertiveness, and Adaptability are Key

The UK continues to face unprecedented levels of economic stress and volatility due to the COVID-19 pandemic. In his first message in the Financial Conduct Authority’s (FCA) 2021/2022 Business Plan (2021 Business Plan), published in late July 2021, CEO Nikhil Rathi noted that the FCA must be more innovative, assertive, and adaptive to better protect consumers and businesses. This includes harnessing new technologies, such as AI, testing the limits of its own powers, as exemplified by the NatWest prosecution and the registration requirements for crypto businesses, and adjusting the FCA’s approach to new circumstances, such as the ongoing consultation to amend the UK Money Laundering Regulations (UK MLRs).

This sentiment comes against the backdrop of a series of systemic innovations and disruptions in the UK financial services market. The COVID-19 pandemic has led to a rapid increase in digital interactions among consumers, creating new opportunities but also greater operational and market risks, many relating to fraud and financial crime.

 

What is the Impact on the Financial Services Industry?

Compliance and other risk functions at UK-regulated entities should ensure their firms follow the principles and trajectory of the FCA by becoming more assertive, adaptive, and innovative. They likely will need to manage their financial crime programmes more proactively; make sound, risk-based decisions about incorporating new types of assets into their activities; and they will need to harness the power of new technologies, leveraging them as part of their compliance programmes, where appropriate.

 

The FCA’s Priorities for 2021/2022

• Delivering for consumers by taking forward the four priorities from the 2020/21 Business Plan and the FCA’s new Consumer Duty;
• Enhancing market integrity, focusing on the effectiveness of UK wholesale markets, and strengthening the supervisory approach to specific issues; and
• Focusing on six (6) of the most important cross-market issues: (a) fraud; (b) financial resilience; (c) operational resilience; (d) improving diversity and inclusion; (e) enabling a more sustainable financial future; and (f) promoting international cooperation.

Compared to previous years, the 2021 Business Plan outlines the FCA’s priorities based on type of audience, i.e., consumers, wholesale, and cross-market. Regarding consumers, the FCA’s priorities mostly focus on ensuring safe and fair access to markets. In terms of wholesale markets, the FCA plans to tighten supervision and the supervisory expectations of Appointed Representatives, and to narrow down on non-banking finance. Across markets, the FCA will focus on some key current industry topics, including its fraud strategy; financial resilience; diversity and inclusion; and environment, social, and governance. The FCA will also seek to make better use of data and technology to support real-time decision-making and transparency.

 

The FCA’s Role in 2021/22

New and Emerging Requirements

The 2021 Business Plan outlines the FCA’s two key roles: (1) to use its authority and influence to improve market outcomes, where appropriate; and (2) to stop and prevent serious misconduct. While its role has not changed materially over the years, the FCA has acknowledged the need to adapt to new and emerging social, economic, and technological requirements.

Brexit

The FCA recognises that Brexit has been and is presenting challenges and opportunities for regulators and regulated entities in the UK. The UK’s exit from the EU has afforded the UK greater legislative flexibility to adapt its financial services regulatory framework to new and upcoming challenges.  Under current plans, the UK government is drafting a Future Regulatory Framework, which will transfer some rulemaking responsibilities to regulators like the FCA and strengthen accountability, scrutiny, and transparency. The FCA expects that the additional responsibilities will provide a greater degree of adaptability to changing market circumstances. 

Other Key Activities

Other key activities of the FCA for 2021/22 include: 

1. Consulting on proposals to streamline decisions about authorisation and specific supervisory and enforcement actions. In particular, the FCA is planning to change the balance of decisions taken by the FCA Executive and Regulatory Decisions Committee. 
2. Stronger oversight of newly authorised entities and those growing exponentially.
3. Intervening in real time and more often to protect consumers and the market.
4. Engaging in a consultation to amend the UK MLRs.

 

Payments, E-Money, and Crypto

Non-banking financial institutions, such as payments service providers, e-money transmitters, and crypto-asset providers have been a focal point for the FCA’s initiatives in the past year. The 2021 Business Plan noted that the volatility and inherent financial crime risks of crypto assets creates significant challenges to consumers and market integrity.

Although some banks are currently restricting services for customers wishing to transfer monies to cryptocurrency exchanges (e.g., NatWest) and others do not currently plan to offer their customers digital assets (e.g., HSBC), there is increasing appetite across UK-regulated entities to offer crypto-asset-related products and services. The FCA emphasises that it will focus on end-user protection and access, working closely with UK Treasury and the Bank of England to develop a regime that encourages innovation while protecting customers of payment services.

The FCA also highlights some existing and planned controls to mitigate the risks posed by crypto-asset businesses. First, the FCA is working on a consultation with Treasury to extend financial promotions rules to investments in crypto-assets. This would require crypto-asset businesses to put appropriate warnings on its products. The FCA also published a consultation and call for evidence on the broader regulatory approach to crypto-assets, and is developing policies and recommendations on payments, e-money, and crypto-assets, following a call for evidence last year as part of its Payments Landscape Review.

 

How Guidehouse Can Help

Chief compliance officers and heads of other relevant Risk Functions of UK-regulated entities should assess whether their financial crime and enterprise risk programmes are aligned with the expectations set out by the FCA in its 2021 Business Plan. Organisations should have plans in place to allow for future adaptability and ongoing development of such programmes. Guidehouse has extensive experience in helping firms to assess, develop, and adapt these programmes, including:

• Conducting financial crime risk assessments and gap analyses.
• Developing and supporting the implementation of financial crime transformation programmes.
• Developing and implementing advanced financial crime technology, including AI solutions.

Please reach out to us if you would like to discuss further how we can assist you.