Posted: 13th May 2014
In March, the FCA published its eagerly awaited Risk Outlook and Business Plan. Both of which are important documents. The FCA expects firms to engage with the analysis and messages and assess the relevance for their own business models and strategies.
Before looking at each of these in more detail, it is also worth dwelling on the speech Martin Wheatley gave at the end of 2013 to the ICI Global Trading and Market Structure Conference, where he gave his view on what to expect in the year ahead. His key message was that 2014 would be an “important period of consolidation” and “less exciting”, the latter, a word not usually associated with matters of a regulatory nature and clearly seeks to temper the fun had by all during 2013.
Unparalleled excitement aside, a period of bedding in to the new regulatory framework is good news for firms. Much has changed during the inaugural year of the FCA including a greater focus on conduct, culture and behaviour to ensure good customer outcomes together with the FCA’s new operating environment.
Are we in for a period of consolidation? Unlikely. The Risk Outlook and Business Plan highlights the many challenges ahead for both the industry and the FCA. There is lots of talk in both documents about 2014-15 being another defining year and a continuing message that today’s regulatory environment is a new environment, with more regulatory interest in outcomes and ethics over rules, more focus on prevention rather than the low value clean up, and more focus on keys issues like competition.
As for the key areas of focus, the FCA highlights the seven priority areas of considerable importance in creating risks to it objectives in the future. These include:
- Technological developments may outstrip firms’ investment, consumer capabilities and regulatory response
- Poor culture and controls continue to threaten market integrity
- Large back-books may lead firms to act against their existing customers’ best interests
- Retirement income products and distribution may deliver poor consumer outcomes
- The growth of consumer credit may lead to unaffordable debt
- Terms and conditions may be excessively complex
- House price growth that is substantial and rapid may give rise to conduct issues
Firms need to ensure that they are putting the consumer at the heart of their business models and strategies. The FCA expectation of firms in relation to the Risk Outlook and the Business Plan is clear. It expects firms to engage with the analysis and messages in the documents to assess the relevance to their own business models and strategies – from the products they design and their distribution, including the use of behavioural techniques, to culture and the oversight and use of technology.
The FCA will hold individual senior management personally accountable for failures, including not engaging with and understanding the key tenets of the Risk Outlook and Business Plan.
