The Financial Conduct Authority (FCA) has made a commitment to be a more, innovative, adaptive and assertive regulator. The commitment reflects the FCA’s Business Plan for 2021/22, the first annual plan since Nikhil Rathi joined the FCA as Chief Executive in October 2020.

Rathi said “The FCA must continue to become a forward-looking, proactive regulator. One that is tough, assertive, confident, decisive, agile. One that acts, acts fast—and where we can’t act, engages enthusiastically with those who can. Continuing to be more innovative, assertive and adaptive.”

In a statement, the FCA says it will be accountable for its progress on:

  • setting the bar high to support market integrity and sustainable innovation, ensuring firms start with high standards and maintain them
  • using new approaches to find issues and harm faster; £120m will be invested in the data strategy over the next 3 years
  • tackling misconduct to maintain trust and integrity, being proactive at the boundaries of the perimeter
  • enabling consumers to make informed financial decisions
  • investing in our people, reshaping our culture and working with others so we achieve more.

Rathi added “Over the next 18 months you will continue to see an FCA that looks and feels even more different. One that operates differently, partners differently, and communicates differently. One that delivers market integrity and delivers for the consumers that we serve. One that is not only purposeful but that is fit for purpose. There is a lot of work to do. And I am confident that we have the right strategy, the right people and the right ambition to do it.”

The Business Plan sets out the key areas of focus for the FCA in the coming year. In consumer markets priorities include:

  • strengthening rules on financial promotions to protect consumers in relation to investments
  • continuing to improve standards of pension advice
  • a consumer campaign on scams and high-risk investments
  • progressing proposals for a new Consumer Duty to raise standards in firms’ treatment of consumers.

In wholesale markets the focus includes:

  • following the UK’s exit from the EU, continuing to develop plans to make primary and secondary markets work better while maintaining high standards
  • continuing to support the smooth transition away from sterling LIBOR to alternative risk-free rates.

The Business Plan also sets out a number of cross-cutting priorities including:

  • using the FCA’s authority and influence to work with partners to help drive down the incidence and impact of fraud
  • improving diversity and inclusion, both at the FCA and in regulated firms
  • supporting environmental goals by adapting the regulatory framework to enable a market-based transition to net-zero carbon emissions.

The FCA also announced that it will begin a review of aspects of the rules on the scope and coverage of Financial Service Compensation Scheme payouts, for specific regulated activities.

The FCA will also be consulting on changing the balance between decisions taken by the FCA executive and the Regulatory Decisions Committee, which is a sub-committee of the Board. The proposed changes aim to streamline decision making on authorisation applications and specific supervisory and enforcement decisions.

The Business Plan commits the FCA to becoming a regulator for the whole of the UK. At present the FCA has offices in London and Edinburgh. It is exploring opening an office in Leeds with at least 100 staff based there in the first phase; doubling headcount in Edinburgh to over 200 over the next 2 years; and establishing a presence in Belfast and Cardiff for the first time by the end of the year.

Responding to the business plan, Peter Tutton, Head of Policy, Research and Public Affairs at StepChange, said “With the country dusting itself off from the financial impacts of the pandemic, the role of the FCA in ensuring more positive outcomes for consumers will be crucial over the next few years, so it’s extremely encouraging to see this new set of priorities that builds on the work of the Woolard Review and encompasses such a wide range of needs. We’re particularly pleased to see a focus on consumers in financial difficulty. In coming months, many people who’ve not recovered financially from the last 18 months will be turning to lenders for support – building on tailored support guidance put in place during the pandemic is crucial to ensure those in difficulty can access the help they need.”

“Meanwhile, with our research showing 7 million people were behind on essentials or borrowed to make ends meet due to the pandemic, a commitment to increase the availability of legal alternatives to high-cost credit while ensuring firms properly assess affordability and support customers who encounter difficulty is more important than ever. We hope the Government will match this commitment with complementary changes to public policy, like the establishment of a national No-Interest Loan scheme.”

“It’s also encouraging to see the FCA confirm its intention to appraise current debt advice rules with a view to ensuring people can access high quality advice. For too long, consumers have faced significant barriers to getting the right help, such as falling prey to IVA lead generators impersonating debt charities. Dealing with problems such as these to ensure that there is good availability of high quality, free debt advice that identifies accessible solutions for financially vulnerable people is vital.”

The FCA business plan includes new protection for borrowers through regulation of the buy-now-pay-later sector, ensuring those with debt problems are treated fairly, that debt advice is fair and effective, and that people know about alternatives to high cost credit. Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown said  “Many of us did whatever we had to do in order to get through the pandemic, and in some cases, this included taking on an awful lot of debt. The FCA is worried that if we’ve done any of this using unregulated buy-now-pay-later providers like Klana and Clearpay, we may not even realise we’ve borrowed money, and could face risks that we’re entirely unaware of. It’s also worried that people who have maxed out all their available borrowing could run into real trouble when the furlough scheme comes to an end, and that lenders and some debt advice companies risk making their problems even worse.”

“The Woolard Review rang several alarm bells over buy-now-pay-later, including the fact people didn’t really think of it as borrowing, so didn’t give it the same kind of thought they would when taking on other types of debt. The very basic credit assessments associated with this kind of borrowing means they can take on a huge number of these arrangements, and run up significant debts, without considering whether they can afford them. One bank told the review that of the 677,000 of their current account customers who made a payment to two of the large providers in November 2020, 10% had also exceeded their overdraft limit in the same month.”

“The FCA plans to consult on regulating this market in 2022, and while this is a welcome development, the timescales involved mean there’s a good chance that many more vulnerable borrowers will be put at risk in the interim. 5 million people had used this kind of borrowing between the outset of the pandemic and the Woolard Review just under a year later, and the size of the market trebled during 2020 alone. The sooner it starts regulating the sector, the better.”

“It has also promised to keep a close eye on how borrowers are treated when they fall into financial difficulty – particularly vulnerable people – and examine the help they’re offered now that industry-wide coronavirus support has been phased out. If lenders fall short, they’ll be tackled individually, but it’s not ruling out setting new rules too.”

“It will also be keeping an eye on debt advice companies, which consolidate debts and take fees from repayments. It expects demand for debt advice to double as a result of the pandemic, so it’s vital that vulnerable people aren’t getting ripped off. The FCA checked out the advice on offer from these companies and ‘found significant problems’ creating ‘risk of serious consumer harm.’ It plans to tackle firms individually and consider new rules.”