On April 17, 2019 the Financial Conduct Authority (“FCA”) published its Business Plan for 2019/2020. In the document, the FCA sets out its priorities for the next 12 months which are split between cross-sectoral priorities and sector-specific priorities. These are in addition to the FCA’s current priorities around EU withdrawal and international engagement, which include supporting a smooth Brexit transition, strengthening the FCA’s engagement with international regulators and assessing the impact of Brexit on the industry and consumers.
There are four ongoing cross-sector priorities:
- Firm’s culture and governance:
The FCA will continue to work on extending the Senior Managers and Certifications Regime (“SM&CR”) to FCA-solo regulated firms, which will include the adoption of a new Directory of individuals working in financial services. The FCA will also look closely at the role of ’purpose’ in creating healthy cultures within firms by setting up a working group, hosting roundtables and publishing its conclusions. Finally, the FCA also announced a proposed supervisory review of firms’ remuneration practices.
- Operational resilience:
The FCA announced that it will publish policy proposals to enhance operational resilience of firms and set out clear expectations on outsourcing arrangements. Following recent significant failings at firms, it will also review firms’ approaches to change management and carry out supervisory multi-firm work on cyber-attacks. The FCA will also increase the use of “ethical hacking” alongside its supervision assessment program on a number of higher priority firms. With regard to smaller firms, the FCA announced that it will adopt new tools to reach out to them and increase their awareness of cyber risk.
- Financial crime (fraud, scams) and Anti-Money Laundering (AML):
The FCA will aim to use intelligence and data to improve its AML capabilities. It will also aim to strengthen its partnerships with other agencies to tackle economic crime and improve the standards of professional bodies’ AML supervision through the Office for Professional Bodies Anti-Money Laundering Supervision (“OPBAS”). Ongoing work to tackle scams through the FCA’s ‘Scam-smart’ and supervisory and enforcement actions will continue.
- Fair treatment of existing customers:
This will include the completion of a General Insurance Pricing Practices Market Study, further publications on fairness in pricing and product value and price discrimination in the cash savings market, and work on the proposed remedies identified in the Mortgage Market Study.
The FCA also identified three longer-term, strategic, cross-sectoral priorities:
- Innovation, data and data ethics:
The FCA will continue to look into how innovation and FinTech are driving changes in financial markets and how firms should collect and use data ethically.
- Demographic change:
This remains an area of concern and the FCA will continue working on understanding how the industry should be dealing with intergenerational differences, how vulnerability can be defined and how the FCA can deepen its understanding of consumers’ needs.
- The future of regulation:
The FCA will consider the future of regulation and whether the regulatory landscape is fit to face future challenges (such as innovation and Brexit). This will include work on the Duty of Care of financial services firms, regulatory costs and the regulatory perimeter.
In addition to the cross-sectoral priorities, the FCA also sets out its specific priorities for the seven key industry sectors it regulates. With regard to the investment management sector, the FCA identified the following key priorities:
- Asset Management Market Study (AMMS) remedies:
The FCA will continue its focus on the implementation of these remedies. Once the Competition and Markets Authority (CMA) publishes its order, following its inquiry into the investment consultancy and fiduciary services industry, the FCA will also consult on bringing the remedies in its Handbook in 2019.
The Revised Shareholder Rights Directive will be implemented in the UK in 2019 and the FCA will finalize its rules following its consultation earlier this year. The FCA will also evaluate the feedback received on its discussion paper on stewardship that was published at the same time.
- Investment firms prudential regime:
The FCA will consult in the second half of 2019 on how it proposes to introduce the new prudential regime for MiFID investment firms.
- Illiquid assets:
The FCA will be publishing its policy statement that details its final rules and guidance to improve standards of liquidity management in firms managing funds, which invest in illiquid assets. This statement will additionally ensure that investors are better informed about the risks associated with these investments.
- PRIIPs review:
The FCA will continue to work with the industry to try to resolve the issues identified in its recent publications. The FCA will also conduct a review of how asset managers comply with the product governance and distribution requirements under MiFID II.
With regard to the Wholesale sector, some of the FCA’s key priorities will include:
- Market abuse:
The FCA will continue to work with issuers to increase their awareness of MAR and produce guidance for other industry regulators and public bodies. The FCA will also focus on firms’ controls, particularly how inside information is controlled in M&A activities and corporate broking, and how firms detect and report suspected market abuse (with special focus on fixed income markets). The FCA is also developing new monitoring and detection tools to identify evidence of market abuse.
- Libor replacement:
The FCA will continue to support the market efforts to transition to sterling risk-free reference rates and will widen its firms’ supervisory work on this.
- MiFID II:
The FCA will continue to build on the use of MiFID II transaction reporting data to identify market abuse and monitor data quality of submitters. It will also carry out further work on firms’ compliance with new MiFID II requirements and focus on conflicts of interest in wholesale markets.
Other priorities in wholesale financial markets will include:
- Access and use of data in wholesale financial markets
- Implementation of the EU Prospectus Regulation
- Implementation of the EU Securitization Regulation
- Policy work on the EU Regulated Covered Bond Regulation
- Corporate reporting in structured data formats
- Regulation of trade repositories and credit rating agencies and securitization repositories
- Follow up to the Review of the Effectiveness of Primary Markets
Governing bodies should be made aware of the regulator's areas of focus. Firms should review their businesses to assess whether any improvements could be made in relevant areas, such as controls around market abuse or transaction reporting. The four cross-sector priorities are relevant to all firms.
- If you haven’t yet started to think about SM&CR, it is time to do so. We have developed a toolkit to enable firms to implement and maintain SM&CR and can also assist with implementation, advice and training needs.
- Cyber security is a risk that all firms need to have adequate controls for. Please let us know if you would like assistance with this.
- Financial crime and AML continue to be a high priority, and we can provide advice, templates and training, and undertake AML reviews to test your controls.
- Fair treatment of existing clients is relevant for all firms and should be embedded into your policies and procedures.
If you would like assistance in these or any other regulatory areas, please contact us.