Clifford Chance

The FCA recently published its 2023/24 Business Plan. The Plan provides an update on the second year of the FCA's 2022-2025 Strategy and sets out its priorities for the next 12 months.

The FCA intends to prioritise a selection of key reforms in 2023/24 and this includes implementing the conclusions of the Future Regulatory Framework ("FRF"), taking steps to advance its new secondary objective to promote the UK's international competitiveness as well as enforcing and monitoring compliance with the new Consumer Duty. The Business Plan does not set out how the FCA will implement the new secondary competition objective (or how it will balance this against its consumer protection objective) and firms should therefore expect to see further developments from the FCA in this area, working in consultation with HMT and the PRA, in the next 12 months. One immediate area of focus, however, appears to be to encourage insurtechs and other new start-ups in the UK. Notably, the Business Plan includes commitments to improve the new authorisation process, which would complement HMT's proposed reforms for new market entrants under the new Solvency UK regime.

Key priorities in 2023/2024

The 2023/24 Business Plan continues to focus on the three key themes identified by the FCA in its Strategy:

1. Reducing and preventing serious harm
2. Setting and testing higher standards
3. Promoting competition and positive change

In support of these themes, the FCA has identified four key actions that it intends to prioritise in the next 12 months:

Preparing financial services for the future

The FCA intends to implement the changes recommended by HMT as part of the FRF. The FCA has already updated initial provisions of retained EU law in its Handbook and will continue this in 2023/24 and in the next 12 months it intends to "operationalise" its new secondary objective to "facilitate the international competitiveness of the UK economy and its growth in the medium to long term", which will be introduced by the Financial Services and Markets Bill. The FCA has not specified how it plans to do this but has indicated that there will be public consultations on the new Cost Benefit Analysis framework and on the new rule review framework. Further interaction between the FCA, PRA and HMT will also be required to finalise the proposed reforms.

Strengthening the UK's position in wholesale markets

The FCA seeks "a UK wholesale market which supports both the domestic economy and growth and is open to innovation, underpinned by high standards of market integrity and consumer protection". It has already begun and will continue to deliver projects on the Wholesale Markets Review and the Primary Market Effectiveness Review. The FCA will also apply its "data-led approach" to strengthening the UK's position in wholesale markets by attracting innovation and supporting evolving markets. As noted above, the FCA expects to improve its processes for new applications for authorisation this year by increasing its capacity, digitalising its forms and improving its case management system.

Putting consumers' needs first

The FCA's expectation remains that firms need to do more to make financial services work well for consumers. Following the introduction of the new Consumer Duty rules, the FCA has stated that it will now undertake sector-specific work to identify, supervise and enforce against activities undermining good consumer outcomes. The FCA will also create a new Interventions team who will investigate and take action if immediate consumer harm is identified. In addition, in light of the current cost of living crisis, the FCA will monitor firms to ensure retail customers in financial difficulty are given suitable forbearance and ensure consumers receive appropriate debt advice and insurers should expect finalised guidance on supporting customers in financial difficulty. Firms should also expect the FCA to assess how operationally resilient they are in relation to their own impact tolerances, as well as a Consultation Paper on an oversight regime for supervisory authorities to set resilience standards.

Reducing and preventing financial crime

The FCA wants "consumers and market participants to have confidence that the financial services industry is safe". The FCA has already taken steps to improve its collective response with its partners to reduce and prevent financial crime (e.g. through consumer awareness campaigns and closer scrutiny of firms to ensure they meet the FCA's standards for financial crime systems and controls before authorisation). In 2023/24, the FCA intends to take a "data-led approach" (a key theme in its Strategy) to tackle financial crime, for example through analysing data to identify firms susceptible to receiving proceeds of fraud.

Next steps

The next 12 months look set to be a busy period for the FCA and firms alike. As such, we would recommend that firms monitor and review the FCA's new quarterly Perimeter Reports as well as its yearly report on the progress the FCA has made on the secondary objective. Firms should also monitor announcements from the FCA, PRA and HMT on the Edinburgh Reforms and incoming Solvency UK, as well as the various consultation papers proposed by the FCA in the 2023/24 Business Plan.