Clifford Chance

Nikhil Rathi has set out his ambition for the FCA to be more innovative, assertive and adaptive in the FCA's Business Plan 2021/22. What will this mean for firms?

We set out below four key points for firms to consider following the launch of the FCA's Business Plan 2021/22.

1. Greater use of data

During the launch of the Business Plan, Mr Rathi said that "Data is the lifeblood of a modern regulator", which is why the FCA is dedicating £120 million over the next 3 years to its data and technological capabilities.

It is hoped that quicker interrogation of data will lead to swifter action by the FCA. Firms should expect increased regulatory attention on the data they report to the FCA and prepare for questions around data integrity, as the FCA compares the data it receives from firms with greater speed and more sophisticated analysis.

Within the enforcement arena, firms may be expected to avail more of predictive coding and similar technological developments to increase the speed with which increasingly larger volumes of information are reviewed and disclosed to the FCA.

2. Reform of the Regulatory Decisions Committee

Mr Rathi said that the FCA's "instinct will be to test our powers to the limit" and that the "perimeter is a perennial challenge." To combat this challenge the FCA has appointed new Executive Director, Authorisations, Emily Shepperd and is also recruiting around 100 additional authorisations staff.

As has been anticipated, the RDC's current role as final decision maker on contested enforcement, supervisory and authorisation interventions is to be reformed with a change to the way it functions to place greater responsibility in the hands of managers within the FCA.

It is expected that the RDC's role in respect of enforcement cases will remain largely unchanged, but its role as final determinator of authorisation applications may cease.

The FCA expects to see refusal/withdrawal/rejection rates for firms applying for authorisation to increase, through a more robust application of the authorisation "gateway".

The RDC's role in the issuance of supervisory notices may also change to help the timeliness with which the FCA can intervene in real-time by removing, or minimising, the RDC hurdle.

3. Continued focus on consumers and vulnerability

The FCA is currently consulting on a new duty of care for consumers which in part seeks to protect vulnerable customers, whose numbers have increased dramatically during the pandemic, and in doing so are putting increased demands on firms.

Although the FCA notes the expectation on consumers to carry out due diligence, a duty of care may undermine the principle in FSMA that consumers should take responsibility for their decisions (Section 1C(2)(d) of FSMA).

The FCA's work to shape the new consumer duty through consultations during the next financial year will be one of the most important for firms to pay attention to, regardless of whether they have a direct relationship with retail customers.

4. Wholesale priorities and risk regarding environmental, social and government (ESG) disclosures

In addition to the move away from LIBOR and revising the listing and prospectus rules framework for issuance of securities in primary markets, the FCA is increasing its supervision of asset managers’ descriptions of their investment products to assess whether they are fair, clear and not misleading.

Ultimately, the FCA seeks to promote integrity in the market for ESG-labelled securities, supported by the growth of effective service providers – including providers of ESG data, ratings, assurance and verification service. The interplay and reliance between these different parties may be fertile ground for litigation and FCA enforcement in the future.

Asset managers will also want to pay particular attention to the FCA's determination to identify funds that are outliers to their peers, such as those charging particularly high fees. Firms will need to be prepared to justify why they are outliers or work with the FCA to remediate what the FCA may consider are problems.

Conclusion

The emerging theme is that the FCA is seeking to become increasingly decisive and bold in its interventions. This approach was encouraged by the reviews undertaken by Dame Elizabeth Gloster and Raj Parker, after which Charles Randell, Chair of the FCA, said:

"We need to reinforce a culture in which people at the FCA are empowered and confident to take responsibility for bold interventions."