The FCA published its three-year strategy in 2022 and has supported that every year with an annual business plan, to explain how it will deliver that strategy.   

As we approach the end of the FCA’s strategic cycle (2022-2025), I thought it would be a good time to reflect on how well they’ve executed their strategy, what regulatory themes have and have not stayed consistent, and where they might be heading next. It’s also interesting to reflect on what is happening at the FCA itself.  

Summary  

Overall, the FCA needs credit. It developed a strategy, and it’s been true to it. Obviously, things can change and it has to adapt accordingly – and recent years have seen some very significant changes, particularly to the lifestyles of the consumers it’s here to protect – but generally it’s been suitably consistent over this strategic cycle. 

The FCA has made substantial progress over the past three years, adapting to new challenges and improving its regulatory framework.  It consistently focuses on its key priorities of consumer protection, market integrity, and technological advancements while its competition objective continues to receive an increasing focus, albeit it with a level of political interference.  

As it moves into the next strategic cycle, expect the FCA to build on these foundations, addressing emerging challenges and opportunities with a proactive and dynamic approach. 

Execution of Key Focus Areas  

First off, the FCA has some clear goals: reducing and preventing serious harm, setting and testing higher standards, and promoting competition and positive change.  

Consumer protection (now via the Consumer Duty) is always a big focus. They’ve made strides here, with quicker interventions and better consumer trust. The FCA’s own metrics show that awareness of FCA interventions has jumped, which I can accept is a solid indicator that they have made progress. 

Market abuse prevention has also seen real progress. Enhanced data analytics have played a big role here, helping detect abuse more efficiently and improving market transparency.

Do the Annual Business Plans Align with the Original Strategy? 

In short “yes”.  The three business plans (2022-23, 2023-24, and 2024-25 respectively) all align well with the original strategy. 

Moving beyond consumer protection and market integrity, there’s been consistent focus on resilience – both operational and financial. Financial crime will always feature strongly, and the FCA’s approach to preventing it continues to evolve.  The FCA also, quite rightly, continues to enhance and develop its own regulatory frameworks, so that it operates more effectively and more efficiently.  ESG has also grown in significance over the strategic cycle, and this needs to achieve a business as usual status at some stage over the next year or two. 

The FCA, Regulation and Technology 

Of most significance for me, what I think is really interesting is the rapidly advancing role of technology within regulation. It touches everything.  (And, I realise that this is kind of self-fulfilling for somebody that runs a RegTech company called My Compliance Centre to say!) 

Technology touches firms the FCA regulates: through the FCA’s very strong emphasis on operational resilience and because no firm of any real substance can execute on its regulatory obligations without a robust investment in RegTech.   

However, technology is clearly impacting the FCA itself. The FCA has invested heavily in data centres, technology, staff and improvements in its own processes.  The mood music is that their investment in technology is paying off, with better detection both of financial crime and firms in breach of their obligations; the FCA’s own metrics reinforce this. 

Additionally, the FCA has to regulate firms which are using new technologies and apply (very often) quite old regulations to very modern technology, such as AI, machine learning and digital ledgers.  I’ve written many times about how I am amazed that a UK regulatory framework for crypto has not appeared already, but, away from that, it does appear that the FCA is doing everything it can to keep up.  

How Has The FCA Itself Evolved Over The Strategic Cycle? 

Quite a lot. Again, I think the FCA deserves credit. It’s dealing with a dramatically changing environment, politicians who change what they think and their own risk appetites, and a range of other headwinds. We’ve already mentioned technology and how the FCA continues to evolve its own regulatory frameworks.  However, I think the other point that we have to mention is its growth in staffing.  

I kind of think of the FCA as being a 3-3500 per person organisation.  I am out of date. The FCA is now about 5000 people, which (to me at least) just sounds like an incredible number to control within one regulatory body.  I’ve written previously here about the FCA’s budget, and how it compares to other regulators. It’s very difficult to compare apples with apples when talking about this subject but unsurprisingly the FCA’s budget is massive compared to nearly any other regulator, except a behemoth such as the SEC.   

I also think that the FCA has become better at communication.  The most recent business plan is substantially easier to understand than the previous two versions.   

Going Forward, What Can We Expect? 

The regulatory focus for the FCA over the forthcoming period is unlikely to change and surprise any reader.  You know its priorities and it will continue to focus on those.  

However, the way in which the FCA regulates is evolving and that is what you should track. (In addition to the obvious) expect an ongoing focus on operational resilience and cyber security, and the evolution of the FCA’s own risk appetite in regard to all aspects of digital finance and digital markets.  Expect ESG to continue to receive attention while market standards and the FCA’s own opinion stabilise. 

In terms of supervision, expect more early interventions in an attempt to prevent harm, often driven by data and the FCA’s own analytics.  Will this enhanced approach to supervision change outcomes, for example in a reduction in the number and the amount of fines levied? At the time of writing, only five fines have been levied by the FCA in 2024 and from a high of 26 fines in 2022, there were only 12 fines levied in 2023.  Bearing in mind the lead time from misdemeanour through to the completion of enforcement action, I think it’s too early to draw any conclusions, but maybe one positive benefit for firms is that the FCA’s early intervention might reduce the fines that are finally levied. We can only hope. 

The elephant in the room is the political environment. Personally, I’ve had enough of politicians flip flopping their risk appetites, wanting greater regulatory scrutiny one week and then telling the FCA to relax its risk appetite the next week. This challenge is particularly evident in relation to the competition objective.  Executing the competition objective seems challenging for the FCA, particularly given the international dimension which it now has to deal with on top of vacillating politicians. 

And, finally, don’t expect your regulatory fees to go down anytime… that budget just keeps going up!

Author: Ben Mason

Date: 11th June 2024