What firms can expect from the FCA over the coming year
The Financial Conduct Authority (FCA) published on 31 March 2014 its Risk Outlook and Business Plan for 2014-15. Together, these two documents are a must-read for firms as they set out the FCA's proposed action for the year ahead. The FCA expects firms to look at their business models, strategy and structure to assess whether they are effectively identifying and managing the relevant risks outlined in the Risk Outlook. As stressed by John Griffith-Jones, FCA Chair, "the risks in this document should not just be of concern to the FCA but also to the industry as a whole".
The Risk Outlook identifies seven forward-looking areas of focus which the FCA believes pose risk to consumer protection, market integrity and competition. The document builds on the approach taken by the FCA last year, covering conduct risk as well as prudential risk. The Business Plan draws on the Risk Outlook, setting out an extensive pipeline of risk-based activities that the FCA intends to pursue in 2014-15 to meet its objectives. While the two documents very clearly set out the FCA's intended work and timelines, it is more difficult than last year to pinpoint the FCA's highest priorities, with the thematic reviews less clearly linked to the areas of focus highlighted in the Risk Outlook. In our view, technology, terms and conditions and work on large back-books rank among the highest.
The identified risks and scheduled work broadly build on existing FCA work and / or are in line with previous FCA communications. The review of firms' legacy business already made headline news last week. Consumer credit will be a big focus area for the FCA as it gets to grips with its new responsibility for regulating 50,000 consumer credit firms. The FCA will also continue to embed its competition objective, focusing on wholesale markets and credit cards.
In terms of planned thematic reviews, the FCA is continuing its focus on the fundamentals: incentives, conflicts of interest, controls over use of information, and clarity and accuracy of disclosure. Notwithstanding the existence of the FCA's new product intervention powers, there was little mention of any potentially problematic products, although the FCA will be carrying out a review of packaged bank accounts in the second half of the year. Wholesale conduct will continue to play a prominent role in the FCA's activities, with a significant number of thematic reviews planned next year. Although culture only made a specific appearance in relation to wholesale conduct and the risk of poor culture and controls threatening market integrity, culture generally remains front and centre in the FCA's supervisory approach.
Please see our briefing note for further details on the seven forward-looking areas of focus in the Risk Outlook, the Business Plan key activities for 2014-15 and what they mean for firms.
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