U.K. conduct regulator sets out on a mission to boldly go forward | Wolters Kluwer Financial Services
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  • U.K. conduct regulator sets out on a mission to boldly go forward

    By Steve Blackbourn

    Published January 05, 2017

    At the end of October the UK’s financial conduct regulator (FCA) started an expected lengthy debate which will shape and influence the future role of the FCA in supporting and balancing the needs of the financial services industry and its varying users and consumers. An initial consultation process seeks to provoke industry thinking and views by late-January 2017, with a specific webpage also created to disseminate developments and updates going forward. 

     This consultative programme of work and other initiatives to then embed a future ‘Mission’, seen as critical to the success of the whole UK industry and its effective and meaningful regulation, is rightly being led and driven by FCA senior-management. It is expected to establish and then embed a new ‘Mission’ framework and set of guiding principles that will be expounded and followed by the FCA to then prioritise and better focus its resources and underpin the ongoing regulatory approach of the conduct regulator in the UK. 

    Remaining steadfast whilst offering something new 

     The regulator’s underlying and established statutory and operational objectives will of course remain very much to the fore. Matters concerning consumer protection, and the proper and fair treatment of customers’ needs, expectations, interests and their service experiences and outcomes, continue to be a core demand and obvious focus. As indeed will its robust regard to the obligations and duties on regulated firms and individuals to conduct themselves with the proper regard, skills and competencies, and also the effective management and understanding of financial-crime exposures and risks, all delivered with transparent and adequate arrangements.  

     However, the regulator has also for some time now been pitching itself towards the needs and benefits of taking a more flexible, adaptable and even at times pragmatic stance and approach, as it seeks to encourage healthy market competition and also sustainable innovations in terms of products and technological solutions and efficiencies. As the UK FCA looks at refining its tools and more productive ways in which to assess, monitor and intervene where it feels industry participants or sectors warrant their attention, direction or sanction.   

    Making the biggest and best difference

     The aim in defining a ‘Mission’ is in providing clarity and transparency on how the FCA will interpret and pursue its objectives and business priorities, enabling the regulator to allocate and commit resources on the right issues and appropriate matters. In particular, the FCA is keen to explore and define its purpose and approach around some key topics and themes, such as (but not limited to):

     A.    Consumer vulnerability – with issues such as efficient consumer protections recognising and responding to vulnerable circumstances and mitigating substantial harm or loss. But also, financial redress and compensation being provided where necessary, as well as the overall fair treatment (TCF) with a proper regard of clients’ interests in matters such as complaint handling and product/service integrity and improvement etc.   

     B.    Consumer responsibility – with expectations that consumers have some level of responsibility for their choices and decision-making, but still needs to be suitably balanced with appropriate transparency and disclosures to enable informed action and outcomes, reflecting both consumer capability and product/service complexity.      

     C.    Innovation and change – with both industry offerings and consumer needs becoming increasingly complex and diverse, the FCA is keen to be able to smartly identify, promote and adapt to beneficial advances and changes in products, solutions and services delivery mechanisms, as well as dynamic market innovations and opportunities.        

     D.    Identifying and responding to risk and harm – with the ability and propensity of the regulator to act and intervene wherever harm or conduct is unacceptable or there are substantive actual/potential consumer vulnerabilities or standard failures, with firms expected to exit the market in an orderly manner with minimal disruption/harm to both market and consumers.    

     In terms of setting and enforcing standards that financial service firms are expected to operate, the FCA is expected to become more transparent in sharing with the industry its evolving views and actions concerning where (and where not) it might intervene. This could give the industry a more informed insight and picture on the regulator’s thoughts and motivations behind its working actual practices and decisions. For example, this might help understand the factors involved and how the FCA has achieved a considered response, including factors such as how intervention or other tools might be deployed to effectively resolve problems. 

    Change and evolution brings new regulatory challenges and priorities

     Future changes in product access, distribution and service technologies and mediums/platforms, as well as revisions and the widening remit of many areas of regulation in recent years, from banking, insurance, mortgages, investment/asset management, to consumer-credit etc. have all required the UK regulator(s) to adopt and display an increasing flexibility in their own operating regulatory focus and approach. In turn, these developments have all helped to drive and impact regulatory changes and expectations involving firms, consumers and the whole industry across many aspects of business practice, strategy and culture from core governance and control systems to more specific operational and proportional risk-management.  

     To put this into context, the FCA’s current business plan for 2016/17 covers a diversity of work aimed at further enhancing market integrity whilst promoting and encouraging healthy competition, and also undertaking activity and measures to embed appropriate consumer protections against this background of change and evolution. This is duly reflected in the specific seven priority themes outlined in the latest FCA plan, including firms’ culture and governance, the effective provision of advice and treatment of existing customers, as well as other specific sector standards and issues e.g. covering the ‘pensions’ and ‘wholesale’ markets.  

    The unavoidable ‘Brexit’ dimension

     The motive and resolve behind the FCA in creating a defined ‘Mission’ was not pre-determined or driven by ‘Brexit’ events. Nevertheless, the UK’s decision in mid-2016 to seek to end its membership of the European Union does remain a significant and dynamic event which is set to shape and influence the whole financial services industry for some years yet as the UK’s negotiation process is undertaken and the eventual economic and business landscape that emerges and exists well beyond any actual withdrawal from the EU. At present, the Government and regulator(s) in the UK continue to actively plan and implement known and agreed changes emanating from revisions and replacements of EU legal and regulation initiatives. However, once the expected 2 year+ cycle of formal withdrawal is commenced via the Article 50 notification, then any determination to just go on fully emulating the EU framework might alter, or at least become more time sensitive or limited.  

     Of course, if the UK is to retain some practical free-access to the EU market, this might only be likely or possible at the expense of the UK having to not just enshrine existing EU provisions into its domestic legislation, but also to ensure that in practice its own regulatory laws and regulations remain suitably aligned and acceptably ‘equivalent’ to any future prevailing EU-wide framework. Otherwise, any realistic but operational compliance burden and costs involved could at best prove restrictive if not wholly impracticable, and even effectively act as a business deterrent or just be totally prohibitive. 

    The unifying or diverging effect on the ‘twin peaks’ environment in the UK 

     The separate Prudential Regulation Authority (PRA) in the UK continues to develop its own identity and regulatory approach alongside that of the FCA, with its own focus on specific prudential matters stretching primarily across the banking, insurance and credit-union sectors. Though there remain many elements of duplicity, concurrent and common planning and action, as the UK’s two regulators go about their separate remits and business goals, it should be expected that there will continue to be areas of continued divergence too as both agencies pursue and develop their own agendas and objectives. 

     Again, this might mean that practicably, those significant organisations and players across the financial services industry that are effectively dual-regulated will still have to potentially plan, respond and manage to an ever different or ever diverging style, ethos and demands of both the Financial Conduct Authority and the Prudential Regulation Authority. But it is also clear that certain aspects will continue being closely aligned and dovetailed, and this notably includes the increasing focus on the accountability of individuals. Here, plans to extend the scope and application of the Senior Managers and Certification Regime (SM&CR) beyond the banking sector and to all FSMA regulated firms looks set to become reality during 2018. 

    Your mission (if you accept it) is to help inform and contribute on direction and outcome

     This debate, and the desire of the FCA to openly engage with all stakeholders including industry participants, provides an important opportunity to directly contribute and ultimately help shape and influence any eventual outcome(s) in terms of identifying and determining the fundamental regulatory style and approach for one of the principal UK regulators going forward. This will impact not just why and what the FCA does going forward, in terms of its probable responsiveness and its working ambitions and priorities going forward, but also equally how and the means in which this will be carried out, in regard to pursuing and delivering against its own statutory and operational objectives through the exercising of its authorities and powers.  

     The eventual vision and articulated outcome behind such a future ‘Mission’ will re-validate and re-purpose the FCA, as it looks to judge and determine how it can best help UK markets function well and better for often competing users and participants. In turn, this will filter down to the specific powers and tools it will then go on to refine, adopt and apply in regard to the future nature, scope and user-experience of the authorisation, supervision and enforcement processes that regulated firms can expect to be held against and subject to.  

     In November the FCA held a conference to introduce, initiate and facilitate the ensuing debate process. Firms wanting to add to the continuing process should look for opportunities to do so, but all firms should keep a suitable watch around developments here as it will help inform their appreciation of the likely regulatory culture and environment ahead for UK financial services. Again, the FCA is seeking initial industry feedback by late-January 2017, but this will then evolve and move further during 2017 and beyond.  

     About the author: Over a 25-year career Steve Blackbourn has undertaken various operational and regulatory roles at senior-management level in a range of international financial services organisations before becoming established as a U.K.-based compliance and financial crime consultant in 2008. Steve has held key positions within a global bank assurance group, an Advanced Risk-Responsive Operating FrameWork (ARROW) supervisory inspection team at the UK FSA and an international life/pensions and investment organisation. Steve has worked and continues to work alongside Wolters Kluwer in delivering project-specific as well as rolling consultancy support services with mutual clients. He is also a regular monthly contributor to Wolters Kluwer Financial Services’ Compliance Resource Network. In addition, he also works with a range of direct clients applying his broad scope regulatory-compliance and financial-crime background and skills to deliver a reliable and quality service with an emphasis on practical approach and commercial orientated solutions.

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