FCA takes a new strategic approach - but is there more regulatory volatility ahead?

The FCA's latest three-year Strategy and one-year Business Plan take a fresh approach.

Previous Business Plans were structured by sector.  But now, the FCA is aiming at three focus areas (reducing and preventing serious harm; setting and testing higher standards; and promoting competition and positive change) and making cross-sector commitments within each focus area.  Each commitment will address one or more of four topline outcomes (fair value; confidence; access; suitability and treatment).

The FCA extols the benefits

So: an outcomes-based, cross-sector approach.

According to the FCA, this approach allows it to set expectations for all firms regardless of type or size; better to respond to new issues and macroeconomic challenges; and to take a more agile and adaptive approach to allocating its resources to meet market needs.

The FCA also says that outcomes-based regulation delivers key benefits to firms and consumers.  It guards against inconsistent regulation; will adapt to technological change; and allow firms to innovate with certainty as to the FCA's regulatory expectations.

And the FCA aspires to intervene to prevent consumer harm.  The Strategy clearly articulates the FCA's vision here: to rely more on tools that have an "instant effect" when there's immediate harm, rather than "launching fuller, longer investigations".  And to make an example of firms, sending a clear signal to others: "improve now or you're next".

But there are drawbacks

Higher-level cross-sector principles, outcomes-based regulation, and rapid supervisory interventions - tip the scales too far in favour of these, and the FCA may achieve something it's attempting to avoid: impeding innovation due to firms' uncertainty about regulatory ambiguity/over-generalisation and uncertainty about when and how (and against whom) the FCA may act.

Cross-sector and outcomes-focused regulations are made at the cost of regulatory specificity and clarity.

The FCA is serious about this

Strikingly, at various points throughout the Business Plan the FCA proposes to measure its own success in terms of a medium-term rise in the number of formal FCA interventions - for example, cancellations or withdrawals of permissions, including "test cases" on complex Threshold Conditions issues; refusal or withdrawal of applications for registration under the MLRs; financial promotions interventions; interventions in market disclosures by issuers; and proactive commencement of insolvency processes.

And the FCA is increasing its resources with new hires into its team dealing with withdrawals and cancellations, as well as forming a new "early oversight" team giving enhanced supervision to new market entrants.

Not to mention the resource the FCA is devoting to its data collection and analysis efforts (its Data Strategy is promised later in 2022).

Want more details?

Read our note on the FCA's Strategy and Business Plan where we highlight key points from both documents, including the FCA's immediate actions within its three focus areas.