REGULATORY EXPERTISE
FCA
A shift towards outcomesbased regulation
Renewed focus on threshold conditions
A data-led regulator
Outcomes-based regulation The foundation of the shift towards outcomes-based regulation was the implementation of Consumer Duty in July last year . In time , we believe this will result in a welcome move away from an overreliance on tick-box compliance and highly prescriptive handbook rules . Traditionally , regulation has focussed on internal processes , e . g . compliance processes , sales scripts , checklists , and , whilst those are still very important , there is a new expectation moving forward that firms review and evidence good outcomes for end customers once they ’ ve been through the process . There are examples where layer upon layer of regulation has only served to confuse the industry , rather than support it , and we are encouraged by the messaging that further reform is on the way , as we hope this will lead to a renewed focus on proportionality and what is best for the client in the given situation . We are also encouraged by the work the regulator has committed to do in relation to retirement income advice and sustainable investment advice . We see this work as having the potential to provide valuable insight to build on existing Conduct of Business rules , and provide good and poor practice and a clearer indication of the expectations of the regulator . In a webinar at the end of last year , the FCA reminded firms that Consumer Duty is not a ‘ once and done ’ exercise and that , once a year , Senior Managers at the firm must review and approve an assessment on whether the firm is delivering good outcomes for their customers . This report must be completed by 31 July 2024 , and will be a piece of internal governance – albeit a really important one – and the regulator has said it will be reviewing a sample of firms ’ assessments , looking at the data they include to evidence consumer outcomes , how Senior Managers have scrutinised the firm ’ s performance and what actions are planned to address any gaps . This will help to drive good practice across the industry more widely .
Threshold conditions The threshold conditions are the minimum statutory criteria which a firm must satisfy in order to be given and retain authorisation . They are extremely important and in recent times we have seen a renewed focus in this area , with the FCA stating in its 2023 / 24 business plan that it intends to expand the types of breaches of threshold conditions against which it will take action . A high-level summary of these conditions is as follows : Location of offices – the firm and its ‘ mind and management ’ must be located in the UK . Supervision – the firm must be capable of being effectively supervised by the FCA . This means that the firm must be ‘ ready , willing and organised ’, act on communications in a timely manner and engage promptly within set deadlines , e . g . complete reporting obligations on time . Resources – maintain appropriate financial resources . This typically means a firm ’ s capital adequacy . We know reform is on the way in this space for investment firms , with the FCA publication before Christmas setting the scene with this threshold condition . Resources will also include ‘ non-financial resources ’, most commonly having the right staff for the right roles and where appropriate having a succession plan , e . g . where a key member of staff be unavailable at short notice , e . g . the holder of SMF16 / SMF 17 functions .
Senior management – the senior management team must be appropriately skilled and of good standing . For most firms this will link into the requirement to assess Senior Manager ( s ) as fit and proper , and competent and capable on an annual basis . Business model – a firm ’ s business model , structure and services must be established with the customer in mind . If there is a planned change to the business , e . g . regulated activities , strategy or future outlook , then the firm should revisit its business plan and think about any risks to consumers from the planned change – and how these will be mitigated . Firms should not underestimate the importance of threshold conditions , which represent the fundamental pillars defining a firm ’ s ongoing existence in the eyes of the regulator . Any reference to threshold conditions in a communication with the FCA should be taken very seriously .
A data-led regulator As part of its data strategy , the FCA has committed to become a data-led regulator with the aim of becoming more innovative , adaptive and assertive . Whilst this will mean different things for different financial sectors , for intermediaries we believe this is likely to mean an increased focus in the following areas : Whilst it can be frustrating and time-consuming , we know the FCA will be monitoring the reports you submit and looking to identify trends . Good quality regulatory reporting should keep you out of the supervisory spotlight . Whilst we hope these situations are few and far between , when a firm receives a complaint , it will be notified to the FCA through ongoing reporting . It is extremely important , regardless of the circumstances , to act in good faith and proactively consider whether remedial action is appropriate , and assess the reason for the complaint . These expectations have only strengthened under Consumer Duty . As covered above , the Consumer Duty now requires firms to harness the benefits of data on an ongoing basis , to improve their services and understand the outcomes they achieve for their customers . In many cases , this can be facilitated through the use of technology . And finally , we have recently seen an increase in the number of surveys from the regulator , with a clear example being the survey issued last summer on the retirement income advice thematic review . These surveys provide a large source of data and metrics for the regulator and industry , which , in turn , can be analysed and – we hope – published to allow firms to benchmark their services against others in a way which should help demonstrate the delivery of good customer outcomes . In conclusion , it is our view that by focussing on these three evolving areas of regulation , we believe you will align your business with the expectations of the FCA going forward and help ensure that you do not become an ‘ outlier ’ in a way which could lead to supervisory attention .
For a more concise overview of the regulatory changes , make sure to refer to our newly updated Regulatory Horizon Scan on the ‘ Latest Regulation ’ page of your Member sites .
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