FCA Business Plan 2016/17

Risk & reward…

Bovill Briefing

Overview

• Introduction

• Continuing themes

• The FCA’s 7 priorities

• The FCA’s focus

• What do we think?

• What it means for you

• Many issues presented in this year’s Business Plan are carried over

from last year’s list of key priorities for the FCA

• Ever increasing focus on individual accountability at firms

• Risks and rewards regarding innovation and development of

technology

• Increased development of ‘alternative’ approaches

Introduction

“Our aim is to identify and respond promptly and

effectively to emerging issues, before they cause

significant harm or grow in scale”

Key words in this year’s plan

Continuing common themes

Culture and controls

Increasing complexity in business models

Act in the interests of existing, as well as new customers

Technological innovation and encouraging new business

‘Boards have a critical role in setting the ‘tone from the

top’. We expect them to take responsibility for their firm’s

culture, ensure it remains high on firms’ agendas and that

the tone is replicated throughout the firm.’

• Pensions

• Financial crime and anti-money laundering

• Wholesale financial markets

• Advice

• Innovation and technology

• Culture and governance

• Treatment of existing customers

FCA 2016/2017 risk outlook priorities

Pensions

• Consumers unwilling or unable to contribute to pensions

• Choices facing consumers are increasingly complex

• Variety of options available create different risks

• High costs and uncapped fees in pension products disproportionately reduce consumer funds

Risks

• Review on retirement incomes

• Developing a cap on early exit charges

• Educating consumers on scams

• Reviewing the effectiveness of IGCs

• Consumer protection model for the secondary annuities market

Responses

Financial crime

• Firms with weak checks and controls

• Reduction in investment in systems and controls - online

financial crime & cyber attacks increasing

• Banks de-risking restricts access to financial markets for

consumers

• Vulnerability of consumers to fraudsters; in particular pensions

Risks

Responses

• Implementation of 4MLD

• The Financial Crime Data Return

• Enforcement

• Drive to encourage whistleblowing

• Responding appropriately to de-risking

Wholesale financial markets

• Market volatility as uncertainty about the global economic outlook continues

• Financial results being prioritised over good conduct

• Continuing poor management of conflicts of interest, particularly around trader controls in wholesale banks

Risks

• Introduction of MAR

• MiFIR asset reporting

• SMR across entire industry

• Implementation of MiFID 2

• Asset management market study report

Responses

Advice

• Consumers need support / accessible advice to a range of

options

• Consumers not using paid-for advice due to cost

• Complex, opaque charging structures used by advisers

discourages consumers

• Sales over suitability

Risks

• Supervisory focus on advice

• Implementation of the recommendations from FAMR

Responses

FCA Response:

Innovation and Technology

Regulatory ‘Sandbox’

Operational resilience

work

‘Big data’ review

Supporting ‘robo advice’

• Adoption of technology limited by infrastructure vulnerabilities

• Firms remain reliant on complex IT systems

• Tighter margins leading firms to outsource more

• Cyber-attacks increasing

• Poor cultures result in poor outcomes

• Business models and governance arrangements not aligned with

values and good conduct

• Incentive structures too short term

• Weak governance and lack of accountability

FCA Response:

Culture and governance

SMR

Performance management

focus

Remuneration

Ongoing dialogue with

industry

• Moving existing customers into more expensive products

• Growing number of over-indebted mortgage holders

• Restructuring products

• Applying unjustified exit/switching fees

• Consumers’ weak bargaining position

FCA Response:

Treatment of existing customers

Consider CMA findings

Additional work surrounding long-standing customers in life

insurance sector

Follow-up to cash savings market study

• Barely mentioned in the business plan

• Breaking free from the shackles or more scope for FCA gold plating?

• Difficult ‘untangling’ process guaranteed

• Future of passporting would be unclear

Brexit – more or less regulation?

‘The UK’s referendum on remaining part of the European

Union will take place on 23 June 2016. As part of our

normal activities, we are considering the issues that may

arise, and that could have the potential to impact our

objectives. This includes considering the immediate and

short-term consequences of any vote to leave the EU, such

as the potential for increased market volatility. The longer

term consequences of any vote to leave would depend on

the UK’s eventual relationship with the EU, which would

depend on the outcome of negotiations between the UK

Government and the EU.’

A flavour of things to come….

Programme of ongoing activities

Retail Investments

• Inducements and conflicts of

interest review

Wholesale Banking & Investment

Management

• Asset management market

study

Retail Banking

• Packaged bank account review

Retail Lending

• Competition in mortgage sector

• Mortgages: embedding MMR

• Credit card market study

Pensions & Retirement Income

• Retirement outcomes review

• Annuities sales practices

review

What it means for you

• The focus remains on consumers and the implementation of regulatory

change

• Culture is still very much top of the agenda – SMR is coming to all firms

• Review and improve your processes around:

• conflicts of interest

• financial crime and AML

• corporate governance

• The development of new technology and innovation for consumers are at

the forefront of what the FCA wants to achieve

Questions?