Chris Davies takes a view on the FCA's business plan for 2020/21, looking at what the regulator expects from firms and its views on the future of regulation...
In its latest 2020/21 business plan the FCA outlines 5 key areas of concern and risk:
- there is a good level of operational resilience
- understand firms' financial resilience so that firms can fail in an orderly manner
- markets can function, enabling price formation and orderly trading activity
- customers are treated fairly
- customers are aware of the risk of, and protected from, scams
In her speech earlier this month, the FCA's executive director of supervision Megan Butler outlined the regulator's response to Covid-19 and expectations for the rest of 2020.
The speech highlighted:
- In operational terms, advisers and wealth managers responded well to the onset of the coronavirus crisis.
- Whilst acting with speed has been the absolute priority as the industry adapts to the long-term impact of coronavirus, there is a need to transition from the immediate ‘incident response' towards focusing on longer-term impacts. In her speech to PIMFA's members, Megan Butler explored the FCA's priorities and longer-term expectations for the wealth management and advice industry.
- Key areas of focus for the FCA include operational resilience in light of coronavirus, financial resilience (and within that the preservation of client assets and money) and acting with integrity.
- On the latter, the FCA has identified some firms that have tried to avoid their liabilities to customers by closing down companies and setting up new ones. These practices are unacceptable, and the FCA will continue to take action against firms conducting such activities.
To ensure that firms stay on track with risk management, operational and financial resilience and customer focus, the FCA will be focusing on key outcomes:
- Client money and custody assets. The FCA sees an increase in clients running to cash, so firms are being encouraged to return finances that will not be invested in the short term and/or if firms are facing wind-down.
- Suitability and advice and discretionary investment decisions are (as always) front and centre of treating customers fairly and in their best interests, but will be scrutinised in particular around firms' response to the pandemic
- Acting with integrity when it comes to charging appropriate fees is paramount
- Firms need to continually showcase they have adequate systems and controls to manage financial crime and market abuse
- There is a keen focus on pension transfer activity, with its detailed guidance on advisers providing triage, abridged and defined benefit pension advice.
Finally, there is a focus on the future of regulation, with a move to an outcomes-based focus with new regulatory principles covering:
- Adaptive shift from regulation and forget to iterative and responsive approach
- Results and performance driven regulation rather than defining a way, thus providing freedom to choose strategies
- Risk weighted approach, shifting to data-driven from one-size-fits-all risk evaluation
- Finally, a collaborative strategy which aligns regulators nationally and internationally
So, we have a risk focused and adaptable approach that will always place the client first and it will be those firms adopting technology such as RegTech that will enable a compliant, client-centred and resilient, sustainable professional practice.
Chris Davies is founder and director of Model Office
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