What does the FCA's new Business Plan and Strategy mean for investigations and enforcement?

Testing the limits of the FCA's powers of enforcement

It is clear that the FCA remains committed to the vision set out in last year's Business Plan to become bolder and more assertive in its enforcement strategy. In both the 2022/2023 Business Plan and the Strategy Document, the FCA has set out its plans to test the limits of its powers and act more assertively by:

• increasing its use and reliance on enforcement tools that have an instant effect when it identifies immediate harm, rather than launching full investigations;
  
  
• taking action against "risky firms" to send a signal to others; and
  
  
• testing how far it can go to warn consumers directly when it thinks an authorised firm is misleading consumers about the 'safety' of the firm's products or services.

The FCA has also signalled its intention to "call out" its concerns when it lacks the regulatory powers to intervene. One example of how this might play out in practice is the FCA's recent public warnings to Google about continuing to accept unscreened advertisements for financial services, which resulted in Google changing their policy so that only FCA-registered firms can advertise financial promotions with them.

Identifying and cancelling "problem firms" that do not meet the FCA's threshold conditions

In last year's Business Plan, the FCA set out its intention to make a more robust gateway to authorisation. Its focus has now shifted to removing firms that are already authorised but that no longer meet the FCA's threshold conditions (being the minimum conditions the FCA requires a firm to satisfy to be given and retain permissions). During 2022-2023, the FCA plans to address these "problem firms" by:

• increasing the resources dedicated to dealing with them;
  
  
• developing an automated approach for identifying simple threshold conditions breaches;
  
  
• identifying and cancelling firms that do not meet threshold conditions "at pace and at scale";
  
  
• expanding the types of threshold conditions breaches the FCA will take action against, including more firms that "demonstrate over time that they do not have adequate resources to operate in the interests of consumers and markets without material intervention from the regulator"; and
  
  
• conducting a small number of complex test cases on compliance with threshold conditions. Its stated goal in doing so is to determine whether its aims are supported by current legislation and policy. Where necessary, it has signalled its intention to seek changes to legislation to support its plans.

In the short term, the FCA will measure whether it is achieving its goal of removing firms that fail to meet the threshold conditions by the increase in the number of cancellations or withdrawals over the next three years. It has acknowledged that this cannot be a long-term tool for measuring its success in this area, and will keep this metric under review as it assesses its effectiveness and to ensure there are no unintended consequences. Its hope is that its actions will drive behavioural change such that the number of firms required to be removed will peak and then gradually decline.

Taking assertive action on market abuse

Market abuse remains a core area of focus for the FCA over the next three years. It has committed to taking decisive action whenever it uncovers it, and to using the full range of supervisory and enforcement tools available to it, including criminal and civil sanctions, to pursue offenders and deter potential wrongdoers. Two key areas of focus will be: (i) ensuring accurate and timely disclosures by firms and issuers of securities; and (ii) the perennial issue of firms' systems and controls around market abuse. The FCA will measure its progress in this area by the increase in the number of interventions it makes (which it defines broadly as using its regulatory tools to reduce potential or actual harm to consumers), but notes that it is "still considering the best way to measure market abuse and misconduct enforcement cases and outcomes".

A "whole system" approach to reducing financial crime

The FCA has also set out its intention to work across sectors and with partner agencies (regulatory law enforcement partners, both in the UK and internationally) on a "whole system" response to financial crime. This will involve sharing intelligence with its partner agencies.

It will focus additional efforts over the next two years on two particular types of fraud, investment fraud and authorised push payment fraud (when a fraudster tricks an individual into sending them a payment), including by:

• dedicating more resources to intelligence gathering and "expand[ing] its analytics to enable it to better spot and track potentially fraudulent activity at scale";
  
  
• continuing to supervise cryptoasset firms' compliance with the Money Laundering Regulations and "rapidly interven[ing]" where cryptoasset firms risk being used for illegal activity or pose harm to consumers or market integrity; and
  
  
• enhancing its capabilities to identify unauthorised financial promotions, and to request that platforms remove them from websites and social media accounts.

Embedding the new Consumer Duty within enforcement processes

The FCA is currently in the late stages of implementing a new Consumer Duty, which it intends will require every firm to consider the impact of their products and services on consumers.  Consultation has closed on the Consumer Duty, and the FCA proposes to publish the policy statement and final rules by 31 July 2022, with firms having until April 2023 to implement the new duty.

During 2022-2023 the FCA plans to embed the new Consumer Duty within each stage of the regulatory lifecycle, including enforcement.  It has stressed that it will approach the new duty in an outcome (rather than process) focussed way.  Its impact will likely be significant, but we will have to wait for the publication of the final rules before its potential impact can be fully assessed.

For more information on the new Consumer Duty, see section 10 of our Financial Services Regulation 2022 New Year briefing.

More redress from firms and less from the FSCS

The Business Plan and Strategy Document make clear that the FCA aims to improve its redress framework, with the goal of seeing more consumers obtain redress from the firm that has wronged them, rather than using the Financial Services Compensation Scheme. The FCA therefore plans to intervene earlier when customers complain. It also plans to carry out "voluntary" redress exercises with firms, where appropriate, so that they quickly remedy harm, when it is more efficient and effective for the firm to resolve complaints itself without having them referred to the Financial Ombudsman Service (or presumably going through a full enforcement process). Firms will await further guidance as to what is expected of them in relation to these voluntary programmes with interest.

A greater focus on ESG issues

The FCA stresses in its Strategy Document that it will be developing measures to monitor the quality of sustainability disclosures made by firms, and the level of misleading marketing of ESG products. It is therefore possible that on a longer term horizon, we will start to see increased enforcement activity in these areas.

Conclusions

In its Business Plan and Strategy Document, the FCA reiterates its aspiration of becoming a bolder and more assertive regulator. It intends to act more quickly, and to use tools that have immediate effect to restrict or stop firms' activities where it considers it appropriate to do so. The ways that the FCA has identified of measuring its progress mean we may see greater levels of intervention and enforcement action, particularly in respect of any failures to meet threshold conditions. The FCA has also committed to testing the limits of its powers by taking on test cases, so significant developments in the jurisprudence on the scope of the FCA's powers are likely in the years to come.