As we know the FCA strategic objective is to make markets work well, and to achieve this they have the operational objectives of:
- Protecting consumers
- Protecting and enhancing the integrity of the financial systems
- Promoting competition in the interests of consumers.
Their key highlights over the year in their progress towards achieving these objectives are worthy of comment. Key events can be neatly summarised in their graphic.
Last year the FCA said that, in order to protect consumers, they would:
- Make progress in understanding how consumers make financial decisions in order to make ‘behaviourally informed intentions’
- Communicate with firms and consumers
- Identify and understand current and emerging risks
- Take action to fix the issues identified through supervision activities
- Order redress actions and payments.
The FCA has worked with its consumer networks and the Money Advice Service (MAS) and has looked into vulnerable customer concerns. Significantly it has focused on driving cultural change in firms by investigating performance incentives, mortgage sales culture, digitisation, online product launches and the impact of outsourcing. The long term savings market and especially the pensions markets have been a source of concern particularly following government pension rules changes. Perhaps the most visible evidence has come in the consumer credit market with the highly publicised price caps on payday lenders, as these can be deliberately linked to meeting the objective of protecting consumers from excessive charges.
Enhancing market integrity.
Last year the FCA identified six key areas for focus on to enhance integrity in the UK financial services market:
- Improving wholesale conduct
- Engaging in international and European policy debate
- Protecting markets from abuse
- Fulfilling its responsibilities as the UK Listing Authority
- Extending AML assessments
- Enhancing whistleblowing activity.
Focusing on the last of these, the FCA is a ‘prescribed person’ under the Employment Rights Act 1996, and also has a responsibility out of the Parliamentary Committee on Banking Supervision (PCBS) recommendations to ensure whistleblowing mechanisms are effective. A joint consultation with the PRA was published on their proposals for firms’ internal procedures.
The number of disclosures to the FCA has been increasing steadily with an uplift last year of 28% over the previous one. This points to increased awareness and greater emphasis being placed on effective whistleblowing.
The top five subject areas are:
- Fitness and propriety
- The culture in the firm
- Consumer detriment
- Systems and controls
This suggests the FCA is delivering on this element of its plan, with the top two subjects being about honesty, integrity and the ability of persons performing key roles, and the culture of target setting and sales results.
FCA activities in delivering results on this objective include reviewing the cash savings market, retirement income studies, a review of the wholesale markets, and understanding the composition of the retail banking sector, where five companies have 80% of the market.
Together with the PRA, the FCA has worked hard to reduce the barriers to entry and expansion in the banking sector, and to increase the competitive challenge to existing banks. The current account switch service was introduced but has not seen the increased number of users that were expected. That could be down to consumer inertia, and perhaps numbers will increase when the Account Number Portability initiative becomes a reality, so account numbers can be retained. The BACS statistics bear out this analysis:
The FCA also acquired additional competition functions under two sets of legislation:
- They can enforce against breaches of the prohibitions on anti-competitive agreements and abuses of dominance set out in the Competition Act 1998 and Article 101 and 102 of the Treaty on the Functioning of the European Union.
- They can conduct market studies and make market investigation references under the Enterprise Act 2002.
As the FCA has an outcomes based performance framework, the indicators in improved customer experience, a significant decline in potential insider dealing trading cases (suggesting ‘cleaner’ markets) suggest strongly that it is delivering well against its objectives.
Finally, the industry’s opinion of the FCA as an effective regulator, and its satisfaction with its relationship with the regulator, are both increasing year on year.
So we have to conclude that the FCA is doing its job well!
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