United Kingdom

DLA Piper | Karen Butler | Sophie Lessar

Overview

Following on from HM Treasury’s Policy Paper on how UK regulators and regulation can support growth, the FCA has published its five-year strategy paper (the Strategy Paper), which focuses on the four key priorities of making the FCA smarter regulator, supporting economic growth, protecting customers, and fighting financial crime. The FCA also published a feedback statement (FS25/2) on the outcome of its consumer duty review of the retail conduct rules and how it can simplify its rules going forward.

FCA Strategy Paper

The Strategy Paper did not provide the detail that many had expected, instead it focussed on the principles that should guide the FCA’s approach to supervising firms and developing simplified and streamlined rules, which will hopefully strike a better balance between the desire to support growth and protect consumers.

The FCA identifies the following key priorities:

  • Be a smarter regulator by supervising firms in a manner that is more predictable, purposeful, and proportionate. The FCA intends to improve its processes and embrace technology to become more efficient and effective. This will include seeking to digitise the authorisation application process, publishing supervisory insights to help firms understand good and bad practice, and providing regulated firms with direct contact points at the FCA. The FCA notes that it expects to take on a smaller portfolio of enforcement cases, which should result in faster outcomes for impacted clients and investors and will reduce the depth of supervision for lower-risk firms and those who demonstrate that they want to “do the right thing. Firms will welcome the FCA’s intention to dedicate more resources to provide more firms with a direct supervisory contact and apply a proportionate approach to supervision.
  • Support sustained economic growth by making better use of technology including advanced analytics and relying on existing regulation to regulate innovative businesses. The FCA states that its role in supporting growth is not simply to get out of the way but to think about rebalancing regulatory risks and refers to its proposed capital markets reform agenda and the digital securities sandbox as examples of how the FCA can support investment in companies who operate in the UK market.
  • Help consumers make informed decisions by working with industry to boost trust, promote product innovation and, with an emphasis on financial inclusion, broaden access to products (including mortgages, financial advice, and pensions), whilst ensuring the right information and support is available to clients. This is likely to result in the FCA revisiting rules on affordability assessments, and adviser fees.
  • Following announcements about the re-structuring of payments regulation, a renewed focus on payments innovation and competition, aligned to the National Payments Vision. The evolution and expansion of Open Banking and a roadmap to open finance have been announced. The immediate focus for the latter is expected to be SME finance, with a roadmap expected within a year and the first regulatory foundations by the end of 2027.
  • Fight financial crime, focusing its efforts on preventing market abuse and fraud. In this regard, the FCA intends to make better use of technology and to raise awareness of investment and authorised push payment frauds.

The FCA notes that global cooperation may be more challenging in the current political environment, and that it will consider working with “a smaller group of like-minded jurisdictions” to pursue its aims and objectives. The FCA also notes that to the extent that global standards are not implemented across key jurisdictions, strong bilateral relationships with local regulators will be required to facilitate effective supervision and oversight. With this in mind, the FCA intends to establish a permanent presence in the US and Asia-Pacific, to promote the UK market and facilitate better understanding of the UK regulatory framework.

Consumer Duty Rule Review

Overview

Following a Call for Input published in July 2024, the FCA also published a feedback statement, which identifies immediate areas for FCA action as well as plans for longer-term changes to the FCA rules.

The proposed initiatives can be grouped into the following four areas: (a) reviewing the foundations; (b) future-proofing disclosure requirements; (c) reducing the administrative burden on firms, particularly smaller firms; and (d) streamlining the existing requirements.

The foundations

Based on feedback from market participants, the FCA will not pursue a widespread overhaul of its rules at this stage but instead will make targeted changes to amend and simplify rules in discrete areas. This will include the publication of a discussion paper on the international scope of the FCA conduct rules alongside various consultation papers on changes to mortgage regulation, the financial promotions rules for consumer credit, the client assets rules (including record-keeping, broadening the reconciliation rules, and adding flexibility to rules on removal of interest owed), and the requirement for asset managers to report annually on their value assessments.

The FCA considers that the implementation of the consumer duty regime may allow it to remove certain detailed and overly prescriptive rules from the FCA Handbook. However, it acknowledges that this approach was not entirely welcome by respondents to its call for input, as many are concerned that a move away from detailed rules creates unnecessary legal uncertainty and risk, which could make regulated firms more risk-averse and increase the desire and need for more detailed guidance.

Further work is promised around the geographical framework for the Consumer Duty, particularly for UK firms operating elsewhere, as well as retail distribution chain applications.

Disclosures

The FCA plans to give more firms the flexibility to design the form and determine the content of client disclosures and communications, which aligns with the proposed approach outlined in the yet to be finalised Consumer Composite Investments regime and the Consumer Duty requirements. This potentially covers a breadth of areas, with lending and retail banking highlighted as priorities.

Reducing the administrative burden

In the line with the desire to apply the FCA rules in a proportionate manner, it will publish a series of guides for smaller firms on the FCA’s expectations, and it will continue to progress its current work on the Advice Guidance Boundary Review, modernising the FOS, and repealing and restating EU assimilated laws.

The FCA will also undertake a review of various rules to assess whether they ae fit for purpose and deliver the required outcome, this will include the training and competence regime, the reporting requirements linked to insurance pricing rules, the interaction between the product governance rules and the fair value requirements in the Consumer Duty regime, and will seek to clarify how the Consumer Duty rules should apply to firms in the retail distribution chain.

Streamlining

The FCA intends to review and retire (where necessary) outdated guidance and historic sectoral communications (such as Dear CEO letters, portfolio letters, multi-firm reviews, and thematic reviews), as well as outdated and potentially conflicting Handbook requirements. The FCA will also review the requirements in the Senior Management Arrangements, Systems and Controls sourcebook to simplify and clarify the scope and application to firms.

Next Steps

The FCA intends to move at speed by making use of an accelerated consultation process to drive forward regulatory initiatives that have been identified for “immediate action“. There will be a flurry of publications over the course of the coming months. The FCA will consult and engage further in areas where there is a lack of consensus and intends to publish a further statement in September 2025 which will outline its full programme of work.

The FCA is organising an in-person summit for the summer of 2025, which will give regulated firms and other stakeholders the opportunity to weigh in on the FCA proposed strategy.

This article first appeared on Lexology | Source