REGULATORY UPDATE
engaged with firms who don’t meet the standards expected, particularly in other sub-sectors like credit and insurance where the cost-of-living crisis has the biggest impact on consumers. The FCA encourages using management information, considering customer needs in product design, having clear lines of accountability for senior leaders, and focusing on vulnerability training. For updates on the duty, please see
our Consumer Duty ‘hub’: Consumer Duty - an overview | DWF Group.
DRIVERS OF CHANGE The FCA is not just creating new regulations, it is changing the way it currently approaches enforcement. In October 2022 it released a report on its progress with its Consumer Investments Strategy, one year on from its launch. It reports that restrictions were placed on twice as many firms in the investment market compared with 2020; 17 firms and 7 individuals were denied authorisation following suspected phoenixing; and 16 ‘contracts for difference’ providers had their operations stopped, (apparently) preventing consumer losses of around £100m a year. The FCA also published 40% more consumer alerts than in 2021. The message from the FCA appears to be that it is prepped, armed, and ready to make a difference to consumers. In parallel, the FCA’s enforcement
teams are following the lead of FCA supervisors by focusing more on redress schemes that compensate consumers, than on fines for the relevant firms. The FCA will give preference to creditors (some of whom may be consumers), ahead of its financial penalty, to maximise funds available for redress. We saw this in practice in the £2.4m fine for Pembrokeshire Mortgage Centre in November, compared with compensation payments to consumers of £13.3m. The FCA issued guidance in July
2022 (FG22/4) on its approach to compromises by regulated firms. The guidance covers schemes of arrangement, restructuring plans, and voluntary arrangements. The FCA will take into consideration whether the compromise is the best possible
CISI.ORG/REVIEW
outcome, the nature and scale of any misconduct, the effect on customers’ FSCS compensation rights, and how much is being put into the compensation ‘pot’ by the firm. Compromises may (and often do) extinguish a customer’s rights to bring a claim against the firm through the courts. The FCA is balancing this carefully against the merits of compromises, which often are a last resort before a firm involves an insolvency procedure.
FUTURE SCRUTINY OF FINANCIAL SERVICES As the new Bill shows, regulatory scrutiny has significantly shifted from EU institutions to the UK and its regulators. The House of Commons Treasury Committee has established a sub-committee to carry out its new designated regulatory scrutiny role, previously carried out by the European Parliament. The new sub-committee on financial services regulations will have the power to “send for persons, papers and records” and report to the full committee. It will focus on regulatory proposals and intervene early on, at consultation stage. It will mainly be assessing whether the regulator is acting within its remit and whether the policy is justified. The desire is that the new processes will be less bureaucratic and more nimble, allowing for better outcomes for UK institutions. UK Chancellor Jeremy Hunt’s
‘Edinburgh reforms’ are similarly aimed at building an agile rule book for UK financial services regulation. Hunt’s statements cover every element of
financial services and their future regulation within the UK. He discussed the Bill and how he has lain before Parliament new remit letters for the FCA and PRA which further support the aim for a new secondary objective for both regulators. It is clear that the government’s focus is on growth and achieving that through substantive results-driven policies.
// THE NEW CONSUMER DUTY TO NOTIFY IS DESERVING OF CLOSE ATTENTION //
PROACTIVE, NOT REACTIVE Therese Chambers, director of consumer investments at the FCA, spoke in November 2022 of the intentional shift for the FCA from reactive work to proactive. This is evident, among other things, from its new cancellation and variation power. It updated its handbook rules in May 2022 to enable it to act quicker in cancelling permissions that aren’t used or needed. Previously it needed to wait for firms to apply to remove their statutory permissions, but the new powers allow it unilaterally to remove permissions without consent where the firm
in question is no longer carrying out the regulated activities for which it originally requested permissions. The FCA must send warnings to the firm before it uses this power. Another tool to enable proactivity is
the FCA’s new data strategy. It is using social media and online information to spot potentials for harm. Chambers said the FCA is scanning 100,000 websites daily to identify potential
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Compliance Forum - FCA key areas of focus for firms in 2023 David Raw, director of cross cutting policy and strategy at the FCA, talks about Consumer Duty and other regulation.
cisi.org/cf- consumer-duty
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