The FCA’s 2024/25 Business Plan: Maintaining Focus and Resiliency Amid Ongoing Economic and Geopolitical Uncertainty

On 19 March 2024, the UK Financial Conduct Authority (FCA) unveiled its Business Plan for 2024/25, providing a roadmap for its actions in support of its strategic objectives for the upcoming fiscal year.

This year’s Business Plan continues to align with the FCA’s overarching strategy, emphasising the regulator’s commitment to being proactive and adaptable within the constraints of its resources. The plan also underscores the FCA's focus on operational efficiency and strategic investment in technology and data capabilities to enhance regulatory oversight and consumer protection, supported by a 10.7% increase in the budget to £755 million.

Importantly, the release of the Business Plan comes amid ongoing economic and geopolitical uncertainty and is set against key challenges such as persistently high inflation, adjustments to higher interest rates, global financial risks, and geopolitical tensions impacting global growth and trade.

Strategic focus

The Business Plan reiterates the FCA’s strategic themes of protecting consumers, ensuring market integrity, and fostering competition and innovation within the financial sector. It details actions to address the immediate challenges posed by the economic landscape, such as enhancing operational resilience, promoting sustainable finance, shaping digital markets and improving access to financial services.

The increase in budget for 2024/25 (£755 million) reaffirms the FCA’s support of their operational activities and exceptional projects, the transition to a more flexible regulatory framework, and initiatives aimed at promoting competition and innovation in financial services.

Critical commitments

The FCA has outlined a number of commitments under three strategic pillars:

1. Reducing and preventing financial crime: The FCA aims to leverage data and technology to identify and mitigate financial crime risks, emphasising collaboration with national and international partners to enhance systemic resilience against fraud and money laundering.
2. Putting consumers’ needs first: The implementation of the Consumer Duty is highlighted as a transformative step towards ensuring firms act in the best interests of consumers. The FCA plans to rigorously enforce this duty, focusing on fair treatment and good outcomes for consumers, especially in the context of the current economic challenges.
3. Strengthening the UK’s position in global wholesale markets: The FCA is committed to maintaining the UK’s attractiveness as a global financial hub through regulatory reforms that encourage innovation, ensure market integrity, and protect investors.

Other commitments

In addition to the three “critical commitments”, there are 10 additional commitments:

Commitment 4: Preparing financial services for the future

The FCA is set to further implement the Treasury's Future Regulatory Framework (FRF), now referred to as the Smarter Regulatory Framework (SRF), a pivot away from the EU's retained law towards a regime designed to better suit the UK market. This transition is crucial for aligning firm-facing requirements with the strategic interests of the UK, promising a more tailored regulatory approach. Highlights are as follows:

• Firms will be pleased to know the FCA is tempering its changes to the regulatory framework, measuring the costs against the perceived benefits.
• Whilst the work to implement the SRF will continue in 2024/25, this is evidently an area in which the FCA has taken great strides since the 2023/24 Business Plan was published, so much so that the FCA feel it no longer needs to be as highly prioritised as it was in previous years. This is reflected in the 11% drop in the allocated budget for the SRF implementation from £12.7 million last year, to an estimated £11.3 million for 2024.

Commitment 5: Dealing with problem firms

The regulator continues with a proactive stance on detecting and mitigating the risks posed by problem firms and individuals with an emphasis on enhancing “auto-detection” capabilities and the efficient cancellation of non-compliant firms. This focus should ensure the protection of consumers and the integrity of financial markets through the vigilant oversight of firm conduct.

As set out in consultation paper CP 24/2, in which the FCA proposes to name firms under investigation, the FCA will be more transparent about its enforcement actions to increase the deterrent effect of such actions. The FCA has also stated its desire to carry out its investigations more promptly to deter further misconduct by other firms. If, following the consultation, these changes come to fruition, the FCA’s new focus on public transparency will assist its objective of dealing with problem firms.

Commitment 6: Taking assertive action on market abuse

Increasing capabilities to tackle market abuse, particularly through advanced analytics and cross-asset class market surveillance, marks a commitment by the FCA to uphold market integrity. The development of a proportionate regulatory framework for emerging sectors, such as crypto assets, underscores the FCA's dedication to innovation while safeguarding against abuse. Key elements of this approach to be aware of are:

• The FCA has adopted an extensive data-led supervisory approach to the European Market Infrastructure Regulation (EMIR), Securities Financing Transactions Regulation (SFTR) and Orderbook regimes. Consequently, we expect to see robust scrutiny of firms’ controls and processes in these areas.
• The FCA has enhanced its technological capabilities relating to data-capture for the purpose of detecting market abuse. This enhanced data set will be introduced in the FCA’s market cleanliness statistics that will be published in the third quarter of 2024. More detailed information about anomalous trading will be provided compared to the metrics used in the FCA’s previous publications. This is a welcome advancement by the FCA and a demonstration of its enhanced detection capabilities for supervising the market more effectively.
• Market abuse continues to be a key priority for the FCA this year as evidenced by its Market Watch 77 and 76, which both focus on market abuse and how firms can mitigate the risks of these activities. Market Watch 77 relates to trading by organised crime groups and Market Watch 76 to the prohibited activities of ‘fly’ and ‘printing’ to mislead the market. We expect to see more regular public correspondence from the FCA about market abuse to continue for the rest of the year.

Commitment 7: Reducing harm from firm failure

Efforts to minimise the adverse effects of firm failures by the FCA have intensified with the use of data and horizon-scanning to pre-emptively identify at-risk firms. This approach is integral for protecting consumers and ensuring market integrity amidst a landscape marked by corporate insolvencies and severe market shocks.

The FCA’s emphasis on adequate wind-down planning has been carried forward from last year’s Business Plan. The FCA is clearly sensitive to the implications of the continuing possibility of severe shocks to the market and a prevalence of corporate insolvencies. The FCA’s emphasis on financial resilience was prominent in a recent Dear CEO Letter to corporate finance firms.

Commitment 8: Environmental, social, and governance (ESG) priorities

The FCA continues to support the financial sector's transition to net zero and address wider sustainability issues through the integration of the Sustainability Disclosure Requirements (SDR) and Investment Labels. This commitment to ESG priorities is pivotal to the FCA for driving positive change and aligning financial practices with sustainability goals.

Firms should make sure they are familiar with SDR and the impact that these requirements might have on their businesses. Some of the new measures, such as the new anti-greenwashing rule and the new investment labelling regime, might require firms to update their policies and procedures.

Firms should also expect an integration of the existing regime across the market as well as a ‘Nature’ regulatory principle that the FCA teased will be coming into force soon.

Commitment 9: Shaping digital markets to achieve good outcomes

Navigating the transformation brought about by digital technologies requires a balanced approach to managing risks and harnessing benefits for consumers and markets. The FCA aims to support innovation while ensuring digital finance serves the interests of all market participants by collaborating with stakeholders and regulatory partners.

This focus area demonstrates the consistency of the FCA’s focus on the role of data and technology. In line with this commitment, the FCA recently released the Reducing and preventing financial crime update where the regulator presented data and technology as one of its four focus areas in the fight against financial crime. Emphasis was placed on reminding firms that they should remain up-to-date with emerging artificial intelligence (AI) and technology trends to ensure they adequately foresee risks posed and can leverage potential benefits, such as in the areas of AML and fraud controls. This focus area also has further developments in the FCA’s approach to “big tech” and AI, as laid out in Nikhil Rathi’s speech to The Economist last summer.

Firms should ensure they remain up-to-date on the latest developments in the AI and technology space. Developments to look out for are:

• The FCA’s outcome which will soon be published regarding its November 2023 “Big Tech Call for Inputs on data asymmetry between Big Tech firms and other financial services firms”
• A report to be published by the Synthetic Data Expert Group, formed in March 2023, which will offer practical experiences of using synthetic data to aid practitioners and policymakers
• Any updates on Project Guardian, which aims to foster digital innovation and is a collaboration with MAS, Singapore’s central bank, the Financial Services Agency of Japan, and the Swiss Financial Market Supervisory Authority

Commitment 10: Improving the redress framework

The FCA aims to ensure that “consumers receive appropriate and efficient redress where things go wrong”. ‘Redress’ is a consumer-centric topic which has been brought to the regulator’s attention through cases. The lengthy timeframes for redress to go to consumers has been highlighted by the Financial Services Compensation Scheme (FSCS), which wrote “Our data clearly demonstrates the need for change”. The FSCS has identified a lag in the system, with a significant proportion of the FSCS’s compensation paid out in relation to poor financial advice. 73% of that advice was given five years or more before the customer made their claim.

As set out in FS22/5: Compensation framework review response to feedback and next steps, the FCA’s aim to stabilise the FSCS levy by 2025 carries risk due to the delay in compensation payouts. The prevailing feedback from stakeholders was that the high cost of compensation liabilities falling to the FSCS is not a feature of the compensation framework itself, but is a consequence of the harms posed by certain markets that give rise to FSCS liabilities.

To improve the redress framework, the FCA Business Plan for 2024/2025 sets out the following initiatives:

• Redress Guidance for Firms: Guidance will be enhanced to ensure firms provide appropriate redress to consumers.
• Complaints Reporting: The process for reporting complaints will be improved to capture consumer feedback effectively.
• Advice Guidance Boundary Review: The boundary between advice and guidance will be reviewed to help consumers make informed decisions.
• Capital Deduction for Redress: A capital deduction for will be proposed for personal investment firms to cover potential redress costs.
• Financial Ombudsman Service and Financial Services Compensation Scheme: Collaboration will be sought to ensure efficient practices in addressing consumer issues.

Commitment 11: Enabling consumers to help themselves

In its Financial Promotions Data 2023 publication, the FCA indicated that it saw a 16.6% increase in the number of financial promotions that were either amended or withdrawn by authorised firms in 2023 compared to 2022. This indicates a more aggressive approach to enforcing compliance with financial promotion rules. The purported intention to this approach being to ensure that firms correct or remove misleading, unfair, or unclear advertisements. The increase, from 8,582 promotions in 2022 to 10,008 in 2023, demonstrates the FCA's efforts to safeguard consumers by requiring firms to adhere to stricter standards. Similarly, in 2023, the FCA assessed approximately 140,000 websites and issued over 1,500 alerts to combat misleading financial promotions.

From 7 February 2024, the FCA requires firms that approve the financial promotions of other non-FCA authorised firms to have a new permission (as a `permitted approver`). This requirement follows the introduction of new rules in 2023 related to the promotion of high-risk investments, a ban on referral fees for debt packaging firms, and the establishment of a cryptocurrency financial promotions regime.

Going forward, the FCA’s emphasis on enabling consumers to help themselves results in the following focus areas:

• Technological Developments: Technological advancements have made it easier and faster for consumers to engage in financial services activities. However, the FCA also recognises that consumers often encounter unclear, unfair, misleading or unlawful advertisements.
• Robust Assessments: The FCA will continue to assess applications from firms that seek to approve financial promotions for unauthorised firms. The financial services register has been updated since February 2024 to include information about firms’ permissions to approve promotions.
• Quick Actions: The FCA plans to use new data sources to quickly act against authorised firms that approve and issue non-compliant financial promotions and unauthorised firms whose activities could lead to mis-selling and financial losses.
• Cryptoasset Supervision: The FCA will continue to supervise the financial promotions of cryptoasset firms. It also plans to increase its technological capability to detect harmful financial promotions and develop its InvestSmart and Consumer Awareness campaigns. It will also continue its work with social media platforms and search engines.
• Online Safety Act: Following the enactment of the Online Safety Act, the FCA will continue its work with the Office of Communications (oFcom) to successfully implement legislation for financial services.
• Advice Guidance Boundary Review: The FCA plans to publish a response following last year’s Advice Guidance Boundary Review discussion paper. This response will outline options for future legislative and regulatory reform to enable consumers to access the help and guidance they need at an affordable cost to make informed decisions.

Commitment 12: Minimising the impact of operational disruptions

The FCA aims to establish new operational resilience standards and mitigate systemic risks from critical third parties. It deems this crucial for ensuring market stability and uninterrupted consumer access to vital financial services. This focus area extends the FCA's prior efforts in operational and cyber resilience, including:

• Cyber Security – Industry Insights: Released pre-March 2019, this document outlines the FCA's efforts to aid firms in bolstering their defences against cyber-attacks to decrease the likelihood and impact of disruptions and gathers insights from over 175 firms in various financial sectors.
• Data Security: Initially published on 31 July 2015, and last updated on 21 February 2023, this resource offers guidance on safeguarding customer data against fraud, detailing firms' responsibilities and recommended security practices.
• PS21/3 Building Operational Resilience: This policy statement provides the FCA's final rules and guidance for bolstering the financial services sector's operational resilience. Firms, including SMCR firms, banks, insurers, and other dual-regulated entities, are required to comply with SYSC 15A to identify, review, and manage the resilience of critical business services, set and revise impact tolerances, and maintain operational capacity during severe disruptions.
• Operational Resilience: This page highlights the significance of operational resilience and outlines firms' requirements in this area.
• Outsourcing and Operational Resilience: This resource discusses the impact of outsourcing and third-party service providers on a firm’s operational resilience.

Commitment 13: Improving oversight of Appointed Representatives

Enhancing the regulatory oversight of Appointed Representatives (ARs) to prevent misconduct and protect consumers from misleading and mis-sold financial products has been a key aim of the FCA in recent years. Strengthening the accountability and supervision of principal firms over their ARs to uphold market integrity and consumer trust continues to be a key objective of the FCA.

Key Takeaways

The FCA's Business Plan for 2024/25 maintains a consumer-centric approach, with a strong emphasis on adapting to and addressing evolving challenges within the financial sector. The plan showcases the FCA’s commitment to leveraging technological innovation and regulatory reform to safeguard consumers, ensure market stability, and enhance the UK’s global financial competitiveness. As the FCA navigates through the complexities of the current financial landscape, its focus on strategic investment, operational resilience, and collaborative regulation sets a clear path for its priorities in the coming year.

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