REGULATORY UPDATE
be met as part of this focus:
1. putting consumers’ needs first 2. enabling consumers to help themselves
3. environmental, social, and governance (ESG)
4. minimising the impact of operational disruptions.
Consumer needs Commitments 1 and 2 above highlight regulatory initiatives aimed at putting consumer needs above all else. It enables consumers to make informed decisions, in addition to the ESG and operational resilience considerations that have previously been highlighted by the FCA. This supports future innovation by being clear about the standards required, whatever the product. It is expected that there will be fewer regulatory rule changes as a result of this flexibility, which will reduce costs for firms. The FCA’s Consumer Duty is an
initiative that will impact firms through all stages of the customer lifecycle, as well as at each stage of the regulatory lifecycle, i.e. at authorisation, supervision and enforcement. It underpins the FCA’s closer focus on outcomes. The emphasis behind the new Consumer Duty remains aimed at improving and prioritising consumer protection. The FCA published a consultation
paper (CP21/36, closed 15 Feb 2022) which includes draft rules and guidance to help firms prepare, with any final rules confirmed by the end of July 2022. Parliament has also called strongly for a change to the standard of protection for consumers, and the publication meets the FCA’s obligations
under the Financial Services Act 2021. Sheldon Mills, executive director of
consumers and competition at the FCA, said: “The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not.” Those around at the time of the introduction of the ‘treating customers fairly’ agenda will recognise much of the language.
ESG commitment The FCA is keen to ensure that customers are given accurate and useful information about the ESG implications of the products and services they engage with, in addition to consideration of ESG during the authorisation process for firms.
Operational resilience The FCA, in conjunction with the Prudential Regulation Authority, is continuing to prioritise operational resilience, using authorisation as a tool to ensure firms entering the market have an understanding of their obligations and are setting appropriate tolerances.
Some examples of FCA initiatives in relation to setting and testing higher standards (Focus 2) include its diversity and inclusion proposals expected in Q3 2022, its review of lifetime mortgages, its incoming regulation of funeral plans, and, of course, its ongoing financial promotions regulatory reform. In January 2022, the FCA published consultation paper CP22/2 (closed 23 March) with proposals to strengthen
This session on CISI TV explores how diversity and inclusion can be a lens through which we consider the S in ESG.
cisi.org/s-in-esg
financial promotion rules for high-risk investments, including cryptoassets. The FCA is acting to address concerns about the ease and speed with which people can make high-risk investments by proposing a significant strengthening of its rules on how high-risk financial products are marketed. This is a central element of the FCA’s consumer investments strategy, published in September 2021, which aims to give consumers the confidence to invest and reduce the number of people who are investing in high-risk products that are not aligned to their needs. The proposals aim to increase consumer protection and target authorised firms which approve and communicate financial promotions. Sarah Pritchard, executive director of
markets at the FCA, said: “Too many people are being led to invest in products they don’t understand and which are too risky for them.”
Focus 3: Promoting competition and positive change The three commitments intended to be met as part of this focus:
1. preparing financial services for the future
2. strengthening the UK’s position in wholesale markets
3. shaping digital markets to achieve good outcomes.
The FCA is helping to transfer EU legislation into FCA rules as part of the government’s future regulatory framework. This involves tailoring rules to UK markets and maintaining and improving the UK’s position in global wholesale markets. The three commitments relating to
this focus centre on strengthening the UK and thinking about digital markets to ensure financial services are preparing for the future. This is being done primarily in two ways:
The FCA is continuing to look at updating the regulatory framework underpinning wholesale markets and is examining how to improve the process for bringing listed issuers into UK capital markets. It is also working with the Treasury to embed legislation and transform requirements into Handbook rules.
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