FCA risk outlook 2016

by Mel Holman CFP™ Chartered MCSI, Director, Compliance & Training Solutions | Jun 08, 2016
Every year the regulator publishes their Business Plan and Risk Outlook. They then set out their thoughts as to where they will focus their resources for the forthcoming year. In April 2016, the FCA published this years’ outlook. Personally I quite liked the document. The FCA is trying a different format of communication to, what I believe, be more accountable and transparent to the firms they regulated.

Every year the regulator publishes their Business Plan and Risk Outlook. They then set out their thoughts as to where they will focus their resources for the forthcoming year. In April 2016, the FCA published this years’ outlook. Personally I quite liked the document. The FCA is trying a different format of communication to, what I believe, be more accountable and transparent to the firms they regulated. For each identified category they set out what they are looking to achieve, how they intend to go about it and what success looks like.

Below is a summary of some of the key areas relevant to financial planners that they will be focussing on:-

Pensions

What are the desired outcomes?

  • Increase competition and innovation in pensions
  • Ensure firms offer consumers better value for money in terms of product and service
  • Ensure appropriate advice and guidance is available and consumers are aware on how to access these
  • Reduce harm from investment scams
  • Ensure there is proportionate regulation which supports innovation and competition

How is the FCA going to achieve this?

  • Launch a review on Retirement Outcomes in 2016/17 which will consider the impact of the pension reforms on competition and switching in the market.
  • Impose a cap on early exit charges with the overall aim that consumers can make use of the recent pension freedoms without any unnecessary barriers (CP 16/15 has now been published).
  • Issue a policy statement on the FCA rules following the pension reforms (this has now been published – PS16/12).
  • Review how firms’ disclosure to existing clients about the availability of enhanced annuities.
  • Work with the Treasury to create a consumer protection model for the secondary annuities market.
  • Review the effectiveness of Independent Governance Committees.
  • Continue to run the ‘ScamSmart’ campaign to educate and empower consumers

What are the measures of success?

  • Improvement in consumer satisfaction with pension providers
  • Reduction in complaints about pension advice
  • Over time see an increase range of products in the market
  • Increased consumer awareness and understanding of scams used including greater use of online facilities to avoid scams.

Financial Crime and Anti Money Laundering (this is stated pretty much every year)

What are the desired outcomes?

  • Money Launderers see the UK as a place to avoid trying to launder money through
  • Unintended consequences of anti money laundering regulation are minimised
  • Firms’ anti money laundering processes do not exclude people unfairly or unreasonably
  • Anti Money Laundering requirements are proportionate to the firm so that it can operate efficiently
  • Harm to consumers following investment scams is reduced as consumers are able to spot the warning signs that something may be a scam
  • Take action against firms and individuals who run scams under the guise of a regulated activity.

How is the FCA going to achieve this?

  • Continue due diligence on firms and individuals applying for authorisation
  • ‘Roll out’ the Financial Crime Annual Data Return
  • Use intelligence including from whistleblowers to prevent money launders from using the system.
  • Work closely with HM Treasury in implementing the EU’s Fourth Money Laundering Directive which is to be implemented in the UK by mid 2017.
  • Work closely with the Financial Action Task Force (FATF) to ensure that it can meet its latest international standards (the FCA have an evaluation review with FATF late 2017).
  • Focus on taking action against firms and individuals who perpetrate scams which will involve working closely with other supervisory and intelligence bodies.

What are the measures of success?

  • Over the medium to long term an improvement in firm’s anti money laundering controls
  • Over the medium to long term, an improvement in the perception of the UK’s anti money laundering regime on an international level
  • Increase consumer awareness and understanding of scams including greater use of online resources to help consumers avoid scams.

Advice

What are the desired outcomes?

  • Ensuring that there are affordable, accessible advice options that meet consumer needs
  • Ensuring advice is appropriate and suitable
  • Advice is delivered in innovative and accessible ways
  • The cost of advice is clear and transparent
  • Firms develop good quality transparent and low cost non advised options for consumers who do not want advised services

How is the FCA going to achieve this?

  • Follow through on the suggestions following the Financial Advice Market Review
  • Increase consumer engagement with financial advice including through the provision of workplace advice
  • The FSCS funding review to commence in April 2016
  • Increase communications and assess how suitable advice is, monitoring any changes that result from proposals from the FAMR (arguably this project as started with the FCA’s Assessing Suitability review which started in May 2016).

What are the measures of success?

  • Improvement in consumer satisfaction scores about financial advice
  • Improvement in consumer complaints data about advice

Innovation and technology

What are the desired outcomes?

  • To ensure that the regulation encourages an increase in innovation for the benefit of consumers, ensuring customers current and future needs are met affordably and appropriately.
  • Support ‘RegTech’ to encourage efficient and effective regulation and compliance.
  • Ensure firms’ technology becomes increasingly more resistant to cyber threats.
  • Firms to manage maintenance and change to infrastructure well ensuring that the frequency of events involving disruption of service or consumer loss reduces. If someone does suffer a loss, the firm would deliver proportionate and timely redress.
  • Firms’ technology supports their current and future business strategy

How is the FCA going to achieve this?

  • Increase awareness and capacity for Project Innovate
  • Increase signposting of firms to regulators in other jurisdictions to encourage UK based firms to grow internationally
  • Launch Regulatory Sandbox – creating a safe place for businesses to test new ideas to ensure that they meet regulatory requirements. This should help more firms to come to market.
  • Communications to firms regarding their expectations on effective IT and operational resilience
  •  Use results from our Call for Input on Big Data use in the general insurance sector to better understand how Big Data affects customers and whether it fosters competition.
  • Work effectively with the Treasury, bank of England and other authorities to ensure joined up and a risk based approach to cyber crime.
  • Monitor the development of automated advisory services (i.e. robo advice) as well as new drawdown products.

What are the measures of success?

  • An increase in the number of requests for Innovation Hub support.
  • Positive feedback from participants in the Innovation Hub
  • In the medium term a reduction in the number of critical system failures or outages in firms.

Firms Culture and governance

What are the desired outcomes?

  • Firms develop a culture of accountability at all levels
  • Firms and senior managers can explain principles of good conduct towards customers and markets and incorporate them throughout their business producing better consumer outcomes.
  • Firms proactively identify the risks their strategies, business models and culture present to delivering good market and consumer outcomes.
  • Firms ensure that their strategies, business models, systems and controls are aligned with the firm’s values and support good outcomes.
  • Firms take steps to proactively identify and address issues when things go wrong and can demonstrate that they learn from such events
  • Increased trust in financial services in the UK

How is the FCA going to achieve this?

  • Enhance individual accountability
  • Expect firms and senior managers to apply the spirit as well as the letter of the regime
  • Relevant firms will need to carry out fitness and propriety checks on all individuals subject to the Certification Regime and comply with notification and training requirements for the application of conduct rules to all but ancillary staff.
  • Continue with the regulatory framework governing remuneration.
  • Continue to support and drive culture change as the conduct regulator

What are the measure of success?

  • Over the medium to long term senior managers are demonstrably accountable and effective and there is a culture of accountability at all levels
  • Firms respond to material risk events by applying robust, comprehensive remuneration measures based on actual loss and harm.
  • Firms can demonstrate that they act appropriately on whistle blowing intelligence
  • An increase in the proportion of crystallised risks that are self identified and proactively addressed by the firms rather than the regulator.

So how will this affect you?

Well considering this was published in April 2016 the FCA have already started to make in roads into the projects. It will be interesting to see the results of the FCA’s Assessing Suitability review which hopefully will be at the end of the year.  Generally this will be business as usual for you. However we would particularly encourage firms to respond to the consultation paper on the funding of the FSCS when that is published.