FCA speech: investing in outcomes

Nikhil Rathi, Chief Executive of the FCA, has delivered a speech on the FCA’s broad approach to topics in which investors have recently been expressing significant interest. The speech highlighted the following as areas of substantial current investor and stakeholder interest:

  • the Consumer Duty;
  • redress;
  • prudential impacts; and
  • digital and data infrastructure.

Key highlights of the speech included:

  • The FCA would like to have a more open relationship with investors, analysts, and the markets overall. It appreciates that it will sometimes need to act quickly, but it will seek to work with firms to understand issues and wherever possible give firms time to act before it intervenes;
  • When considering enforcement of the Consumer Duty, the FCA will be pragmatic and look to focus on breaches with the greatest risk of harm, but will treat with favour firms that have made efforts to address concerns. Its ultimate hope is to create fewer detailed or reactive rules, an environment that creates less cause for redress, which in turn will lead to a reduction in the FSCS levy;
  • The FCA is not a price regulator and does not want to stifle well-run businesses making profits in areas of effective competition; neither does it want to stand in the way of firms when they need to change their business models. But it will intervene in markets where it sees consumers getting poor value, such as cash savings, premium finance and GAP insurance;
  • Clarity over motor finance claims will be given sooner than previous redress events, but the quicker firms can respond to data requests, the sooner the FCA can do this.
    • the FCA does not envisage that any action regarding historic motor finance commission arrangements will unfold in a similar fashion to, for example, PPI, not least because it feels it has intervened early. While the FCA cannot prejudge the findings of its review, it does not expect to find no problems;
    • Maintaining a functioning and competitive motor finance market will be an important objective when taking any action, given the size of the market in the UK.
    • The FCA does not think it will complicate its work if firms seek to pursue legal cases directly against County Court judgments, or seek judicial review of FOS decisions.
  • The work on whether the wealth management sector may have been charging for services not actually provided is also ongoing;
  • The FCA intends to issue guidance for firms on how firms should address identified redress issues more quickly and more effectively. It intends to consult on this and better complaints reporting this year.
  • Prudential rules will be aimed proportionately at supporting appropriate risk taking, international business and wholesale trading activity, as frameworks are reviewed in the next year.
  • Firms and their investors need to discuss honestly how best to balance short-term shareholder returns and long-term investment to ensure medium-term competitiveness. This will involve a discussion around the use of AI in financial services, and the scale of investment required by firms and the market more widely to build the necessary infrastructure. The FCA does not want to jump in immediately and seek to regulate use of AI, as the Consumer Duty, the market integrity framework an the SMCR jointly provide the necessary regulatory safeguards

Harry Wells