Smaller firms, payments, operational resilience and financial crime
On 7th April the FCA published its business plan for the next financial year.
Within this the FCA states that it will be shifting its focus towards smaller firms over the coming year. It highlights a focus on payments, operational resilience and financial crime in the medium-term as well as improvements in technology that it intends to implement. The full Business Plan is available on the FCA website.
The FCA wants to ensure that consumers and SMEs can safely access a variety of payments services. It is also concerned that the coronavirus emergency will impact payments firms’ financial strength and consumers’ ability to access cash and payment services.
Moving forward the FCA will be monitoring:
- financial strength
- the number of operational incidents and outage times and it expects these to reduce
- whether systems and controls to prevent financial crime including fraud are adequate and it expects to see incidents reported within regulatory returns reduce.
The FCA has identified 3 outcomes it wishes to deliver and plans to work particularly closely with the PSR to tackle common issues such as access to cash and fraud.
The 3 outcomes the FCA will be targeting are:
- Consumers transact safely with payment firms. Firms should handle and store data correctly and minimise the impact of fraud and operational outages. The FCA will increase focus on evaluating firms’ systems and controls while monitoring the emerging risks. It will also ensure banks and payments firms have appropriate systems and controls in place to minimise the incidence of these accounts being used for fraud, money laundering or other financial crime.
- Payment firms meet their regulatory responsibilities while competing on quality and value. Firms should safeguard customer funds and deliver high-quality, fair value products and services to consumers. The FCA states that it will act swiftly where firms fail to meet safeguarding and other regulatory requirements. It also expects open banking to foster competition as it embeds and grows.
- Consumers and SMEs have access to a variety of payments services. Market developments should not exclude consumer groups and consumers should be able to make payments through their preferred method. The FCA is concerned that, as firms’ business models change, they may stop providing some services to some groups. A priority is helping to ensure that customers continue to have access to cash.
Innovation and Technology
The FCA plans to invest in new technologies and skills to make better use of data.
It is planning to use technology to reduce the burden of regulatory reporting on firms, replacing the Gabriel system with a new platform intended to provide an improved user experience and with a single identity log on with the Connect system.
It also intends to strengthen rules to prevent money laundering, as well as working with domestic and international stakeholders to support a joined-up approach to cryptoassets.
Other plans include seeking to facilitate international sandbox experiments and deepening international knowledge-sharing of innovation approaches and new market trends.
It will also explore if and how to expand sandbox services to foster and encourage the wider adoption of appropriate technologies, particularly for RegTech, as well as undertaking further work on Digital Regulatory Reporting (DRR).
The FCA is actively evaluating the contingency plans of a wide range of firms. The FCA expects all firms to have contingency plans to deal with major events and to test these plans.
In December 2019, joint Consultation Papers were published on operational resilience. The FCA expects firms to take ownership of their operational resilience and to account for this in their plans and investments.
Under the proposals, firms should identify important business services by considering how disruption to these services could cause harm to their customers (retail and wholesale) or market integrity. The proposals require firms to set a tolerance for disruption, and to ensure they can continue to deliver their important business services during severe but plausible scenarios.
The consultation period is now open until 1st October 2020 due to the impact of the coronavirus on the industry. The FCA will then publish a Policy Statement with its response and final rules.
This year the FCA will start to implement changes to reduce financial crime. These include making greater use of data to identify firms or areas that are potentially vulnerable. It also expects payments firms to be taking steps to reduce the number of incidents that need to be reported on regulatory returns.
It will continue to take enforcement action where it uncovers serious misconduct, particularly where there is a high risk of money laundering.
The FCA has highlighted that fraud falls within its priority of reducing the risk of financial crime. It will focus on ensuring that firms have effective systems and controls to detect, disrupt and reduce the risk of financial crime including fraud.
It has also implemented a new registration and supervision regime for cryptoasset activities.
Transforming how the FCA works and regulates
The above sit within a framework of transforming the way the FCA works moving forward. This framework includes 4 external priorities the FCA will be focusing on over the next 1-3 years:
- Make faster and more effective decisions
- Prioritise end outcomes for consumers, markets and firms
- Intelligence and information
- Influence internationally on issues that affect UK markets and consumers
The FCA hopes that this transformation will help strengthen the UK financial system and better protect consumers.
Within the Business Plan the FCA states that it must learn the lessons from the current emergency, its own experiments with data and the forthcoming reviews of past regulation, then embed them deeply into the way the FCA operates.
It must actively meet the challenges from market developments, EU withdrawal, new technology and consumers’ changing needs.
The FCA states that it will need to shape its future approach to regulation to meet the needs of the unprecedented times we are operating in. It will not compromise on our expectations of firms, particularly that they make consumers’ interests the foundation of their business models and behave accordingly.