In recent weeks, the FCA has shared their existing and future strategy for 2022-2025, detailing how they intend to measure performance of the financial services industry. These insights include how the FCA intends to continue to adapt, improve and deliver in the interests of markets, consumers and the wider economy. As part of the announcement made for detailing the strategy for the future, Nikhil Rathi, Chief Executive, said the FCA had noted that many firms and organisations wished to see a different type of FCA moving forward. The goal of the FCA’s business plan is to become more innovative, more assertive and more adaptive.

Their vision is to focus on creating good conditions for financial markets to provide the FCA with expected outcomes from customers. The motivation for this vision is based on the constantly changing environment in which companies operate in today and the long term impact due to the uncertainty of pandemic, but also how people and businesses have chosen to change their working habits.

Wheelhouse Advisors has studied the FCA’s Business Plan 2022/23 and the three-year strategy. In this two part series, we will be exploring the following sections in greater detail and what they mean for our clients. Reducing harm from firm failure; improving oversight of Appointed Representatives and finally, minimising the impact of operational disruptions.

The FCA is currently the conduct regulator for approximately 51,000 firms and they prudentially supervise an approximation of 49,000 firms. Up until now, the FCA structured their activities around the sectors they regulate. However, in their new strategy, this approach will be different. The FCA will be using their expertise and knowledge surrounding the sectors they regulate to align their internal strategy across four consistent overarching consumer and wholesale market outcomes.

In their new approach for reducing the impact of harm from firm failure, the FCA has established six commitments which look to ensure that both market and consumer participants have the confidence that in the event of financial services firms failing to meet the ‘Threshold Conditions’ for firm failure will be quickly identified. Threshold Conditions being the absolute minimum requirements all firms must satisfy to continue conducting regulated business, one of which being the maintenance of adequate financial resources.  In many cases this is borne out in a firm’s ICARA process, but even those firms which escape such requirements are still expected by the FCA to undergo processes to evidence they hold adequate resources. In addition to this, market participants and consumers will be assured that the FCA will use its authority and position to intervene in the event of firm failure to prevent harm.

The FCA will act on this goal in the next three years by demonstrating an increased number of cancellations or withdrawals for firms that do not meet the Threshold Conditions. There is an expectation to see an initial rise in this metric throughout the next three years and then a decline from 2025 as firms will have had sufficient time to adjust their conduct to be in line with FCA requirements. In addition to this, there will also be an increased awareness of the perceived effectiveness of the interventions that the FCA do carry out. This is a new perception metric brought in by the FCA and it is set to be developed in due course through the introduction of a survey with firms.

A key component of achieving the above desired outcomes set in the FCA’s reducing harm from firm failure strategy is the IFPR. The IFPR is a broader framework which is, in part, designed to empower the FCA to take quick and effective action in the event of a firm failure. It will also help facilitate the FCA working alongside their regulatory partners to discover solutions for common issues in the regulatory framework.Wheelhouse Advisors’ IFPR specialists and can provide guidance in light of the FCA’s new business strategy and vision for the next three years. We will be working alongside clients to ensure they meet the standards set out for reducing harm from firm failure. If you would like assistance with your firm’s IFPR framework and adhering to the existing and new standards, please contact Michael Chambers on mchambers@wheelhouse-advisors.com