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FCA lays out its mission

Chris Hamblin, Editor, London, 18 April 2017


The UK's Financial Conduct Authority has published details of its priorities for intervention in financial markets.

Alongside the 'mission,' as it calls the rambling 10,000-word essay it has written about its priorities and other things besides, the FCA has published its business plan for 2017/18. For the first time, it has also published its 'sector views,' which draw attention to the issues and developments it sees in the sectors it regulates. At the same time, it is consulting interested parties about increases in its levies on firms.

Freedom of Information

The most striking fact about the mission statement is that the phrase 'freedom of information' and the abbreviation 'FOI' never appear. The FCA has a record of refusing requests made in accordance with the UK's FOI laws, even though these are among the main things that guarantee its accountability to the public. The regulator's CEO Andrew Bailey does, however, state in his foreword that the document's purpose is to help his organisation "be more transparent and accountable to the UK public."


The FCA is at pains to drive home a point that it has been labouring since last year. It writes: "Starting an enforcement investigation is a diagnostic tool and does not mean a sanction is inevitable or even likely. We do not pre-judge outcomes." This relatively new emphasis on impartiality at the beginning of an investigation is related to the 'enforcement review' that HM Treasury has been conducting in the light of the disastrous regulatory handling of the collapse of HBOS.

In January the FCA and its sister-regulator, the Prudential Regulation Authority, published new rules to allow people and companies under investigation to dispute facts and fines in camera without passing up the opportunity to benefit from the famous 30% discount in penalties that most prostrate firms are eager to obtain. The paper, however, does not mention this. Nor does it say whether there has been a deluge of 'partly contested cases,' which were introduced at the beginning of last month.

To be published!

The FCA aims to publish something later this year that will summarise its latest research on the needs, attitudes and behaviour of consumers and will also examine external evidence on the subject. This paper, to which it plans to give the name 'Consumer Approach,' will set out its new strategy for evaluating the needs of consumers or 'users' when it makes decisions. The regulator will consult the public about it before its next business planning round.

In December the regulator embarked on an initiative to "Deliver Effective Authorisations" (its own capitals and grammar). Its aims are to strengthen the support it gives to firms and people as they struggle to comply with its rules regarding the integrity of markets, competition and the protection of consumers from harm. As part of this, its process of authorising firms and activities will focus much more than before on helping everyone to comply. It also promises to open up the 'authorisations' process to public scrutiny while also making it timely and consistent and to improve its operational performance by using data and software to greater effect. It intends to publish a document entitled ‘Approach to Authorisation’ in advance of its next business planning round. Two concomitant papers entitled ‘Approach to Supervision’ and ‘Approach to Competition’ are also on the way.

The quantification of benefits

Although the FCA is generally committed to an assessment of the net benefits its action before intervening somewhere, it is also keen to try to remedy various problems even if it is unsure of the effectiveness of its efforts, as long as the ultimate objective is important. For example, it wants to spend plenty of money to help firms combat terrorist financing or cyber-crime, even though it can never quantify the effect of its efforts here. It it suspects that the mis-selling of a particular product is widespread, it plans to clamp down on it regardless of whether it can quantify the benefits of doing so.


The FCA is also keen to be more consistent in the way it does things, although it expresses this vaguely and with a few grammatical mistakes. It says: "We seek to ensure we are consistent in the messages we give across all the information we produce...By providing better clarity and consistency in the information we give to firms, however they come into contact with us, they will have greater certainty about our expectations and supervision."

It also makes a promise: "When we publish information about an intervention we will...also publish the reasons for...it. We will also be clear about how we will monitor the effectiveness of our intervention. This will help ensure all our communications about our intended outcomes will be consistent, transparent and predictable." It then looks forward to improving the consistency of its supervision.

The quango also wants to review its rulebook or 'handbook' to make it consistent with the principles of good regulation (see below) to be found in its founding statute, but cannot begin this work until the full ramifications of 'Brexit' are known.

Statutory or regulatory redress

Firms already sometimes award HNW consumers 'redress' for bad service off their own bats or as a result of decisions by the Financial Ombudsman Service. The FCA is thinking of adding to the options that complainers have by evolving a "statutory redress scheme." It lists the following benefits that such a scheme might bestow on consumers.

• It might lead to economies of scale – for example, when large numbers of consumers are affected or many firms are involved.
• It might help all consumers who are affected by a scandal to obtain consistent results.
• It would help consumers who are vulnerable and less able to pursue redress through the usual channels.
• It might help in situations where firms lack the resources, expertise or willingness to design and/or establish voluntary schemes.
• It might be of use when a proposal for a voluntary scheme is unfair to consumers or does not offer them enough protection.

The FCA adds: "We may take action to set up a redress scheme alongside other actions including statutory investigations or enforcement actions. Where a firm has chosen to set up its own scheme we will take this into account in deciding what further action is needed."

A self-congratulatory leitmotif

The document is not entirely a forward-looking one; much of its tone is self-congratulatory, raking over the regulator's past achievements. It has a section on "what we do to add public value" which is largely a glowing endorsement of the current regulatory landscape.

In its section on setting policies and standards, for example, the FCA explains its approach to setting clear requirements for disclosure in the issuing of securities - requirements that hopefully make it cheaper for potential investors to carry out their own checks and gather their own information. It enthuses: "The robust regulatory framework underpinning the UK’s listing regime ensures that issuers disclose the information needed by investors to make fully informed investment decisions. The listing regime ensures that these markets have integrity and that they serve the interests of all users."

Levies and the effect of 'Brexit' on them

The regulator wants firms to pay it £526.9 million in 2017/18. This is an increase of £7.6 million (1½%) over that of the previous year, with a £5.1 million (1%) increase allocated for inflation and £2½ million for costs associated with Great Britain's withdrawal from the European Union. The word 'increase' appears in the proposal document 74 times.

In a short note about the UK leaving the EU, the FCA says that it is "providing the Government with impartial technical support." This enigmatic phrase, which raises the idea that the FCA could, if it chose, be 'partial' on the subject of 'Brexit,' might be a reference to the strong support that senior regulators have given to the rule of Brussels ever since 'N2,' the moment when the old Financial Services Authority opened its doors for business in November 2001.

The principles of good regulation

The Financial Services and Markets Act calls on the FCA to take into account its eight "principles of good regulation." These are:

  • Efficiency and economy - the need to use its resources in the most efficient and economic way.
  • Proportionality, which dictates that any burden or restriction that it imposes on a firm or activity is proportionate to the benefits it expects.
  • Sustainable growth for the economy.
  • Consumer responsibility - the idea that consumers should be responsible for their decisions.
  • Senior management responsibility for compliance.
  • "Recognising the differences in the businesses of different regulated persons."
  • Openness and disclosure - the desirability of publishing information relevant to regulated firms and individuals, with appropriate safeguards, or requiring them to publish information themselves.
  • Transparency, i.e. the provision of information about the regulator's decisions to others. To this the FCA adds its desire to be "open and accessible, both with the firms we regulate and the general public."

The onerous decision-making process

Among the chapters in this lengthy set of disjointed doodles and notes, the most prominent is the FCA's new 'framework' or policy for making decisions. It supplements this with diagrams. This 'framework' applies to both strategic decisions and decisions that FCA staff make from day to day.

In outline, the regulator intends the first step in each decision it makes to be an evaluation of the type of harm that the FCA staff member in question is tackling. This can be a threat to "confidence and participation" (it does not say in what) involving market abuse, unreliable performance or disorderly failure; somebody buying unsuitable or mis-sold products; gaps in ranges of products that firms offer or "lack of market resilience"; firms fixing prices too high or low; and/or threats to society such as money laundering.

Next, the staff member must consult the list of diagnostic tools at his disposal before taking a further step. These are: looking at this-or-that firm's governance, management, systems, controls and general culture; sending off a 'skilled person' (which might be a firm) to do research in accordance with s166 Financial Services and Markets Act; analysing data from firms, market intelligence, research and other sources; formal investigations; thematic reviews; market studies; and chit-chat from firms and other regulators. Presumably, as a good promoter of compliance, the FCA expects the staff member in question to keep a record of his diagnosis.

Once he has identified (and presumably logged) potential sources of harm, the FCA employee must then consider whether his organisation can resolve them entirely or only partially. To do this he must go through the mission statement's list of "regulatory tools" and settle on the right ones. These are: changes to rules; new guidelines; communicating with firms and/or customers; withdrawing permission for firms to do business; changing the circumstances in which they are allowed to do business; censure; suspension; financial penalties; and criminal prosecution.

The last stage is evaluation. The FCA says: "Testing the effectiveness of our remedies...increases transparency: we want to be clear about what regulations have been effective and which have not. By being open where things haven’t gone well, we seek to ensure that we learn and improve future outcomes.

"For our largest interventions, we will test their effectiveness and publish analysis after the event. Where it is less cost-effective to conduct detailed analysis, we will monitor and publish key indicators that help to demonstrate the impact of our interventions."

A high-sounding nothing?

This entire process, to be used whenever anyone at the FCA makes a decision, seems immensely onerous and likely to take a long time in every case. It is reminiscent in some small way of the time when the old FSA brought in a new regime for fines and penalties in March 2010 with the claim that its decisions were going to be 'scientific' from then on. In fact, the Regulatory Decisions Committee continued to make arbitrary decisions using various loopholes in DEPP, the Decision Procedure and Penalties manual. This latest document is not a collection of rules but merely of sentiments, and is therefore easier for senior regulators to ignore than DEPP. Instead of imposing a more onerous burden on everyone at the FCA, it might conceivably turn out to be, in the words of Metternich, "a high-sounding nothing."

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