2024 Regulatory Outlook
Regulator focus on fair treatment of customers continues apace into 2024, as the seventh edition of the UK Financial Services Regulatory Initiatives Grid confirms the FCA’s work towards fair treatment and equal access to financial services will be supported through a number of initiatives.
The Consumer Duty, unsurprisingly, will remain the FCA’s main tool for reviewing firm actions. In 2024, the FCA’s data collection and analysis will begin to reveal trends in the impact of the Duty on customer outcomes. Combined with information about firms’ practical implementation of the requirements, an assessment will follow, with a publication from the Regulator if it feels changes are needed on the ground.
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In December the FCA published an update on the cash savings market following their July review. The regulator had set out concerns about savings products that offer very low interest rates and whether these products offered fair value. The FCA asked to see these firms’ fair value assessments. The update now confirms that the FCA evaluates that progress has been made in the speed and size of interest rate changes, but that they are continuing to identify and challenge firms that appear to be taking too long to react. This approach and the resulting marked improvement gives an insight into how the FCA will continue to assess firms’ compliance with the Consumer Duty into 2024.
Fair Value Assessments in particular look to come under increased scrutiny, as the Regulator notes that the review has “raised important questions about how firms assess value.”
The FCA is aiming to begin a review of its guidance for firms on the fair treatment of vulnerable customers. It will look at how firms have implemented the guidance, and the resulting impact on outcomes for customers in vulnerable circumstances. The final review will be published towards the end of 2024.
Aside from the Initiatives Grid, the Regulator’s three-year strategy (2022-2025) gives a clear indication of its goals. Without a doubt, the FCA’s plans to become a more assertive regulator will step up a gear in 2024, armed with analyses of the impact of the Consumer Duty. The aim is to act at an earlier stage to prevent harm, using innovative new technologies and data analyses. Firms should expect potential real-time action where the FCA identifies potential harms. The Strategy makes clear that, as a result, the FCA will accept “a higher risk of legal challenge.”
The 2023/24 Business Plan will continue into early 2024, with the four commitments; preparing financial services for the future, putting consumers’ needs first, reducing and preventing financial crime and strengthening the UK’s position in global wholesale markets, remaining at least for Q1.
With the Financial Resilience 2025 deadline just over a year away now, the FCA will begin to assess firms’ operational resilience and how well they can remain within their specified impact tolerances. Operational Resilience – in addition to the FCA’s historical concerns around financial and market stability – became a key priority when the pandemic highlighted several gaps in this area. Financial services firms play a crucial role in the economy, providing essential services. Functional Operational Resilience ensures that services can continue during disruptions, which minimizes the impact on the economy. In-scope firms should now be well on the way to compliance given the 2025 deadline.
Financial Crime is another key priority. The FCA is taking a two-pronged approach; supporting an effort from firms to stop financial crime, and support for consumers around awareness of scams. Over 2024, the FCA will look to increase their scrutiny of firms at the authorisation gateway and will be more proactive in their supervision of firms, using their new technologies and data-led approach to identify where action is needed and to then take that action. In the worst cases, the FCA will be proactive about removing FCA regulated fraudsters from the financial system.
Supporting the whole population to access financial services is another priority reflected in the FCA’s proposals for 2024. Using new powers granted by the Financial Services and Markets Act 2023, the FCA proposes that designated banks and building societies will need to assess gaps in access to cash. The concerns are that the increasing shift to digital payments is icing out over 3 million consumers who still rely on cash – particularly people who may be vulnerable. The Consultation – CP23/29 was published on 7 December 2023 and remains open until 8 February 2024.
In addition, the FCA and Government are seeking views, as part of the joint Advice Guidance Boundary Review, on three proposals to help people make more informed investment and pension decisions which would mean clarifications on giving support without giving regulated financial advice and an innovative new approach allowing firms to provide support tailored to groups of people in similar circumstances. This aims to support a clear need; the Financial Lives survey found that only 8% of consumers received full financial advice in 2022. The main concern is that some may struggle to make the right choice about savings, investments and pensions without help. This will result in a review of the Debt Advice Rules CONC 8; at this early stage the prospective dates for publications or changes are not yet available.
And finally, work on the regulation of Buy Now, Pay Later products will continue into 2024. Draft legislation was published in February 2023, but the Government has been criticised for its slow progress. There are concerns around the proportionality of regulation; too stringent and the rules may prevent some from accessing appropriate financial services products.
Our Consumer Duty templates support firms in making their ‘first’ and ‘second’ line of defence assessments. The Product Approval Process contains all of the FCA required check points. Our Open Product Review Template covers all of the areas the FCA requires firms to review. Ensure your staff are up-to-date on what the Consumer Duty means for them through our dedicated online course, accessible here.
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