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New Year Priorities for the Regulator
The New Year opens to a balancing act as uncertainty around the future of the regulatory framework is tempered with confirmed plans to implement a new regime, as the Consumer Duty is introduced in mid-2023. The duty is designed to apply a new, higher, standard of customer care which the Financial Conduct Authority suggests will mean fewer regulatory changes in future.
This won’t start with 2023, however, with several regulatory priorities hitting the ground running. In this article, we’ll look at the key priorities for regulated firms at the start of the new year.
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Reducing harm
Financial promotions are under continued increasing scrutiny, with action against non-compliant adverts ramping up over the past year. Over the course of 2022, the FCA “removed or amended over 8,000 potentially misleading adverts”, 14 times more than in 2021.
In 2022, the FCA proposed new rules that will require firms to demonstrate they have the expertise to approve financial promotions. Misleading and unfair behaviour that impacts on customers is a key focus here – particularly if promotions could be interpreted as taking advantage of the rising cost of living.
That the FCA has also taken action to stop or limit BNPL promotions – although these are not within the regulator’s remit – signals intent to take action where it sees customer harm via the enforcement of the financial promotion rules. The FCA has threatened providers of BNPL with criminal and regulatory enforcement action if they don’t comply with financial promotion requirements.
Exactly how the regulators’ remit changes over the next 12 months and beyond remains to be seen. To keep up with any shift in regulatory behaviour, the key is understanding the Edinburgh Reforms.
Consumer Credit firms will be aware that a reform of the Consumer Credit Act 1974 was announced as part of the Reforms, with the Government’s Consultation open until 17 March 2023.
Proposed changes include whether retained revision parts of the CCA should be replaced with FCA rules, whether the form and timing of contractual information needs to change, whether the £25,000 threshold for the business purpose exemption should be removed, and updates to breaches and sanctions.
Promoting growth and competition
The Edinburgh Reforms will usher in amendments to the regulatory framework and give the regulators a new secondary objective to support medium to long term growth in the interests of consumers and businesses. How this will be interpreted in practice is yet to be seen, but the FCA in particular is likely to focus on supporting the provision of finance with an end goal of long-term investment, improved competition – but in the interests of customers - and designing any future regulatory reform with this objective in mind.
Operational Resilience will remain a strong priority therefore, in particular the risks to growth from poor practice and technical failure. Between consultations and enforcement action, the FCA’s priority is in setting the right balance between innovation and risk control. Just before Christmas, the FCA and PRA jointly fined TSB Bank just under £50m for failing to plan sufficiently for an IT upgrade, failing to ensure robust governance of the project and failing to organize and control its affairs responsibly. In this case, the data migration to a new IT platform was successful, but the platform immediately experienced technical failures that resulted in “significant disruption” to the continuity of banking services, affecting “a significant proportion of its 5.2 million customers” for around eight months.
The project saw issues with data breaches and failures with digital banking services, which then caused a cascade effect resulting in customers attempting telephone banking at increased rates, which then led to overloading of the telephony system. As a result, long queues built up in branches and systems were running slowly due to IT failures. The FCA’s notice of the case highlighted that operational resilience remains a high priority for the Regulator going into 2023. RB Compliance will be launching an Operational Resilience resource on our website in Q1 2023.
Improving standards
The Consumer Duty remains – undoubtedly - the main focus for all regulated firms going into the New Year. It comes into force on 31 July 2022 and is designed to improve standards across financial services through obligating firms to offer a higher standard of consumer protection. It will signal a step up from requiring firms to think about the interests of customers and to treat them fairly, towards obliging firms to actively deliver good outcomes.
Whatever the potential future changes to the regulatory framework, the duty will remain in place; a commitment to “securing better outcomes for all consumers, including through (…) having regard to the needs of different consumers who use or may use financial services” is part of the secondary objective.
Aside from the elements of the duty itself, there are significant knock-on impacts. The Conduct Rules - and consequently training content – have changed, data collection processes need to be audited and practices for analysis of customer behaviour must be updated to be able to demonstrate what a good outcome is in practice and the ability of the firm to meet that definition.
Although the FCA has confirmed it will take a “pragmatic approach” to oversight of the duty, it has also hinted that it will aim to take quicker action where it sees that good outcomes for customers are not being delivered.
The duty will mean that staff at all levels need to have a thorough grounding in the products and services they support, and the way in which their role could impact on customer outcomes. This will require training – both on the duty itself and potentially on the products offered.
The FCA Has recently highlighted a lack of training as a key contributor to poor outcomes for customers, in both introductory and refresher training. RB Compliance can help firms here.
We offer a dedicated Consumer Duty course which guides learners step-by-step through the expectations of the Duty, covering the background, Principle, cross-cutting rules, and the four outcomes.
You may also find our wider range of resources on the Consumer Duty helpful.
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