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PRECISE. PROVEN. PERFORMANCE.
FCA Business Plan 2016/2017Key Priorities and Risks going Forward
Today’s Agenda
A Quick Look Back
The FCA Priorities for 2016/2017
Key Focus Areas for Firms
2015/2016 FCA’s Priorities
A strategic markets-led approach to regulation • CEO Departs• Banking Culture Review Scrapped• Implementation of MiFID II delayed to 2018• Asset Management Market Study kicked off November 2015
Protecting Consumers• Auto Enrolment Pensions rolled out over next 2 years• Finalised regulation process of Consumer Credit in March 2016
Individual Accountability • Senior Managers and Certification Regime implemented March 2016• More enforcement against individuals in 2015/2016 than previous years• Greater scrutiny on Whistleblowing measures
International Issues• Preparation for MAR, MiFID II implementation
Our People• FCA continuing drive for cultural and technical diversity
FCA Priorities for 2016/2017 Overview
Wholesale financial markets
Firms culture and governance
Innovation and technology
Treatment of existing customers
Pensions
Financial Crime and Anti-Money Laundering
Advice
Wholesale financial markets: Desired Outcomes
Risks- Volatility and Uncertainty impacting investor confidence
- Financial results take precedent over good conduct and performance
- Wholesale Banks fail to effect systems and controls
Outcomes- Increased confidence in wholesale financial markets
- Enhancement of monitoring and surveillance
- Increased market efficiency
- Greater responsibility over conduct
Wholesale financial markets:Achieving Outcomes
MAR/MiIFD II
• Strengthen UK Market Abuse Framework
• Wider Reporting Requirements
• Proactive approach and quicker response to Market Change
Fair and Effective Markets Review
(FEMR)• Supervising major UK
FICC benchmarks
• Enhanced rules on references
• Assist in SMR implementation
• FICC Market Standards Board
Primary Market Effectiveness
• Proposed Prospectus Regulation
• Availability of information
• Primary debt market effectiveness
• Review Listed market structure
Firms culture and governance:Desired Outcomes
Risks- Poor Culture in Firms
- Strategy and Governance not aligning with values and conduct
- Incentive structures lead to poor behaviour (Conduct Risk)
- Weak Governance and lack of accountability create poor oversight
Outcomes- Firms Develop Culture of accountability
- Firms and senior members aware of good conduct
- All business areas align with good Firm culture
- Proactive analysis of Firms issues
Firms culture and governanceAchieving Outcomes
Accountability and Governance
- Implementation of SMRC
- Assessment and mitigation of conduct risk
- Solvency II implications
- SMRC for FSMA authorised firms
Culture
- Remuneration and incentive controls
- Enforcement as a potential deterrent
- Review Governance changes
Innovation and technology: Desired Outcomes
Risks- Technology application limited by system vulnerability
- Complex IT infrastructure obstructing key services
- Outsourcing leading to marginal oversight of Third party systems
- Cyber Security and Cyber attacks
Outcomes- Regulation allows and encourages innovation
- RegTech – more efficient regulation and compliance
- Combat Cyber threats
- Robust Recovery and Continuity Processes
Innovation and technology:Achieving Outcomes
Encouraging Innovation and
new competition
Keeping up to date
Risk Based Approach to CombatCyber Crime
Treatment of existing customers:Desired Outcomes
Risks- Tough economy leading to disadvantaged consumers
- Difficulty to obtain Credit
- Lack of product transparency
- Unjustified exit and switching fees
Outcomes- More information and transparency for Consumers
- Greater product options
- Remove barriers to switch or exit
- Actively engage and retain customers
Treatment of existing customers:Achieving Outcomes
Increased Competition in Retail banking
• CMA retail banking Interim Findings
• 15 provisional remedies
• 4 additional remedies in March 2016
• Final Report to be Published
Cash Savings Market Study
• Switching should be easier for Customers of old accounts
• Consult on second package of transparency remedies
Fair Treatment in Life Insurance
Sector
• Thematic Review in March 2016 on Fair Treatment
• Industry wide discussion to take place
• Collaborative Approach with Firms
Pensions: Desired Outcomes
Risks- Aging Population- High cost and uncapped fees- Resorting to alternative investments- Struggle to contribute to pensions
Outcomes- Increased competition and innovation - Better value for money- Appropriate Advice- Educating Consumers- Protection from scams
Pensions: How to Achieve Outcomes?
Retirement
Outcomes Review
Early Exit Charges Cap
Independent Governance
Committees review
Crack down on scams
Secondary Market in annuities
Policy Statement on Oct 2015
changes
Key focus areas
Financial Crime and Anti-Money Laundering
Advice
Financial Crime:Desired Outcomes
Risks- Tweaking risk criteria to achieve profit and growth
- Less Investment in systems and controls
- Distortion of risk assessments
- Consumers vulnerable to fraud
Outcomes- Create hostile sector for money launderers
- Avoid unintended ML consequences
- AML processes do not exclude people without reason
- Proportionate AML Requirements
- Reduce Scams
Key Risk: Proportionality
• Important that financial crime regimes are proportionate and operate efficiently
• Minimise any unintended consequences of regulation• Key risk identified –
– Financial crime requirements, high costs and reduced profitability may cause firms to change risk weight of their products and change risk profile of their clients inappropriately.
– This may restrict access to financial services to whole groups of individuals or businesses.
Financial Crime Data Return
• Currently the FCA’s financial crime supervisory work relies on the use of ad hoc data requests to gather information
• Do not currently gather information from firms about financial crime regularly
• FCA to introduce REP CRIM return from 31 Dec 2016
– Content of REP CRIM:
• Location of customers• Jurisdiction the firm has business that it considers high risk• Resources allocated to tackling financial crime• Number of suspicious activity reports filed with authorities• Sanctions and Asset freezes• Firm’s general views on which are the most prevalent types of
fraud
4th Money Laundering Directive
• Adopted May 2015• To be implemented in all Member States by 26 June 2017• Key drivers and improvements:
– Global consistency– Beneficial ownership defined– Reinforced risk-based approach– Suspicious activity reportable in all EU states– Consistent sanctioning of breaches– EU-wide AML and CTF risk assessment – Third-country equivalence regime – Simplified due diligence to be justified– New definition of PEPs
4th Money Laundering Directive – Timeline
Q2/Q3 2016 – Consultation
Paper issued by HM Treasury detailing the
proposed amendments to
current legislation
Q3/Q4 – Draft regulations
Q1 2017 – Guidance finalised
June 2017 – Regulation comes
into effect
Advice:Desired Outcomes
Risks- Lack of Consumer Support
- Less than reliable advice provided by advisors
- Advices costs too high
- Lack of transparency in advisory fees
Outcomes- Affordable, accessible, bespoke advice
- Suitability
- Innovative and accessible delivery
- Clear and Transparent costs
- Available non-advised options
Planned Activities – Professionalism and Suitability of Advice
Increased standards of competence and professionalism of financial advisers
Increased communications between firms and clients
Continued focus on suitability
Financial Advice Market Review
• Launched in August 2015• Explores the supply and demand sides of the market for
financial advice, barriers to consumers and potential remedies
• Findings – concerns that market for financial advice was not working well for all consumers even under RDR
• Aim – develop a market that delivers affordable and accessible financial advice and guidance for everyone
Financial Advice Market Review: Key Areas
• Affordability– advice more cost effective for the mass market– automated advice models– technological development
• Accessibility – clear definition of regulated advice (‘personal recommendation’)– tackle barriers preventing consumers from seeking advice – employers to provide advice on financial planning
• Redress– increase consumers confidence in regulatory system– confirm liability of firms when giving wrong advice– increased transparency of how FOS reviews complaints– recommendations to FSCS
FAMR – FCA Recommendations
Simplify and clarify the regulation of financial advice
Support firms offering “streamlined advice” on a limited range of consumer needs
Create a specialist Advice Unit to give regulatory support to new automated advice models
Clarify certain rules relating to financial advisers
Consider introducing risk based levies or wider funding classes as part of the FSCS Funding Review
Questions?
Helping to keep you up-to-date
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