FCA launches a new “5-year strategy” – what do financial services firms really need to know?

The FCA has recently published its latest five-year strategy “to deepen trust, rebalance risk, support growth and improve lives”. The regulator’s vision is one of a successful financial services industry underpinned by trust. Trust in firms, trust in the services that they provide, and trust in the regulator.

Trust

The FCA’s vision refers to two different sources for the trust that it states is required to encourage consumers to “build personal wealth, improve financial resilience and invest in the future”:

• Trust in the regulator as an efficient, effective, proportionate and predictable regulator; and
• Trust in the regulation as fair, as an enabler of competition, and as effective in holding those who break the rules to account.

Risk

The FCA’s vision states the need to review our “collective attitude to risk” and change the focus from being too risk averse to “the lost opportunity of taking none”.

Building on the foundations of the last five years

The regulatory strategy for 2020-2025 was about setting higher standards, delivering regulatory reforms, improving the regulator’s operational capability, and improving resilience throughout the financial services sector. The next five years are about building on that foundation to deliver growth and innovation, to harness technological advances, to improve competitiveness, to make the markets function even better, and to further augment resilience so that the UK’s financial services ecosystem can withstand “increased global instability, demographic shifts, dramatic technological change and the consequences of growth that has been stubbornly slow”. 

Regulatory priorities

As part of the new five-year strategy, the FCA sets itself four interconnected priorities which together drive at deepening trust and rebalancing risk:

• Be a smarter regulator: The FCA will be “predictable, purposeful and proportionate” and it will improve its processes and embrace technology;
• Support growth: The FCA will enable innovation and investment, and ensure competitiveness;
• Help consumers: The FCA will seek to improve trust and innovation and ensure that the right information and support is available to consumers; and  
• Fight crime: The FCA proposes to focus on regulated firms who use their regulated status to do harm, to disrupt criminals and to enable regulated firms to be “an effective line of defence”. 

Opportunities and challenges

Looking forward into the next five years, the FCA refers to five “opportunities and challenges” for financial services, and these are:

• dramatic technological change;
• growth;
• global uncertainty and market volatility;
• financial resilience and the need to improve the financial lives of the population; and
• demographic change, and in particular, the impact of an ageing population.

A smarter regulator

The FCA states a wish to be smarter, more efficient, more effective, and to use its “capabilities and technology” to “do more, faster”. The regulator positions itself to enable innovation and encourage investment and growth by:

• being cost effective;
• ensuring proportionality;
• focusing on a smaller number of strategic priorities;
• supervising less intensively those firms “demonstrably seeking to do the right thing”;
• providing more firms with a direct point of contact within the FCA;
• publishing a small number of annual market reports to share insights from supervisory work, and lessons learned;
• investing in technology to enable efficient handling of its caseload, to act quickly and assertively to address harm, to digitise and simplify the authorisations process, to train its employees enabling them to be “more data fluent and confident to take full advantage of new technology”; and
• reviewing its data supply requirements on firms and providing a single-point of entry for firms to manage their regulatory obligations such as paying fees and providing data.

Rebalancing risk

The FCA uses the launch of this new strategy to signal a change in approach to risk “regulation should be about enabling informed risk….not eliminating it entirely”. The FCA invites debate on three different kinds of risk:

• Regulatory risk: the assessments of risk that the FCA must make and which impact, for example, the entry requirements at the authorisation gateway, competition, innovation and growth;
• Market and firm risk: the assessments of risk that financial services firms make, and the requirement to enable the taking of some risks, but to mitigate against the taking of excessive risk; and
• Consumer risk: the assessments of risk that consumers make in their choices about their financial well-being including in relation to cash savings, the making of investments, and access to financial advice.

Growth

The FCA hopes to “lead efforts to unlock investment and growth” by a variety of means, including increasing retail consumer access to investment opportunities, embracing technology including AI, encouraging innovation and removing redundant regulation.

Helping consumers and building trust in financial products

The FCA intends to drive change, its efforts underpinned by the Consumer Duty, in areas that affect the financial lives of consumers, addressing problematic areas including workplace pensions, insurance, mortgages, financial advice and investor information. The FCA will also support the Government in its strategy to ensure that more people are able to access financial services and obtain the support that they need to manage their financial lives. 

Smart data revolution

The FCA wants to “increase the pace of change to deliver innovation and competition…..greater flexibility, tailored services and lower costs”. The FCA has plans to build on the payment revolution started by Open Banking and ensure that more people can gain control over their payments and that businesses encounter lower fees for the processing of payments. This will mean “embracing the opportunities for greater data sharing”, placing Open Banking “on a commercially sustainable footing”, and enabling more choice between new, improved and flexible banking and payment services.

The FCA has committed to publishing a roadmap to achieve these goals by 2027. This will include a regulatory framework to support the underlying data and priority focus on new market entrants and innovators, ensuring that these “engines of growth” have access to the required capital. 

Financial crime

Fighting financial crime was a top priority in the last iteration of regulatory strategy and it remains front and centre of the new five-year plan with a focus on those who “aim to use FCA authorisation as a cover for crime”. This will include working with firms, a “vital line of defence against the criminal misuse of our financial services”, who play a part in tackling financial crime and enabling them with technologies that will improve controls and reduce costs. Another element of this work will be in the FCA maintaining its strong links with the UK’s law enforcement bodies and with other domestic regulators, and in working with overseas regulators to share intelligence and to collaborate. The FCA will also seek to empower consumers with greater awareness of how to protect themselves from scams and other harms. 

International regulator 

As the “largest net exporter of financial services” the UK has a clear interest in maintaining a position as a leading global financial services hub. The FCA states a commitment to cooperate and collaborate, build strong international relationships and establish a new and permanent presence in both the US and in the Asia-Pacific region.

What comes next?

The FCA will track progress against the four chosen strategic themes and will report annually on the progress that it makes against each of them (being a smarter regulator, supporting growth, helping consumers and fighting financial crime) as it sets out to make achievements for “consumers, markets and the wider economy”.  

This article was written with the assistance of Matthew Pegler, trainee solicitor, Burges Salmon.

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Our strategy sets out what we will prioritise over the next 5 years. We engaged widely – with industry bodies, consumer groups and our people – as we developed it. Because this strategy will guide our future and shape our decisions it must respond to the needs of the markets we oversee and the consumers we serve. That’s why the vision underpinning our strategy to 2030 is of deepened trust and rebalanced risk, to support growth and improve lives

https://www.fca.org.uk/publication/corporate/our-strategy-2025-30.pdf