The FCA ramps up enforcement focus in its 2023/24 business plan

Unsurprisingly, given current economic conditions and the cost-of-living crisis, the FCA has dedicated much of its 2023/24 Business Plan to supporting, protecting, and enabling consumers in their financial and investment decisions. The FCA has recognised the considerable financial pressures facing consumers as a result of elevated inflation and interest rates, and has stated a clear intention to prioritise consumer protection, backed up by considerable financial resources.

The FCA's long-awaited Consumer Duty will come into effect on 31 July 2023. The Duty sets, and requires firms to implement, a higher standard of care for consumers in retail financial markets, while also monitoring key outcomes for those consumers, including in relation to complaints and dispute resolution.  The Duty marks a significant shift in the FCA's expectations of firms dealing with consumers, with the regulator dedicating £5.3m in financial resources to ensure that it is appropriately embedded and upheld. Of particular note is the funding assigned to the creation of a new Interventions team within the Enforcement Division, designed to facilitate rapid responses to consumer harm, and prompter investigation into serious misconduct.  While the FCA's hope is that the new Duty will cause firms to focus more on good outcomes for consumers, and ultimately to reduce the need for future supervisory and regulatory action, we can therefore still expect Enforcement action in this area where necessary.

Financial crime remains at the forefront of the FCA's focus, with one of its stated aims being to leverage additional funding to increase the use of its powers to disrupt, pursue and sanction those committing such crimes, and their enablers.

In support of this aim, the FCA will continue to focus on firms' compliance with anti-money laundering requirements, including by increasing the volume of proactive assessments it conducts of firms' anti-money laundering systems and controls.

The FCA will also continue to take a data-led approach in this area, as originally detailed in its 2021/2022 Business Plan, and discussed in our review of the same. The FCA has invested considerable resources in this space, including in cloud technology, digital capability, and the expansion of its data capabilities in regional offices, all with the end goal of detecting and responding to harmful conduct more pre-emptively.  In 2023/24, it will be looking to utilise increasingly sophisticated data to proactively assess and identify both misconduct and firms susceptible to receiving fraudulently obtained funds.

On a related note, market abuse remains a core area of FCA focus.  The Plan suggests a continued spotlight on ensuring that firms and issuers have robust systems and controls in place in this area, alongside effective reporting practices and a strong anti-market abuse culture.  Those who do not can expect to find themselves in the FCA's cross-hairs.  Where market abuse does occur, the FCA also reiterates a strong continued commitment to ensuring that criminal, civil and supervisory sanctions are brought to bear on the wrongdoers, in order to deter others from such behaviour.  Specific areas of focus over the next twelve months include fixed income and commodities market manipulation, late and/or inaccurate market disclosures, and dealings by Persons Discharging Management Responsibility ("PDMRs").

The FCA has noted that geopolitical tensions have increased threats to firms' operational resilience, including cyber risks. It intends to upscale its ability to response to potential cyber harm and operational disruption across the financial sector and to zero in on firms which are unable to meet the required operational resilience it demands. Accordingly, firms will need to consider the practical realities of exercising and demonstrating operational resilience, and meeting the FCA's standards in this space.  This applies particularly to firms working with cryptoassets and digitalised financial services, which, while offering considerable opportunity for market innovation and growth, are more susceptible to cyber risks than traditional financial products and services.

Finally, the FCA reaffirms its commitment to change in the environmental, social, and governance (ESG) sphere.  While this is a comparatively emergent space for the regulator, the FCA is aiming to finalise and publish the rules on Sustainability Disclosure Requirements during 2023/24.  In the meantime, it has indicated that it will focus on protecting consumers from mis-leading marketing and disclosures around ESG-related products, and on ensuring high-quality climate and wider sustainability-related disclosures to support accurate market pricing, both of which are potential areas of enforcement activity in the longer term.

The FCA's 2023/24 Business Plan demonstrates a continued commitment to acting as – and being seen to act as – a more robust and proactive regulator. In the face of volatile markets and continued economic uncertainty resulting from geopolitical and macroeconomic tensions, it is sending a strong message of assertive and immediate action and intervention against misconduct, backed by financial investment. It will be interesting to see how this message plays out in practice over the next year, particularly with the recent appointment of Therese Chambers and Steve Smart as its new joint Executive Directors of Enforcement and Market Oversight.

The FCA's Business Plan for 2023/24 can be accessed here: Business Plan 2023/24 | FCA