Escolar Documentos
Profissional Documentos
Cultura Documentos
PreviouslywehavealsopublishedaRiskOutlookalongsideourBusinessPlan.
Thisyearwehavedecidedtobringthesetwodocumentstogether.Thiswill
moreclearlyshowhowouranalysisofriskisconnectedtoourregulatory
actionsandhowweseektoadvanceourobjectives.
Thisyearsplanisalsoveryrelevantbecauseitoutlinesanewstrategydevelopedinresponsetothechanging
scopeoftheFCAandthecontextinwhichweoperate,toenableustobetterdeliveronourobjectives.This
strategyisfirmlygroundedinanassessmentoftheriskswefacetoourobjectives.
InourlastRiskOutlookweidentifiedthesevenmostimportantforwardlookingareasoffocusinourview.Wedo
thesameagainthisyear.Unsurprisingly,giventhelongtermnatureoftheserisksandtheunderlyingdrivers,the
listislargelyunchanged.Poorcultureandcontrolscontinuetoconcernus,notwithstandingtheeffortsbeingmade
byfirmstoimproveboth.Pensionswerealreadyincluded,butthescaleofthechallengehasnowgreatly
increased.Financialcrimehasjoinedthetopsevenrisks,replacingrapidhousepricegrowthwhichnevertheless
remainsfirmlyonourradar.
Itisthenatureofpredictionsthatnotallofthesewillcrystalliseduringthenext12monthsandthatother
prioritieswillrapidlymoveuptheagenda.Weaim,bysharingthislist,toworktogetherwiththeindustryto
reducethelikelihoodofthemostharmfulthingsgoingwronginthefirstplace.
Itisonethingforustoidentifyareasofriskitisanotherforustodecidehowtouseourresourcestothebest
effecttoachieveouroverallobjectiveofensuringthatmarketsworkwell,andourthreesupportingobjectivesof
protectingtheconsumer,promotingcompetitionandenhancingtheintegrityofmarkets.Werecognisethe
responsibilitythatwehavetouseanappropriatemixofpolicymaking,marketandthematicreviews,supervision
andenforcementtoachievethedesiredoutcomes.Atthesametimeweseektoensurethatwedonotadversely
affectthesmoothworkingofthemarketsorimposeunnecessarycost.Itisabalancethatwealwaysrevisitaspart
ofourplanningprocess,andhavedonesoparticularlythisyearaswehavecarriedoutourstrategicreview.
Asanorganisationwearecontinuouslylookingatthewayweworktomakesurethatwearemeetingchallenges
headonandachievingthehighstandardsexpectedofus.Wehaveachievedahugeamountinthetwoyearssince
becomingoperational,andlikeanybusinesswecontinuetolearnandevolve.Lastyearsawthecompletionofthe
Davisinquiryintotheeventssurroundingthehandlingofour2014/15BusinessPlan.Wefullyacceptandhave
takenonboardthefindingsofthisinquiry,andhavemadethenecessarychangestoourprocesses.
Wherewefindthatimprovementscanbemadetoourapproachesandprocesses,weconsiderwhatchangesare
necessaryandtakeaction.Thisisattheheartofournewstrategy.
Wearealsocommittedtoworkingasefficientlyaspossiblewithfirmstodelivervalueformoney,aswellasthe
rightoutcomesforconsumersandthefinancialmarkets.Centraltothisiseffectivelymeasuringourperformance.
Ourprincipaltool,ouroutcomesbasedperformanceframework,isoutlinedinthisplanandIlookforwardto
reportingagainstthisframeworkwhenwepublishourAnnualReportinJuly.
ThankyoufortakingthetimetoconsiderourplanandIlookforwardtoworkingwithmanyofyoutodeliverour
objectivesoverthecomingmonths.
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Risk outlook
Introduction
Anassessmentofriskformsthecornerstoneofourplanningprocess.FromthiswecreateaBusinessPlanthat
focusesourresourcesonpriorities,whileretainingsomeflexibilitytorespondtoemergingissues.
InOurStrategyofDecember2014wemadeacommitmenttotakeamorestrategicapproachtorisk,aswellas
developingacommonFCAviewofmarketsandkeysectors.Aspartofthisnewdirectionwewilltakeamore
marketfocusedapproach,whichwillallowustotacklerisksatacrosscuttinglevel,whilealsoaddressingspecific
issueswithinfirms.Webelievethatourmarketfocusedapproach,incombinationwithacommonFCAview,will
furtherimproveourabilitytoplanactivitiesaimedatmitigatingkeyrisks.
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Our approach
Alongsidethespecificworkwewillcarryouttomitigatetheriskswehaveidentified,ourbusinessasusualactivity
willalsocontinuetoaddressbothstrategicandoperationalrisks.Weassessrisktoinformourallocationof
resourceacrossallofourregulatoryactivities.
Ourworkregulatingfirmsissharpenedbyourassessmentofrisk,asweaimtoconcentrateourresourcesonthe
marketsandfirmsthataremostexposedtorisksthatmaygiverisetopooroutcomesforconsumers,impact
marketintegrity,andwherecompetitionisnotworkingforthebenefitofconsumers.Thisdaytodayworkisvital
inensuringsuchinherentorcontinuingrisksarekeptwithinacceptabletolerancelevelssothatwecanadvance
ourobjectives.
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Business conduct
Lastyearwenotedthatimprovementsinthecultureoffirms,aswellasstructures,processesandincentives,
continuedtobeneededtoensurethatmarketsworkwell.Wemaintainastrongfocusonthisareaandtheserisks
willcontinuetoinfluenceourbusinessplanning.
Therisksaroundcontrolsandbehavioursgototheheartofourworkasaconductregulator.Inthisareawe
considerthatthereisaroleforbothfrontlineandseniorstafftoprovethatlessonshavebeenlearnedfromthe
experiencesofthepast.OurfindingsontheattemptedmanipulationofFOREXmirroredsomeofthoseinrelation
toLIBOR.Itisvitalthatfirms,inwholesaleandretailmarkets,ensurethatculturalchangeshavebeenmadeto
preventpoorconductinfuture.
Thefocusonbenchmarksinrecentyearshasgonesomewaytomitigatingtheriskofthetypeofpoorconduct
thatleadstoalackoftrustinthefinancialsector.However,weconsidertheriskofmanipulationstillexists,and
thisyearwewillcontinueourregulationofLIBOR,andanadditionalsevenbenchmarksthatcomeintoregulation
inApril2015.
Culture in firms
OurRiskOutlook2014/15notedhowimportantembeddingculturalchangewouldbetoregainingthetrustof
consumers,aswellasachievingourobjectives.Thisremainstrueforthecomingyearandtheforeseeablefuture.
Wecontinuetobelievethataculturalshiftwithinfirmstocelebratinggoodconductthatplacesconsumerinterests
andmarketintegrityattheheartofthefinancialsectorwillbenefitallstakeholders.Wecontinuetoaddress
conductissuesarisingfromfailuresinfirmcultureandarecommittedtoensuringthismomentumisnotlost.
Changeinculturewillonlycomewhenthetoneatthetopisright.However,italsorequiresstaffthroughouta
businesstounderstandandacceptthevaluesandpracticesthefirmespouses.Thismeansthatfirmsmustensure
thatalloftheirprocessessupportandreinforcetheculturetheywanttopromote.Someexamplesincludefirms
remuneration,hiring,performancemanagementandpromotiondecisions,aswellashowtheytreatinternal
reportingofconcerns,thelevelofresponsibilitythefirstlinetakesfortherightoutcomesandtheautonomyand
empowermentofkeycontrolfunctions.Wehavearangeoftoolsatourdisposaltoactivelycombatanypoor
conductbyfirmsandindividuals.
Weconsidercomplexityinbusinessmodelstobeanissuethatfirmsshouldbeaddressing.Questionsshouldbe
posedbyfirmsthemselvesastowhethertheyareabletosimplifytheirstructurestodeliverbetterconsumer
outcomesandreducetherisksassociatedwithcomplexity.
Itisparticularlyimportantthatincentivesarestructuredinawaythatrewardsbehavioursthatactinthelong
terminterestsofconsumers,ratherthancreatingconflictsofintereststhat,forexample,mayencouragestaffto
sellunsuitableorunwantedproductstoconsumers.Whilerecognisingtheprogressretailfirmshavemadein
financialincentivesofsalesstaff,thedesignofincentivesisanareaofriskthatweidentifiedinlastyearsRisk
Outlookandweconsiderthatthereisacontinuedneedforfirmstoconsidertheimpacttheirincentivestructures
andotherperformancemanagementtoolsmayhaveonbehavioursandthestepstheyneedtotaketoadjust
these.
Culturalchangewillalsobeanimportantaspectinmitigatingtherisksassociatedwithlargebackbooks.A
proactivemovebyfirmstoactintheinterestsofbothexistingandneworpotentialcustomers,wouldleadtoa
reductionintherisksassociatedwithlargebackbooksandshowacommitmenttoofferingsuitable,accessibleand
goodvalueproductstoalltheircustomers.However,wherefirmsorsectorsfallbelowthelevelsexpected,wewill
takeaction.
Consumer behaviours
Firmsneedtoensurethattheytakestepstopositivelyaddresstheknownbehavioursandtraitsconsumersmay
exhibit,ratherthanseekingtocapitaliseonthem.Thiscouldbeinanumberofways,includingshorteningtheir
termsandconditionsandmakingthemmoreaccessibleaspartofcommunicatingmoresmartlyoverall.
Wecarryoutresearchanduseavarietyofsourcestogainadeeperinsightintotheexperiencesandbehaviourof
theconsumersoffinancialservices.Harmcanmanifestitselfinmanyways.Forexample,peopleandbusinesses
canfacelimitedchoice,beunabletogettherightproductfortheirneeds,orbetreatedunfairlybytheirchosen
providerthroughthelifeoftheproduct.
Informationasymmetrieswhenonepartyinatransactionhasmoreorbetterinformationthantheotherparty
arecommonbothinretailandwholesalefinancialmarkets.Theycanaffectoutcomesforconsumers,potentially
leadingtomissellingandreducedtrust,whichcanunderminemarketintegrityiffirmsbenefitattheexpenseof
clients.
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Financial crime
Financialcrimeposesasignificantthreattotherealisationofourobjectivetopromoteandenhancetheintegrityof
theUKfinancialsystem.Asistrueofeachareaofrisk,whenplanningtheworkwewillundertakeonfinancial
crimeincomingyears,weassesswherewecanhavethemostimpact,whileusingtheresourceswehave
availablemosteffectively.
Firmsthatfailtoplaceadequateemphasisonimplementingnecessarysystemsandcontrolsaremorevulnerable
tobeingusedtofurtherfinancialcrime.
Risksarisefromstepsnotbeingtakentopreventmoneylaunderingandbriberyandcorruption.During2015/16
wewillcontinuetofocusonbothantimoneylaundering(includingterroristfinancingandsanctions)andanti
briberyandcorruptionmeasures,asthesearetheareasinwhichweconsiderwecandeliverthemostvalue.
Wewillmaintainourfocusonfraudthataffectsconsumers.Firmsappeartohavestrongermechanismstoidentify
consumerfraud,thereforeweconsiderthatmoreregulatoryresourceswillbeneededtoimprovemoney
laundering,briberyandcorruption.
Concernhasbeenexpressedinternationallythatbanksareusingissuesaroundfinancialcrime,aswellasother
factorssuchasprofitability,tomoveawayfromprovidingservicestocertaingroupsofcustomersorbusiness
sectors.WewillworkwiththePrudentialRegulationAuthority,theFinancialStabilityBoardandregulatorsinother
countriestoanalyseand,whereappropriate,takeactiontoaddresstheseconcerns.Weareworkingwiththe
Treasuryandtheindustrytoemphasisethatariskbasedapproachmeanstheeffectivemanagementofriskrather
thansimplyriskavoidance.Atthesametime,wewillcontinuetochallengetheoftenpoorantimoneylaundering
systemsandcontrolsweseeinfirmsofallsizes.
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Market infrastructure
ThereisariskthattheintegrityandreputationoftheUKsmarketsbecomesdiminishedifconsumersandother
investorslackconfidencethatthosemarketsoperatefairlyandtransparently.Ifrealised,thisriskmaylead
investorsandparticipantstomovecapitalawayfromtheUKmarkets,whichwouldhaveanegativeimpactonthe
UKeconomyandcouldhavebroadconsequences.Thisneedforincreasedtransparencyacrossawiderrangeof
assetclassesandgreaterregulationoftradingvenueshasbeenrecognisedintherevisionsbeingmadetothe
MarketsinFinancialInstrumentsDirective(MiFID)andtheintroductionofdirectlyapplicableimplementingEU
regulations.
Inaddition,werecognisethevalueoftheworkgoingonataEuropeanleveltofacilitatefurthercompetition
betweentradingvenues.Whilethetransitiontonewmarketmodelsrepresentssomedisruptionandadditional
resourcerequirementsforfirms,webelievethepotentialforgreatercompetitionshouldbenefitUKconsumersof
financialservicesthroughthemhavingaccesstomoreliquidandtransparentservicesandultimatelylowercosts.
Asaresult,wewillremainheavilyengagedintheworktoinfluence,shapeandimplementtheregulatorychanges
inthisarea.
Prudential
WeprudentiallyregulatemorefirmsthananyotherregulatorybodyinEuropeandactivelymaintainaprogramme
ofprudentialassessmentforsignificantfirms.WewillcontinuetorollouttwokeyEUinitiativesthisyear:the
CapitalRequirementsDirective(CRDIV),whichweimplementedbyJanuary2014andwhichaffectsapproximately
960FCAsoloregulatedfirms,andtheRecoveryandResolutionDirective(RRD),whichaffectsapproximately200
firms.
AlthoughCRDIVprimarilyaddressescapitalandliquidityconcerns,italsocoversfirmssystemsandcontrols,good
governancearrangementsandeffectiveriskmanagementcapabilities(includingtheriskofmisconduct).
RRDrequiresfirmstoplanrecoveryandresolutionstrategiesintheeventoffinancialdistress,andforcesthemto
envisagethepossibilityoftheirwindingdown,contributingtominimisingthepotentialnegativeimpactsofthe
failureofthesefirmsonmarketsandontheircustomers.
Bothdirectivessupportourwiderconductagendawhilemitigatingarangeofprudentialrisks,resultinginchanges
tosomeofourprocessesandinteractionswithaffectedfirms.
Shadow banking
Shadowbankingisahighlydynamicandconstantlyevolvingpartoffinancialmarkets,respondingtothechanging
natureofbankregulationbutalsobroadermacroeconomicconditionssuchasalowinterestrateenvironmentand
abundantliquidity.
TheUS,theEuroarea,andtheUKhavethelargestshadowbankingsectorsintheworld.AccordingtotheIMF,in
theUK,forexample,shadowbankingassetsasashareofGDParemorethantwicethoseinanyotherarea.
Similarly,theshareofshadowbankingactivitiesintotalfinancialsystemassetsisgrowing.Bycontrast,theshare
ofbankassetsoftotalfinancialsystemassetsisdeclining.Thisdemonstrates,amongotherthings,theclose
connectionthatexistsbetweentheregulationofbanksandthegrowthofshadowbanking.
InternationalbodiessuchastheFinancialStabilityBoard(FSB)andtheInternationalMonetaryFund(IMF)
recognisetherearestillsubstantialgapsintheempiricaldatatodeterminesizeanddirectionoffinancial
transactions,includingissuesofinterconnectednesswiththebroaderfinancialsystem.
Muchofthecurrentinternationaldebateonshadowbankingisdrivenbysystemicriskconcerns.In2015/16we
willexplorefurtherbroadermarketdevelopmentsandissuesthataffectourconcernsmoregenerally,inparticular,
marketintegrity,competition,andretailfinance.
Domestic policy
Pension reforms
Lastyearweoutlinedarangeofrisksassociatedwithretirementincomeproducts,whichcouldleadtoproductsin
thisareadeliveringpoorvaluetoconsumers.Weconsiderthattheserisksremain,butourfocusisslightlyaltered
duetothedetailontheliberalisationofthepensionsmarketcomingtotheforeoverthepastyear.InApril2015
therewillbesignificantchangesmadetothepensionsmarket,withmorechoicebeingavailabletothoseagedover
55aboutthefinancialoptionstheyhaveavailabletothem.Wearemindfuloftherisksthatmayflowfrom
innovationandamarketplacethathasyettoreachmaturityintermsoftherangeofproductsandservices
available.Wewillmonitorthiscloselyoverthecomingyearandbeyond.
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Consumer credit
Lastyearwenotedthatthegrowthinconsumercreditcouldleadtounaffordabledebt.Thisriskremains,andwe
consideritwillcontinuetodosoforsometimeyet.Consumercreditremainsasignificantissueonthedomestic
policyagenda,asratesofborrowingincreaseandthefocusonconsumercreditremainsamongcommentatorsand
politiciansofallparties,asevidencedbytheworkoftheAllPartyParliamentaryGrouponDebtandPersonal
Finance.
WebecameresponsiblefortheregulationofconsumercreditinApril2014.Incomingyearswewillcontinueto
increaseourknowledgeandunderstandingofthisdiversesectorandtheparticularconductrisksthatitposes.
AllconsumercreditfirmswillneedtoapplytobecomefullyauthorisedbetweennowandApril2016.Asfirmsgo
throughtheauthorisationprocesswearegaininggreaterinsightintobusinessmodels,cultureandprocesses.
Authorisedfirmswillalsoreportdataaspartoftheirregulatoryresponsibilities,andthisinformationwillfeedinto
ourassessmentofrisk.
Wehaveidentifiedwhichrisksarecommonacrosstheconsumercreditsector.Inparticular,weconsiderthereto
beariskofpotentialharmtoconsumersarisingfrompoorpracticewhenassessingaffordabilitybeforeacredit
agreementisenteredinto,aswellasreassessmentsduringthelifetimeoftheagreement.Wewillbeundertaking
worktogainadeeperunderstandingofawiderangeofissues,includinghowfirmsassessaffordability,whichwill
helpustotakestepstomitigatetheriskswefind.
Inthisrelativelynewareaofregulatoryresponsibility,weareparticularlymindfulofthepotentialunintended
consequencesthatmayflowfromourinterventions.Levelsofconsumerborrowingarerisingrapidlyandany
regulatoryactionthatmayreduceaccesstoaparticularformofcreditcouldcauseconsumerstoseeksourcesof
creditthatmaybeunsuitablefortheirneeds,potentiallyintheunregulatedsector.Wewillcontinuetomonitor
theimpactofourinterventionsandconsiderthepotentialconsequences.Wemayalsoneedtobeflexibleandto
adjustourapproachifthereisanunforeseenimpact.
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Modestwagegrowthtogetherwithexcesscapacityandfallingcommoditypriceshascreatedanenvironmentof
subduedinflation.Thishassupportedaprolongedperiodoflowinterestrates,whichhascontinuedtosupport
indebtedhouseholdsandenabledthemtomaintainhighlevelsofdebt.Householdleverage(debttoincomeratio)
hasfallentolessthan145%fromapeakof170%.
Inthesecuredsector,creditconditionshaveeasedforborrowerswhomeetlenders(stricter)criteria,buthave
tightenedforthoseunabletomeetthesecriteria.Easingcreditconditionsinunsecuredcredithaveenabled
householddebtstogrowoverthelastyear,particularlyborrowingfromfirmsoutsidethemonetaryandfinancial
sector.Wewillcontinuetomonitorwhethergrowthinconsumercreditborrowingcouldbecomeunsustainableover
timeforsomehouseholds.
Thelowinterestrateenvironmenthassupportedassetpriceinflation,housepricesandstocksand,ifitwereto
continue,pressureontheprofitabilityofsomeregulatedfirms.Wecouldexpectthispressureonprofitabilityto
leadtomoreactivemanagementofbackbookstoextractvaluethatmaynotbeintheinterestofconsumers.
FallingoilandfoodpriceshavepushedUKinflationdown,providingaboosttoconsumerspendingpowerthatin
theshortrunwillboostGDP.Interestratesareexpectedtoincreasegraduallyoverthenexttwoyears,andwhen
oilpricesrecoveritcouldplaceupwardpressureoninflation.Wewillbemindfulthatagrowingeconomycouldlead
tointerestratesrisingmorequicklythanexpected,potentiallyplacingpressureonoverindebtedhouseholds.
Asratesstarttorise,assetpricescouldseesomeadjustment.Theresponseoffirmsandconsumerstothisperiod
ofadjustmentcouldalsoleadtoariskofpooroutcomes.Lastyearwenotedthathousepricesremainedelevated
andwebelievethiscontinuestohold.IntheyeartoDecember2014housepriceswereup10%ontheprevious
year,althoughthereremainsconcernthatpricegrowthmaynotbesustainableoverthelongterm.Whilehouse
pricesremainelevatedagainstearnings,therateofgrowthhasslowed.IndicationsfromtheBankofEnglandthat
anyincreaseinrateswillbegradualmaymitigatesomeoftheriskshere.Inaddition,policychangeshavebeen
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Witheconomicgrowthexpectedtocontinueintothemediumterm,therearealsopotentialriskstoconsider,which
areassociatedwithaperiodofsustainedrecovery.Themoveintoamoreoptimisticmindsetoffutureprospects
andreturnsmayplaytobehaviouralbiasesandleadtopoordecisionsbeingmadethatunderplaydownsiderisks.
Inaddition,therearechallengescreatedbytheperiodofadjustmentitself,asimprovementsintheeconomywill
affectfirmsandconsumersatdifferenttimesandindifferentwaysandthereforeaffecthowconsumersinteract
withfinancialservicesfirms.Finally,firmsandconsumerswillhavetoadjusttotherecoveredeconomy,which
evenafterrecoverymaynotlookthewayitdidbeforethecrisis.
Firmsoptimismcouldleadthemtopursueunrealisticstrategies,whileothersmayfindthatoldbusinessmodels
nolongerservethem.Forexample,theymaynotallowthemtocompetewithnewentrantsinsomeareasor
underwritingstandardsmaybecomemorerelaxedovertime,raisingtheriskprofileofborrowers.
Increasesininterestratescouldcreatemarketvolatility,asmarketsreassessrisksassociatedwiththeirpositions
inlessliquidmarkets.Thiscouldresultinvolatilityinbondpricesandexchangeratemovements.
Social factors
The ageing populating and older consumers
TheUKspopulationofover65yearoldsisgrowingandthistrendisexpectedtocontinueoverthelongtermas
lifeexpectancyincreases,duelargelytomedicaladvancesandpositivechangestolifestyle.Projectionsindicate
that24%oftheUKspopulationwillbe65andoverby2035,thefigurein2010was17%.Theincreaseinthose
aged85oroverispronounced,upfrom2%in2010,to5%ofthepopulationin2035.
Thepensionreformsaimtoincreaseconsumerchoiceandencouragesavingforretirement.Themajorityof
customershavehistoricallyhadminimalexperienceofmakingproactivedecisionsregardingretirementincome
andwhenfacedwithuncertaintyontheirlifeexpectancyandbehaviouralbiases,theymaynotmakedecisionsthat
areintheirbestlongterminterests.April2015willalsoseethecontinuedrolloutofautoenrolmenttoinclude
businesseswithfewerthan50employees,somorepeoplewillstartsavingforretirement.
Thepaceofmedicaladvancesandlifestylechangesmakesitincreasinglydifficultforconsumerstodeterminethe
mostappropriatelifeandpensionproductstomeettheirneeds,includingpotentiallyfundinglongtermcare.This
isevidencedbyourrecentmarketstudyintotheretirementincomemarket,whichfoundthatconsumerstendto
consistentlyunderestimatelongevity,aswellasinflationandinvestmentrisks.
Firmsmaydevelopdecumulationproductsorservicesthatcouldhighlightcertainproductfeaturesorthepriceat
theexpenseofotherimportantinformation,orbedifficulttocompareduetohiddencostsandfeesandinclude
barrierstoexiting.Thereisalsoariskthatthesecouldresultinincreasinglycomplexproductsoramixofproducts
thatrequireongoingservicingandpotentiallyhighercosts,whichsomefinancialadvisersmayrecommendinabid
togeneratehigherfees.Itmaybechallengingforpeoplewithdifferentdegreesofwealthatretirementtofind
productsthatsuittheirneeds.Thosewithsmallerfundswilllikelyhavefeweroptionsanditisimportantthat
consumersarenotdisadvantagedbythislackofchoice.
Weknowthattheannuitiesmarketisnotworkingwellformanyconsumers,andthattheproportionandnumber
ofpeoplewithdefinedcontributionschemesisrising,dueinparttothewithdrawalofdefinedbenefitschemesand
therolloutofautoenrolment.Thesefactorsincreasethepotentialtoamplifytherisksinthisareaasmorepeople
seektopurchaseannuitiesorotherfixedincomeproductsandrelyontheincometheyprovidefortheir
retirement.
RecentresearchindicatesthataroundtwoinfivepeopleintheUKarenotconfidentintheirabilitytomaintaina
comfortablelivingstandardinretirement,withasimilarproportionnotcurrentlysavingforretirement,orhaving
nointentiontodoso.Weconsideroneofthebiggestrisksinthisareatobepeoplenotbeingableto,orchoosing
notto,saveenoughtoprovidethemwiththelifestyletheyhopetohaveinretirement.
Consumersmayalsobeillpreparedforthecostoflongtermcareduetoalackinsavingscombinedwitha
contextoflowreturnsonsavings,ordecisionsmadeabouttheearlywithdrawaloftheirfunds.Financialfirmsmay
seektofillthisgapwithinnovativeproductsthatprovidefinanceforlongtermcareinoldage.However,long
termcareisusuallyadistresspurchaseandunsuitableadviceorunfairpricingcouldleadtosignificantdetriment
forthecustomer.
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Younger consumers
Attheotherendoftheagerange,thoseunder30arealsofacingincreasingfinancialpressuresandsignsofstress,
andmaybecomemorevulnerableincomingyears.
Astheseyoungerconsumersgetolder,theeffectsoftheirfinancialpositionintheirlateteensandtwentiesislikely
toaffecttheiruseoffinancialproductsandservices,sofirmswillneedtobereadytoadjusttheirofferings.For
example,ifthisagegrouptakestheirfirststepsonthepropertyladderatalateragethanthegenerationsabove
them,theirneedanduseoffinancialproductsuptothatpointandbeyondislikelytobeverydifferentfromthose
olderthanthem.Equally,ifyoungerconsumerscanaffordtobuyaproperty,theyarefacedwithlargemortgages
(potentiallyoveralongtermtoaidaffordability)andthismaymeantheyhandletheirfinancesdifferently.
Trendsinemploymentfortheyoungergenerationandexternalconditionsinthehousingmarketcombinedwith
someincreasingindicationofeconomicstresslevelsinthoseunder30mayhavecontributedtoyoungpeople
makingmoreuseofcreditanddebtproductstoservicetheirdaytodayliving.
Thereisariskthathighlevelsofdebtforyoungerconsumersareleadingtoknockonproblemslaterinlife,with
researchsuggestingasignificantnumberhadexperiencedarangeofdifficultiesincluding:obtainingcredit,
problemsgettingaphonecontract,troublegettingamortgage,anddifficultiesobtainingemployment.Asthe
financialconductauthoritywemustbemindfulofanyemergingpatternsofeconomicstressforyounger
consumersandestablishthefacts.
Althoughunemploymentamongyoungpeoplefell3.6%intheyeartoJanuary2015,itremainsatarelatively
higherlevelthanforothergroups.Realincomesforyoungadultsinemploymenthavealsofallensincethe
recessionduetoincreasedunderemploymentcombinedwithafallinhourlywages.Forexample,accordingtoone
study,medianhourlywagesfellby11%inrealtermsforemployeesaged2230between2007/8and2012/13,
andbyjust3%forthoseaged3159.In2012theOfficeforNationalStatisticsreportedthat36%ofrecent
graduateswereemployedinlowerskilledjobs,upfrom27%in2001,representingariseincyclicaldowngrading.
Thesefactorswillnotonlyaffectthefinancialsituationofyoungpeople,butmayalsoaffecttheirparentsfinancial
decisionmaking,andputpotentialincreasedstrainonhouseholdincomes.
Overthecomingyearmoreworkwillneedtobedonetoestablishthescaleofthetrendswehaveidentifiedamong
youngerconsumers,whethertheyarelongtermorcyclicalandthechallengestheyposeforourregulatory
objectives.Inparticularwewillexplorewhethertherangeofproductsandservicesonofferareappropriateto
meettheirneedsandwhetherthemarketisrespondingtoanytrendsthatappeartobeofamoremediumterm
nature.
Technological challenges
Weplacedasignificantfocusonthechallengesfacedbythefinancialservicessectoraroundtechnologylastyear,
andweconsiderthatthiswillremainforanumberofyearstocome.Whiletherisksarelikelytochangeinnature,
theoverarchingareaofriskwillcontinuetoneedtobeaddressed.Weworkwithfirmstostrengthenconsumer
protectionregardingtechnologicalrisks,anditisafactorweoftenhighlightinourmarketstudies.
Wefacethechallengeofbalancingthestepswetaketoreduceconductrisksrelatedtotechnology,whileensuring
thattheregulatoryregimesupportsthedevelopmentofinnovationsthatcanbringbenefitstoconsumers.Weare
committedtoensuringthatourruleskeeppacewithtechnology,whileacknowledgingthatthiswillbeachallenge.
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Cyber-crime
CybercrimerisksareincreasedbythecomplexityandageofITsystemsoperatedbysomefirms.Thesefactors
canmakeitmoredifficultforfirmstoembedeffectivesecuritymeasuresacrosstheirITsystems.
Marketexchangesandtradingvenuesarehighprofileexamples,butarenottheonlytargetsthatifexploited
couldsignificantlydisruptfinancialmarkets.Cyberexposure,includingcardfraudandfinancialcrime,is
exacerbatedbytheincreasedrelianceonwebbasedfrontendchannelsthatincreasetheriskofpersonaldataand
consumerfundsbeingcompromised.Thegrowinginterconnectednessoffirmsincreasestheriskofanimpacton
onehavingaknockoneffectonothers.
Separately,insurancefirmsarealreadyofferingcoverforcyberrisksandarecollectinglargevolumesofdata
abouttheircustomersthat,ifcompromised,couldprovideavaluablesourceofinformationtocyberattackers.It
isalsovitalthatthereisabsoluteclarityaboutwhatsuchpoliciesdoanddonotcover,andunderwhat
circumstancesitwillbepossibletoclaim.Theperpetratorsofcybercrimevaryfromnationstateswithapolitical
agenda,tohacktivists,tothosewishingtoexploitdataforprofit,andthisbreadthchallengesthetraditional
securitycontrolsthatareoftenused.
Market resilience
Therisksoninfrastructureresiliencearecloselylinkedtotheotherkeysareasofrisk.Poorconductmayarisefrom
inadequateinvestmentinthesystemsthatfirmsusetoundertake,monitorandcontrolbusinessinthewholesale
markets,orintheirfailuretohaverobustbusinesscontinuityplansinplace.Suchfailurescouldleadtoharmto
customers,andwewilltakeactiontominimisetheriskofthisoccurring.
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Our strategy
Introduction
InDecemberweannouncedanewstrategyfortheFCA.Thisisanevolutionofourregulatoryapproach,inlightof
newdevelopmentsinfinancialservicesandthecontinuedexpansionofourremit.Wewillbuildonthosethingswe
believeareeffectiveandintroduceimprovementswherethesewillhelpushaveagreaterimpactandachieve
bettervalueformoney.
Thelasttwoyearshaveseensignificantchangesinthescopeofourregulatoryresponsibilities(forexample,
regulatingconsumercredit),thenumberoffirmsweregulate(fromaround26,000toover70,000),andthe
economicandsocialcontextinwhichweoperate(forexample,thepensionslandscape).Torespondtothese
changesandensurewearetacklingtheriskswehaveidentified,wehavereviewedourprioritiesandwaysof
workingtoensurethatweareinthebestshapetodealwiththechallengeswefacethisyearandinfuture.
Ourcorestrategicobjectivehasremainedthesame:ensuringthattherelevantfinancialmarketsfunctionwell
butwerecognisedthatweneededadifferentapproachtoregulatesuchalargeanddiverseindustry.Whileour
scopehaschanged,ourresourcinghasremainedlargelyfixed,soweneedtousetheintelligencewehavetofocus
onkeypriorities,whileremainingflexibleenoughtorespondtoemergingissues.
Ourstrategynowplacesmoreemphasisonsectorandmarketwideanalysis.Thiswillputusinastrongerposition
toidentifyandaddresstherisksoutlinedintheRiskOutlookchapter.Wewillchangeourintelligenceanddata
analysisprocessestoformamoreconsistent,collectiveviewonkeymarketsandsectors,andaddresstheissues
theyidentifyinamorestrategicwaywithgreaterprioritisation.Thisprioritisationwillinformtheprogrammeof
workwesetoutinourbusinessplanseachyear.
Whenconsideringintervention,weaimtousethemostappropriatetoolinpursuitofourobjectives.Thiswillbe
proportionatetotheissueandcouldrangefromchangestoourHandbooktoenforcementaction.Wewill
intervenewherethemostsignificantissuesandriskstoourobjectiveshavearisenanduseourresourceswhere
wecanhavethegreatestimpact.Wewillbuildingreaterabilitytoadaptandreprioritisewherenecessaryandwill
clearlyexplainourrationaleforthesedecisions.
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Key priorities
Introduction
Ourstrategicobjectiveistoensurethattherelevantmarketsfunctionwell.Tosupportthis,wedeliverourwork
throughthreeoperationalobjectives:
Tosecureanappropriatedegreeofprotectionforconsumers
ToprotectandenhancetheintegrityoftheUKfinancialsystem
Topromoteeffectivecompetitionintheinterestsofconsumers
Wedecideouractivitiesfortheyearaheadbasedontherisksweseetoourobjectives.OurannualBusinessPlan
setsoutwhattheseareandhowwewillintegratenewresponsibilities,improveoursystems,developourpeople
andensurethatourprioritiesarefocusedonachievingourobjectives.
During2015/16ourprioritieswillcoverthefollowingkeyareas,alongsideourbusinessasusualactivities.Inline
withourstrategy,wewillalsoensureweareabletorespondflexiblytoemergingissues.
Astrategicmarketsledapproachtoregulation
Marketfocusedworkprogramme
Wholesalemarketintegrity
Competition
Protectingconsumers
Pensionsandanageingpopulation
Consumercredit
Individualaccountability
Changingculture
Seniormanagersandcertifiedpersonsregimes
Remunerationcodes
Enforcementactionagainstindividuals
Whistleblowing
Internationalissues
Internationalengagement
ImplementingEUpolicy
Financialcrime
Ourpeople
Diversityandinclusion
Investinginourstaff
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Retail investments
Wewillcontinueourreviewofduediligenceoffinancialadvisersandwillcompleteourworktoidentifyrisksinthe
wayfirmsoffercontractsfordifferenceproductsandmitigateanyrisksfound.
InducementsandconflictsofinterestFollowingourpublishedguidanceoninducementsandconflictsof
interestrelatingtoretailinvestmentadvice(January2014),wewillassessfirmspracticesinthisarea.Our
assessmentwillinformourconsultationonHandbookchangesneededtoimplementMiFIDIIIncludingchanges
tostrengthentheinducementsrules.
Emergingdistributionmodels(nonadvisedsales)Wewillundertakeamarketstudyintononadvisedsales
ofinvestmentandprotectionproducts.Wewanttoseehowconsumersbehavewhentheyaremakingtheirown
investmentdecisionsandhowfirmssupportconsumersinchoosingproductsthataresuitablefortheir
circumstances.
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Wholesale banking
Ourreviewofcontrolsoverflowsofinformationininvestmentbankswillbecompletedthisyear,aswillour
assessmentofwhetherfirmshaveembeddedappropriateprocessesandcontrolsaroundbenchmarks.Wehave
beenconsideringtherisksarounddarkpoolsandwillalsocontinuetoincreaseourknowledgeoftheconflictsof
interestthatmaybeinherentintheoperationofdarkpoolsandexplorehowfirmsaremanagingthem.
InvestmentandcorporatebankingInFebruary2015,weannouncedthatwewillundertakeamarketstudy
toinvestigatecompetitionintheinvestmentandcorporatebankingsector.Wewilllaunchthisstudyinspring2015
andthetermsofreferencewillsetoutthescopeinmoredetail.
Investment management
Weareassessingimprovementsinsuitabilitystandardsacrosswealthmanagement.
AssetmanagementWewilllaunchamarketstudyonassetmanagementin2015/16.Wewilldevelopthefull
scopeduring2015/16,buttheissueswewillexaminewillincludethechargespaidbyinvestors,andthefactors
thatdrivethosecharges.Thesewillbesetoutinatermsofreferencedocumentthatwillbepublishedwhenthe
studyisformallylaunched.
PostauthorisationreviewoffundsWewillreviewwhethernewUKauthorisedinvestmentfundsand
segregatedmandatesareoperatedinlinewithourrulesincludingalldocumentation,marketingmaterial,
disclosurematerialorinvestmentmandates.Wewillalsoconsidercompliancewithotherresponsibilitiesto
investorssuchasadherencetoriskmanagementparameters.
Retail banking
Inthissector,weplantocompleteourreviewofunauthorisedtransactions,toensurethatfirmsarenotplacing
unreasonableobstaclesorresponsibilitiesontheircustomers,orunfairlyrejectingclaimsandourreviewof
packagedbankaccountstoassesshowbankshaveimplementedourrules.
WewillcontinuetoworkwiththeCompetitionandMarketsAuthorityasitprogressesitsinquiryintoretailbanking.
Retail lending
ThisyearwewillimplementtheMortgageCreditDirective,particularlyaffectingprovidersofsecondchargeand
consumerbuytoletmortgageproducts.Wewillcompleteourcreditcardsmarketstudyandconcludeourreview
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Benchmarks
InApril2013,webecameresponsiblefortheregulationandsupervisionoftheLondonInterbankOfferedRate
(LIBOR),followinganumberoffinesforseriousmisconductrelatingtoLIBOR.
TheFairandEffectiveMarketsReviewrecommendsalistofadditionalmajorbenchmarksacrosstheFixedIncome,
CurrencyandCommodity(FICC)marketstobebroughtintheregulatoryframework.
InDecember2014,theGovernmentconfirmedthesevenadditionalbenchmarkswouldbe:
SterlingOvernightIndexAverage(SONIA)
RepurchaseOvernightIndexAverage(RONIA)
ISDAFIX(soontoberenamedICESwapRate)
WM/Reuters(WMR)London4pmClosingSpotRate
LondonGoldFixing(soontobereplacedbytheLBMAGoldPrice)
LBMASilverPrice
ICEBrentIndex
InMarch2015,wepublishedourframeworkforregulatingandsupervisingtheseadditionalsevenbenchmarks,
whichwillbebroughtintoscopeonApril2015.Wehaveadaptedtheexistingregulatoryregime(MAR8)tobe
applicabletothesedifferentbenchmarks,souserscanbeconfidenttheyarerobust.
Weareworkingcloselywiththesefirmstoundertakesignificantevolutionintheirmethodologies.Someofourkey
requirementsoffirmsincludeidentifyingpotentiallymanipulativebehaviour,managingconflictsofinterest,and
implementingrobustgovernanceandoversightarrangements.
Wewillalsocontinuetocontributetointernationalbenchmarkreform,focusingontheFinancialStabilityBoards
(FSB)reviewsofinterbankinterestratebenchmarksandFXbenchmarks.IntheEU,wewillcontinuetoprovide
supporttotheTreasury,whichrepresentstheUKintheEuropeanbenchmarkregulationnegotiations.
AsperFSBrecommendations,weareencouragingtheLIBORadministratortocontinueevolvingLIBORinlinewith
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Competition
Effectivecompetitionisapowerfulwaytoachievebenefitsforconsumers,whichincludebettervalue,genuine
choice,qualityproductsandservices,andusefulinnovationinfinancialservices.Withoutit,newfirmsmayfindit
difficulttoentercertainmarkets,incumbentshavefewerincentivestoofferbetterdealsandservices,and
consumersmightnotbeabletocompareoptionsandchoosetheproductsandservicesthatarerightforthem.
Wewillconsiderpotentialcompetitionissuesaswedesignandimplementourpoliciesandregulatoryapproach,
andwewillengagewitharangeofstakeholderstoraisetheirawarenessandunderstandingofourcompetition
mandate,whileatthesametimeimprovingtheintelligenceweholdoncompetitioninthemarket.
Concurrency powers
On1April2015ourcurrentregulatorytoolkitwillextendtoincludepowerstoenforceagainstunlawfulanti
competitivebehaviourinthefinancialservicesindustry.Thesecompetitionfunctionswillbedischargedin
concurrencywiththeCompetitionandMarketsAuthority(CMA).
Unlawfulanticompetitivebehaviourscoveragreementsbetweenfirmstoprevent,restrictordistortcompetition
(suchasdirectlyorindirectlyfixingpricesorothersellingconditions,oragreementstolimitorcontrolproduction),
andabusesofadominantpositioninthemarket(suchasexploitingcustomersorsuppliers,orconductexcluding
existingorpotentialcompetitors).
Wewillenforcetheserulesincoordinationwithotherregulators,particularlytheCMA,andwilljointlydecidewhich
organisationisbestsuitedtodealwiththeproblemidentified.Tothisend,wehavesignedaMemorandumof
UnderstandingwiththeCMAthatoutlinestheareasofcoordinationandprovidesaframeworkforcooperation.In
2015/16wewillbeimplementingtheseproposedchanges
ThesecompetitionpowersmayalsobeexercisedbytheCMAwithregardtofinancialservicesandothersectorsof
theeconomy.Thismeansthat,inrespectofenforcingagainstunlawfulanticompetitivebehaviourinfinancial
services,theCMAandtheFCAwillhaveconcurrentpowersandtheFCAwillbeaconcurrentregulator
Supporting innovation
Innovationsoftendriveeffectivecompetitioninmarkets.In2014,welaunchedProjectInnovatetoensurethatour
regulatoryregimesupportsthedevelopmentofpositive,innovativeproductsandservicesthatcanimprovethe
livesofconsumers.
OverthenextyearwewilluseourInnovationHubtocontinuetooffersupporttoinnovatorsacrossarangeof
sectors.Wewillalsocontinuetoidentifyregulatorybarrierstoinnovationandworktoresolvethese,either
throughpolicyorprocesschanges.
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Protecting consumers
Itispartofourjobtoprotectconsumersfromtheharmthatcanbecausedbybadconductinthefinancial
servicesindustry.ThisaffectsmostpeopleintheUK,butoverthecomingyearwewillfocusparticularlyon
examiningyouthindebtedness,andtheolderpopulation,whowillbeaffectedbythechangeshappeningin
pensionslegislation.
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Pensions fraud
Thereisariskthatfraudstersmightattempttocapitaliseonthepensionreforms.Wewillcontinuetoactively
monitorthisareaandworkcloselywithotherorganisations.OurScamSmartcampaign,whichwaslaunchedin
October2014,withasecondphasefromMarch2015,willcontinuetohelpconsumerstospotthewarningsigns
andavoidinvestmentscams,includingthoserelatedtopensions.
Consumer credit
WetookontheregulationofconsumercreditfromtheOfficeofFairTrading(OFT)on1April2014.Successfully
integratingthesefirmsintoourregimeandhelpingthemtomeettheirregulatoryresponsibilitiesremainsakey
priorityforustoincreasestandards,restorepublicfaith,andultimatelycontributetoandupholdarobustUK
financialmarket.
Wewanttoensurethatthereisasustainablecreditmarketwhereconsumerscontinuetohaveaccesstothe
productsandservicestheyneed,whileprotectingthemfromharmfulpracticesthatcouldleadtoproblemssuchas
spirallingdebtthattheystruggletorepay,orinappropriatedebtmanagementplans.
Changes to rules
WewillreviewwhetherweneedtomakefurtherchangestoourConsumerCreditsourcebook(CONC),toaddress
existingandemergingissues.Wewillengagewithfirms,tradebodiesandotherregulatorybodiestoensurewe
understandthewaythemarketandtheregulatoryregimeareworkingforbothfirmsandconsumers.
WepublishedaconsultationpaperinFebruaryoncreditbrokerremuneration,includingissuessuchasguarantor
loans,buildingonchangesintroducedearlierthisyeartoimprovetransparency.Wearealsolookingintohowfirms
assesscreditworthinessandaffordability,includinghowconsumersmaybeprotectedfromtakingon
unmanageabledebt.Thisincludeslookinginparticularatissuesaroundmultipleandrepeatborrowing.Subjectto
thefindings,weintendtoconsultlaterin2015onchangestoourrulesoncreditworthiness,toclarifyour
expectationsoffirms.Weseethisasakeyelementofresponsiblelending.
Weareplanningtoconsultonproposalsinrelationtocoldcalling,asunsolicitedmarketingmaybecausing
significantdistresstoconsumers.Wealsowanttolookattheuseofquotationsearches,whichwillenable
consumerstoshoparoundforcreditwithouttheircreditrecordbecomingundulyimpaired.
Ourrulesonhighcostshorttermcreditwillalsobestrengthenedtopromotegreatercompetitioninlightofthe
remediesproposedbytheCompetitionandMarketAuthorityspaydaylendingmarketinvestigation.
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Individual accountability
Todriveaculturalchangeintheindustrythatputsconsumersandmarketintegrityattheheartofthewayfirms
dobusiness,wemustensurethatseniorindividualsinpositionsofresponsibilityareheldpersonallyaccountable
forhowtheirfirmoperates,andfortheconsequencesofmisconduct.
Overthecomingyearwewillcontinuetofocusonthis,aswellasremunerationpracticesandincentivesin
financialservicesfirms.Ourworkinthisareawillalsoseeuscontinuetoimplementrecommendationsmadeby
theParliamentaryCommissiononBankingStandards(PCBS).
Changing culture
Afirmscultureisakeydriverbehindthebehaviourofthoseinit.Inmanycases,wherethingshavegonewrong
inafirm,aculturalissueisattheheartoftheproblem.
Aneffectivecultureisonethatsupportsabusinessmodelandbusinesspracticesthathavethefairtreatmentof
customersandclientsattheircore,aswellasbehavioursthataresupportiveofmarketintegrity.Creatingsucha
culturebeginsatthetop,andwewillcontinuetoworkwithfirmstoensurethatconductissuesareapriorityfor
themandakeyissueontheirboardsagendas.
Wewilllookathowaboardengagesinconductissues,includingforexample,whetheritprobeshighreturn
productsorbusinesslines,whetheritunderstandsstrategiesforcrosssellingproducts,howgrowthisobtained,
andwhetherproductsarebeingsoldtothecustomersegmentstheyaredesignedfor.
Wewillalsoensurethatfirmsaretranslatingthiscustomerfocusintopracticesthatdrivehowbusinessdecisions
aremade,howthefirmrespondstoconsumerrelatedissuesandproblemsastheyarise,howindividualsshould
behave,howissuesareescalatedinanopenway,andhowremunerationandincentivesareawarded.
Remuneration codes
Performancemanagement,andrewardschemesareapowerfullevertoinfluencethecultureofanyorganisation.
Wehaveseeninfinancialserviceshowthemisalignmentbetweenincentivesstructuresandcorporatevaluescan
leadtoexcessiverisktakingthatisnotintheinterestsofcustomersormarketintegrity.
Inappropriateremunerationpolicieswerewidelyidentifiedasacontributoryfactorbehindthefinancialcrisis,and
arealsohighlightedinthePCBSrecommendationsandtheGovernmentsFairandEffectiveMarketsReview.We
introducedcodesthatmakefundamentalchangesinfirmsapproachestoremunerationtohelpavoidfuturecrises.
Thereisalsobroadinternationalagreementontheneedforsupervisoryaction.
Ourremitonremunerationistomakesurethatpaypracticesinthefirmsweregulatedonotencourage
inappropriaterisktakingandthatvariableremunerationisonlypaidorallowedtovestwherejustifiedby
performance.
Thesecodesapplytoover3,000firmsincludingallbanks,buildingsocieties,largealternativeinvestmentfund
managers,brokerdealers,assetmanagers,plussomefirmsthatengageinportfoliomanagement,corporate
finance,privateequity,venturecapital,andtheprovisionoffinancialadvice,brokers,multilateraltradingfacilities
andothers.
Theregulationofvariableremunerationremainsarapidlyevolvingarea,andwewillcontinuetoplayakeyrolein
drivingthis,includingbymakingfinalrulesondeferralandclawbacktofollowourconsultationlastyear.
Whistleblowing
Whistleblowerscanplayanimportantroleinidentifyingwrongdoingbuttheymaybefearfulofpersonal
repercussions.Weconsultedonanewregimedesignedtohelpfirmsfosteraculturethatgivestheiremployees
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International issues
ManyoftherulesthatweimplementintheUKoriginatefromEUandinternationalagendas.Thefinancialindustry
isagloballyconnectedsystemwesawinthefinancialcrisishowissuesinoneareacanhaveahugeimpact
elsewheresoitisvitalthatweworktogethertoensurethatthemarkets,andultimatelyconsumers,aresafe.
International engagement
Alargenumberoftherulesweimplementoriginatefrombroaderinternationaldebate.Itisthereforeofgreat
importancethatwemaintainconsistentandeffectiverelationshipsinternationallybeyondtheEUtoinfluencethese
decisionsastheyaremade.
Assuchwewillengageininternationaldebatesandrulemaking,toensurethatstandardsset(onconsumer
protection,marketintegrityandprudentialmatterswithinourscope)areconsistentwithourobjectives.Indoing
so,wewillcoordinatewiththePrudentialRegulationAuthority,theBankofEngland,theTreasuryandother
Governmentdepartments.InparticularwewillremainanactivememberoftheInternationalOrganisationof
SecuritiesCommissions(IOSCO)andtheFinancialStabilityBoard(FSB).
Wherepossible,wewilluseourrelationshipswithkeystakeholdersaroundtheglobetoshareinformation,ideas
andgoodpracticetofindthebestsolutions.Wewillcooperateonsupervisoryandenforcementmattersandthe
developmentofinternationalstandards.InJune2015wewillhostsecuritiesregulatorsfromacrosstheworldat
the40thIOSCOAnnualConferenceinLondon.
Wewillalsocontinuetoengageearlyindebates,takingtheleadinnegotiatingwhereappropriateanddrafting
standards,andrecommendingareaswhereEUorinternationallevelruleswouldbemostappropriate.
OursecondmentprogrammetoEUandglobalinstitutionswillcontinuetohelpourstafftodeveloptheirskills,
sharetheirknowledgeandexperience,andbringthisexperiencebacktotheFCA.
Implementing EU policy
TherearealargenumberofpiecesofEuropeanlegislationthatwillaffectouractivities.Inmanycasesweare
underalegalobligationtoimplementthislegislation.Wealsopropose,consultandimplementdomesticchanges
torules.
ForEuropeanlegislation,toensuretheintentofthelegislationisachieved,isconsistentwithourobjectivesandis
fitfortheUKmarket,wewillbeworkingcloselywithourEuropeancounterpartsandtheESAsthemselveson
draftingandnegotiatingthesebindingrules.Ofparticularimportancewillbethetechnicalstandardsdevelopedin
MiFIR/MiFID,MarketAbuseRegulation(MAR/MAD),CapitalRequirementsRegulationandDirective(CRDIV/CRR)
andPackagedRetailandInsuranceBasedInvestmentProducts(PRIIPs).
Anumberofexistingproposalsremaintobenegotiated.OfthesetheBenchmarkRegulation,PaymentServices
Directive2(PSD2),InsuranceMediationDirective2(IMD2)andFourthAntiMoneyLaunderingDirective(AMLD)
arethemostsignificantforus.OurprincipalrolehereistoprovidetechnicalassistancetotheTreasurywhoare
theUKsleadnegotiatorsinEurope.
TheBenchmarkRegulationwillcreateacommonregulatoryframeworkfortheoperation,organisationand
oversightofthosewhoadministerandsubmittobenchmarksandindicesacrossEurope.PSD2willsetthe
frameworkandrequirementsforpaymentservicesandpaymentservicesprovidersandwillincludenewconsumer
protectionrulesandincreasedsecurityrequirements.IMD2willupdatetheEUconductstandardsandfirms
registrationregimeforsaleofinsuranceandreinsuranceproducts.AMLDwillstrengthentheEUantimoney
launderingregimeincludingrulesonremunerationpolicyandsanctions.
Financial crime
FightingfinancialcrimeisanissueofgreatinternationalsignificanceandhasbeenatoppoliticalpriorityoftheUK
andtheEUforanumberofyears.Thishasanimpactonthefightagainstorganisedcrimegenerally,asby
removingorganisedcriminalsaccesstomoneywecansignificantlyreducethepowerofcriminalgroups.
FirmsplayakeyroleintheUKsfightagainstfinancialcrime,andweexpectthemtohaveeffective,proportionate
andriskbasedsystemsandcontrolsinplacetoensuretheirbusinesscannotbeusedforfinancialcrime.
Atthesametime,weexpectthemtoavoidbroaddecisionstoderisktheirbooksofentirecategoriesofcustomers
bydenyingorwithdrawingtheirservicestoparticularsectorsand/orcategoriesofcustomer,inwaysthatmaybe
anticompetitiveorimpedelegitimateconsumersaccesstofinancialservices.Wewillcontinuetoworkonthis
issue,emphasisingthatariskbasedapproachtosectorsandconsumersisnotsimplyriskavoidance,butrequires
riskjudgements.Wewillanalyseand,whereappropriate,takeactiontoaddressanyconcerns.
Wewillcontinuetofocusparticularlyonantimoneylaundering(AML)andantibriberyandcorruption(ABC).We
areimplementinganenhancedantimoneylaunderingsupervisionstrategy,whichincludescontinuingour
SystematicAntiMoneyLaunderingProgrammetoassessAML(includingcounterterroristfinancingandsanctions)
andABCcontrolsatmajorfirms.Wewillalsocontinueourvisitstosmallerfirmsthatmaybeexposedtoahigh
riskofbeingexposedtofinancialcrime.Inaddition,ourthematicworkwillhelpustoassesshowtheindustryis
dealingwithparticularrisksrelatingtofinancialcrimeandtogiveadvicetotheindustryabouthowcontrolscanbe
mademoreeffective.
WewillworkcloselywithinternationalanddomesticpartnersinGovernment,lawenforcement,regulationandthe
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Our people
Demandfortheknowledgeandskillsrequiredtomanagegoodconductisgrowinginthefinancialservicessector,
andasaresultourpeopleareinhighdemand.Weareactivelybuildingourabilitytoattractandretaintalentand
haveachieveda97%offeracceptancerateand43,000followersonLinkedIn.
WewillalsocontinuetowidenoursecondmentandgraduateprogrammesbothintheUKandinternationally.Last
yearwesupported171secondments,106graduatesandweestablished87exchangeswithconsumeragencies,
regulatedandprofessionalservicefirms.Thisisanimportantwayofprovidingourpeoplewithcurrentconsumer
andcommercialinsightsandgivingfirmsanopportunitytoembedourperspectiveofgoodconductintotheir
organisation.
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Supervising firms
Wesupervisetheconductofabout73,000financialservicesfirmsoperatingintheUK,andweprudentially
supervisethosethatarenotcoveredbythePrudentialRegulationAuthority(PRA).
Welookcloselyatfirmsbusinessmodelsandcultureanduseourjudgementtoassesswhethertheyaresound
androbust.Wefocusonthebigissuesandthecausesofproblems,aswellasensuringthatthereareaccountable
individualsinthefirmifthingsgowrong.Wehavetobeconfidentthatifproblemsdoarise,firmswillbeabletodo
therightthingfortheircustomersandmarkets.Wherewefindpoorpracticeweuseoursupervisoryand
enforcementtoolstodeterothers,mitigaterisksandsecureredressforconsumerswherenecessary.
Oursupervisoryapproachisbasedonanumberofconsumerandmarketfocusedprinciples.Asaregulatorwe
wanttobeforwardlookingandpreemptive,usingourjudgementsratherthanrelyingwhollyonprocesstoseek
outproblems.
Wedonotdothisinisolation.Weengageopenlywiththefirmsandindividualsweregulate,beingastransparent
aswecanbeandlisteningthroughourconsultations,firmvisitsandevents.Wearealsojoinedupinourwork
whereitaffectsotherregulators,suchasthePrudentialRegulationAuthorityandtheBankofEngland.
Followingourstrategicreview,oursupervisionmodelmaybesubjecttosomechanges,especiallyforsmaller
firms.Wewillfurthershiftourapproachtosupervisionforthesefirms,byremovingthedistinctionbetweenC3and
C4,supervisingindividualfirmsonamoreriskbasedmodel,andremovingsomeofourstandardPillar1activity.
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Enforcement
Wewillcontinuetopursueastrategyofcredibledeterrence,takingtoughandmeaningfulactionagainstthefirms
andindividualswhobreakourrules,reinforcingproperstandardsofmarketconductandensuringthatfirmsput
consumersattheheartoftheirbusinesses.Wedothisbypromotinghighstandardsofconductbyindividualsin
firmsandtakingactionagainstthosewhodonotmeetthembyusingthefullrangeofourcriminal,civil,and
regulatorypowers.Wherewefindsignificantissuesweinterveneearlyandseekeffectiveredressforconsumers
whereappropriate.
Over2015/16wewillcontinuetoinformandeducatemembersofthepublicaboutthedangersofdealingwith
unauthorisedfirmsandtakeactionagainstfirmsandindividualsoperatingoutsidetheperimeterinordertoprotect
consumers.Wewillalsoreinforceourexpectationsofwholesalemarketsbytakingactionwherefirmsfailto
manageriskseffectivelyorobserveproperstandardsofmarketconductandcontinuetodeliversignificant
outcomesfollowingintensiveworkontheattemptedmanipulationofthebenchmarkrates.Wewillcontinueto
workverycloselywithourdomesticandinternationalregulatorycolleaguesandlawenforcementagencies.
On18December2014,theTreasurypublisheditsreviewofenforcementdecisionmakingattheFCAand
PrudentialRegulationAuthorityandmade39recommendationsacrosstheentireenforcementprocess.In2015/16
wewillalsoconsiderhowbesttoimplementtheFCArelatedrecommendations.
FromApril2015wewillhaveconcurrentpowerswiththeCompetitionandMarketsAuthority(CMA)toenforce
certaincontraventionsofcompetitionlawinthefinancialservicessector.Wewillconsiderhowtousethesenew
powersinconjunctionwithourexistingtoolkittohelpusachieveourobjectivestopromotecompetitioninthe
interestsofconsumersandensurerelevantmarketsfunctionwell.
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Developing policy
Whenwemakepolicywesetoutwhatweexpectfromauthorisedpersonsandothermarketparticipants,focusing
inparticularonchangingbehaviourinfinancialmarkets.Weconsultpubliclywiththeindustry,consumersand
otherinterestedpartiesonourrulesandguidancebeforetheyarepublished.
Theevidenceandanalysisbehindourproposalslooksattheexpectedcostsandbenefits,andhowtheproposals
arecompatiblewithourstatutoryobjectives,generaldutiesandregulatoryprinciples.Wealsoconsidertheeffects
ofrulechangesonthedifferentcategoriesoftheorganisationsandactivitiesweregulate.
Wemakeourpoliciesbyfollowingtheseprinciples:
Prioritisingourpolicyactivitiessothattheyaretargetedwheretheycanmakethemostdifference.
Makingnewrulesandguidanceonlyifwethinktheywillbeeffectiveatdealingwithandproportionatetothe
problemwehaveidentified.
PlanningourinitiativessotheyalignwiththeEuropeanandinternationaltimetable.Forexample,thismay
meandelayingpolicyuntilthereisaEuropeaninitiative.Wemaywanttocarryoutapostimplementation
revieworpolicyresearchintimetoinfluenceinternationalinitiatives,includingplannedreviewsofEuropean
Directives.
How we operate
Working with stakeholders and other UK bodies
WeworkincollaborationwiththeUKGovernment,anumberofotherUKregulatorybodiesandawiderangeof
stakeholders.
WehaveastatutoryMemorandumofUnderstandingwiththePrudentialRegulationAuthority(PRA)thatsetsout
clearresponsibilitiesforeachregulatoragainstwhichweregularlymonitorperformance,includingquarterlyjoint
reviewsbytheCEOs.WewillcontinuetocoordinateandcooperatewiththePRAacrossallrelevantactivities,
whichweactivelyandjointlyoversee.
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Outcomes
Consumershave
accesstofair
Consumerscan
beconfident
productsand
services,which
thatfirmstreat
themfairlyand
deliverwhatthey fixproblems
promise
promptly
Fairproducts
Outcomes
indicators
andservices
Improved
consumer
experience
Buildingtrust
and
engagement
Effective
remedies
Promoting effective
competition in the
interests of consumers
Firmscompete
Consumerscan
Competition onclearcosts
trustfirmstobe
contributes and
fitandproper
toimproved consumers
andforfinancial
consumer
havethe
marketstobe
outcomes
information
clean
theyneed
Valuefor
money
products
and
services
Arespected
regulatory
systemthat
letsgood
firmsknow
wherethey
stand
Competitive
Cleanregulated
Attractiveness
markets
markets
ofmarket
Getting
Clearand
better
service
useful
information
Lowfinancial
crime
Respected,
joinedup
regulation
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Operating costs
OurbudgetforourOngoingRegulatoryActivity(ORA)fortheyearis479m,anincreaseof27m(6%)drivenby
investmentinourpeopleandinourinformationsystems.
WewillincreaseourORAfundedheadcounttoabout3,060FTEtohelpusdeliverourcompetitionobjective,
undertakemoreenforcementactivitytocombatmarketabuseandunauthorisedbusiness,andenhanceour
supervisorymodelforbenchmarks.WewillalsoinvestinProjectInnovate,ournewinitiativetoensurethe
regulatoryenvironmentissupportinginnovationinthemarket.
Itisvitalthatweattractandretaintherightpeopletoachieveourobjectives.Inparticular,wewillcontinueto
investintheFCAAcademytooffercontinuous,relevanttraininganddevelopmenttoourpeople.
Thiswillbesupportedbyourongoingworktoupgradeandimproveourinformationsystems(IS)andtechnology
platformtoensurethatoursystemsefficientlysupportourkeyregulatoryfunctions.
2014/15 m
2015/16 m
Staffcosts
263.8
279.9
IScosts
88.2
95.2
Depreciation
42.5
47.3
Accommodationandofficeservices
30.6
30.5
Enforcementcasecosts
11.0
10.7
Professionalfees
18.1
17.6
Training,recruitment,travel
12.8
16.2
Printingandpublications
3.6
3.9
Othercosts
4.6
3.1
Sundryincome
(23.2)
(25.6)
Total
452.0
479.0
Capital expenditure
OurcapitalexpenditurebudgetreflectstheongoingdeliveryoftheInformationSystemsInvestmentProgramme
(ISIP)andINTACTsystemforinteractingwithfirms(INTelligentApplicationofCasemanagementTechnology)as
wellasimplementingthenewMarketsinFinancialInstrumentsDirective(MiFID)andRegulation(MiFIR).
Capital expenditure
2014/15 m
2015/16 m
ITsystemsdevelopment
21.7
19.6
ITinfrastructure
22.6
21.0
Property,plant,equipment
2.2
3.9
Totalcapital
46.5
44.5
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Movement
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2014/15 m
2015/16 m
ORAbudget
452.0
479.0
27.0
6.0%
Recoveryofscopechangeactivities
4.4
2.6
(1.8)
(40.9%)
Underspend
(10.0)
(0.0)
10.0
(100.0%)
TotalAFR
446.4
481.6
35.2
7.9%
FinancialPenaltyRebate
(39.1)
(40.3)
(1.2)
3.2%
Feespayable
407.3
441.3
33.9
8.3%
Less:
Consumer credit
In2015/16weplantoincreaseconsumercreditheadcountto500FTEandincur43mcostsdrivenbyauthorising
firmsundertheconsumercreditregime(16massociatedprojectcostsincurredin2013/14).Consumercredit
firmswillnotbebilledinfullfortheannualcostsofregulatingconsumercredituntil2016/17.Thesecostsarenot
includedinourORAbudgetorAFRin2015/16.Thecostsareinsteadringfencedsothattheydonotflowthrough
tofeepayersuntiltheconsumercreditregimeisfullyoperationalin2016/17.
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Annexes
Annex 1 - Current and planned market studies and thematic work
Annex 2 - Current EU initiatives
Annex 3 - FCA organisation chart
Footnotes
1PractitionerPanel,MarketsPractitionerPanel,SmallerBusinessPractitionerPanel,andConsumerPanel
2BankofEngland,TableA5.6,March2015
http://www.bankofengland.co.uk/statistics/pages/bankstats/current/default.aspx
3OECDMarch2015http://www.oecd.org/economy/outlook/economicoutlook.htm
4OfficeforBudgetResponsibilityMarch2015
http://cdn.budgetresponsibility.independent.gov.uk/March2015EFO_1803webv1.pdf
5ONSNovember2014http://www.ons.gov.uk/ons/rel/ashe/annualsurveyofhoursandearnings/2014
provisionalresults/stbashestatisticalbulletin2014.html
6DepartmentforCommunitiesandLocalGovernmentFebruary2015
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/404996/House_Building_Release_
_Dec_Qtr_2014.pdf
7ONS2012http://www.ons.gov.uk/ons/dcp171776_258607.pdf
8FCA2014http://www.fca.org.uk/news/marketstudies/retirementincomemarketstudy
9ThePensionsRegulator2015http://www.thepensionsregulator.gov.uk/press/pn1507.aspx
10HSBCTheFutureorRetirement,AbalancingactUKReportJanuary2015
11TheMoneyAdviceService(2013)SegmentingtheoverindebtedpopulationoftheUK
12HouseofCommonsLibraryMarch2015http://www.parliament.uk/business/publications/research/briefing
papers/SN05871/youthunemploymentstatistics
13ONS2015http://www.ons.gov.uk/ons/taxonomy/index.html?nscl=Unemployment+by+Age#tabdatatables
14IFS(2014)LivingStandards,PovertyandInequalityintheUK
15TheReviewisbeingledbyBankofEnglandDeputyGovernorforMarketsandBanking,MinoucheShafik,and
cochairedbyMartinWheatleytheFCAsCEOandCharlesRoxburgh,DirectorGeneral,FinancialServices,HM
Treasury.
16ThesecompetitionpowersmayalsobeexercisedbytheCMAwithregardtofinancialservicesandothersectors
oftheeconomy.Thismeansthat,inrespectofenforcingagainstunlawfulanticompetitivebehaviourinfinancial
services,theCMAandtheFCAwillhaveconcurrentpowersandtheFCAwillbeaconcurrentregulator
17Thethresholdconditions,whicharethestandardsagainstwhichweassessfirms,aresetoutinFSMA,Financial
ServicesandMarketsAct2000
18https://www.fca.org.uk/about/operate/principles
Copyright2015FCA.AllRightsReserved.
19StrengtheningpersonalaccountabilitywasoneofthemainrecommendationsmadebytheParliamentary
CommissiononBankingStandards(PCBS)
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