The new world, regulating for growth, not risk

However, it is some of the recent comments by senior FCA individuals that indicate a change in the rhetoric. This change is being instigated by the Government and their growth agenda on the basis that there is a concern that for too long regulators “have regulated for risk rather than growth”. There also seems to be a desire to streamline the regulatory framework further with the Payment Services Regulator being abolished and largely consolidated into the FCA. The press release in February from 10 Downing Street was very much to the point: “Regulation will be cut back as the Prime Minister sets out his latest steps to drive economic growth that puts more money in working people’s pockets”.

Whilst that quote covers a variety of different regulators in all sectors, Nikhil Rathi, the FCA’s CEO, said in a recent speech that the FCA needed to hear from the Government about its risk appetite for the Financial Services sector.

“We have asked for bold thinking…around articulation of the Government’s risk appetite — particularly in relation to consumer harm.”

The Government has also got involved in the Motor Finance sector over the potential volume of redress for the mis-selling of finance packages over recent years. There is concern from the Government that huge amounts of redress payments could significantly impact the car market and make it less competitive, which of course is a key component of the growth agenda. Achieving a balance between addressing serious customer harm whilst not mortally wounding a major sector of financial services is not straightforward, but there certainly appears an appetite to try.

There is no doubt that many in the industry, and the wealth and advice sector particularly, were fearing the feedback from the FCA on the ongoing advice issue. However, on the face of it, the findings were not as problematic as feared and Rathi added in his speech.

"…for ongoing advice, where I know there had been concerns that this could become another major redress issue, our findings set out this week did not identify a systemic redress situation. So, while we cannot rule out other major redress events in the event that systemic breaches of the law emerge, we are not currently anticipating any further such mass redress events.”

We are going to have to see what further fallout takes place over the coming months, but one common theme we are picking up is the FCA putting more onus on the senior management of firms to be proactive and do the right thing rather than wait for the FCA to come knocking on the door. Simon Walls, FCA’s interim executive director of markets, has made it clear:

"…that is why it is in the firm’s court.”

in respect of the nature of the firms’ contractual arrangements in place and when for instance a firm decides to cease the ongoing service if a client is not engaging. The message seems to be: treat each case on its own merits as relationships with clients can vary significantly in terms of frequency and depth of contact and interaction.

This point is further emphasised by the FCA remaining extremely focused on the “customer journey” as evidenced by the recent feedback on the customer support outcome and the customer vulnerability update paper. In particular, where this journey is heavily digitalised, the role of all firms involved in the journey, the way those firms communicate with customers and each other, and the level of appropriate oversight all need ongoing monitoring. So, the past few months have seen a dramatic amount of activity both from the Government and the FCA in relation to the regulation of the financial services sector and no doubt there will be more to come. We know, for instance, that a paper is due to be issued in relation to non-financial misconduct, and whilst the new rules on diversity and inclusion have been abandoned (for the time being), the culture agenda remains very much in play. This would appear to be the reason why the FCA is putting firms’ need for continuous improvement very much in senior managers’ hands.