Enforcement Watch: the dawn of a new era?

FCA has announced plans to focus on "rebalancing risk" as part of its recently announced five year strategy (the "Strategy") and annual work programme for 2025/26 (the "Programme"). We summarise key aspects of the Strategy and Programme below.

What does "rebalancing risk" mean?

In the FCA's view, regulation should enable consumers to take informed risks rather than eliminate risk entirely on the basis that setting the bar too high would stifle innovation and competition. The regulator has acknowledged that consumers must make choices which weigh up the risk of missing out on the opportunity to make better returns (for example, if consumers choose to leave savings in instant access accounts) as against the inherent risk of investing in volatile markets.

What are the challenges?

These include:

• Global uncertainty resulting in market volatility.
• Over 7 million people struggle to pay their bills or debts.
• An aging demographic giving rise to a greater imperative to help consumers to take appropriate and informed investment risks (which may make higher returns from their savings) to better provide for retirement.

What are the FCA's priorities?

Both the strategy and the Programme outline the following four priority areas which are intended to tackle these challenges:

1. Being a smarter regulator including:
   • Identify regulatory returns which are no longer needed (three have been identified so far) in order to reduce the burden on regulated firms.
   • Take a more flexible, less intensive approach to supervision where firm are "demonstrably seeking to do the right thing". This marks a departure from the more rigorous approach to supervision of higher impact firms adopted post financial crisis.
   • Provide more firms with better access to the regulator through direct contact points at the FCA. This in turn will provide the FCA with greater market intelligence.
   • Aim to provide greater predictability and provide firms with an earlier chance to make a change without the need for regulatory action. The FCA intends to share lessons learned from supervisory activities and streamline its enforcement portfolio to deliver the same number of outcomes faster.
   • Improve processes, including the use of digital intelligence to identify harm and a triage process to identify higher risk cases to focus effort on. The emphasis here is on proportionality, efficiency and being effective.

2. Supporting growth including:
   • Accelerate a review of capital requirements for specialised trading firms.
   • Change the disclosure requirements including the disclosure regime to make it easier for businesses to seek capital, increase liquidity and the prospect of higher returns for investors.
   • Streamline Consumer Duty rules, guidance and other communications.
   • Continue to provide innovation services such as the testing of AI and machine learning (for example, the tokenisation of asset management).
   • Work with the Financial Ombudsman Service and Treasury to modernise the redress framework.

3. Helping consumers navigate their financial lives, including:
   • Drive better value in workplace pensions and change regulation to encourage schemes to invest for longer-term returns.
   • Continue to focus on fair value and competition in insurance such as pure protection which helps families meet financial commitments.
   • Revisit the FCA's rules to ensure these allow for innovation and widen access, such as reviewing mortgage affordability requirements (which were previously changed to reduce the number of people getting into difficulty but may make it harder for first time buyers to borrow and may cause them to pay higher rents for longer).
   • Introduce a new regulatory regime to provide targeted pension advice to people who do not currently access financial advice.
   • Reform the information provided to investors to ensure people are not overwhelmed by disclosures before taking informed risks.
   • Work with partners who lead on addressing low financial capability which can hold people back from accessing financial services that could support them managing their financial lives.
   • Work with the government to develop a Deferred Payment Credit/Buy Now Pay Later framework to replace disapplied information disclosure requirements.
   • Encourage firms to use innovative solutions that improve consumer resilience.

4. Fighting financial crime:
   • Build a new data-led detection capability to bring together multiple data sets to enable increased detection of financial crime and timely action to tackle it.
   • Increase collaboration with partners to share and analyse data from both a preventative perspective and in order to disrupt and disable criminal activity.
   • Continue to intervene where this achieves the best outcome such as through public warnings, imposing formal requirements on firms and taking civil action or pursuing criminal prosecution, with a focus on those seeking FCA authorisation as a cover for crime.
   • Continue to partner with domestic and overseas law enforcement and regulators in both sharing intelligence and taking coordinated action.
   • Continue to drive awareness of investment and APP fraud.

The Strategy and Programme aim to support the government's drive for growth and could herald the dawn of a new era in terms of the regulator's risk tolerance.