On 10 September 2020, the Financial Conduct Authority (FCA) published its Annual Report and Accounts 2019/20 (the Annual Report), which outlines the achievements and activity of the FCA during the last year.
It sets out how the FCA has used its resources and how it has tried to meet the various strategic and operational objectives set by Parliament.
But aside from the impact of the Covid-19 pandemic, has anything changed from last year?
Here is our summary of the key takeaways from the Annual Report and an analysis of whether it provides any insight into next year’s direction of travel.
The Annual Report delves into the cross-sector and sector priorities of the FCA, outlining whether they have been, or will be, met throughout the year.
This year, the FCA’s enforcement focus, which is set out in its Business Plan 2020/2021, remains largely unchanged. It’s clear from the Annual Report the FCA is backing up its emphasis on conduct and culture in the financial sector with action.
For example, it has increased resource spending in its dedicated whistleblowing team, which received 1,153 individual reports last year. The FCA took action to prevent harm in 218 of those cases while 691 cases still remain to be assessed. But while the FCA is encouraging individuals to speak out, it is going to need to devote additional resources to assessing these reports. This could potentially increase the time it takes to investigate and resolve matters – something which is already one of the industry’s main bugbears.
Another example of increasing resource spending to meet a key priority in the Annual Report is the focus on anti-money laundering (AML). The FCA hosted an AML and financial crime TechSprint event with participants from 16 countries. Its aim was to develop technological concepts that would help protect privacy and detect financial crime.
This action has allowed the FCA to share intelligence with other relevant agencies and increase understanding of its risks, helping it work towards meeting its key priorities regarding AML.
Conversely, the FCA has made some necessary concessions in its approach to AML. A recent freedom of information request revealed the FCA has shut down half of its open AML investigations – reducing the chance of a first prosecution under the money-laundering regulations. While it is still dedicated to funding AML intelligence activities, it remains to be seen whether this will translate into AML criminal cases as expected.
Finally, the FCA has invested in its ScamSmart campaign, showing its continued focus on preventing financial crime against the vulnerable. It has also connected with younger audiences thanks to a strong push across social media sites.
The Annual Report offers some context about the FCA’s financial position, which can give us an idea of how its resources are being used on a year to year basis.
The FCA Business Plan 2019/2020, which provides a detailed outlook of the FCA’s budget for the year, tells us its budget has increased. Its budget for 2019/2020 was £558.5m, up by 2.7% on the previous year.
Several factors influence this budget, including the amount the FCA charges the industry to fund its activities, the cost of the FCA’s operating activities, and how much capital it is spending on developing new technology and information systems.
Like many other regulators, the FCA has had to urgently divert resources to addressing issues thrown up by the Covid-19 pandemic. New measures have included issuing emergency guidance to a number of different sectors to ensure vulnerable customers are protected and have continuous access to banking services. In addition, it gave a level of clarity to many business owners by bringing its business interruption insurance test case to the fore.
The FCA also spent significant time monitoring the market and increasing its firm and trade-body engagement. But as a result of this diversion of resources, some of its thematic supervisory work has been delayed, and various consultations have been pushed into Q3 2020.
Covid-19 is not the only significant external factor changing how the FCA regulates – although the FCA was, at least, able to anticipate and plan for this significant change. The Annual Report sets out the FCA’s intention to maintain its influence as a leading global regulator, even after the UK’s withdrawal from the EU.
The FCA hopes to help smaller businesses adapt following the EU withdrawal. To do so, it will dedicate significant resources to rolling out the Temporary Permission Regime, which will allow firms to continue cross-border activity in the UK after the transition period ends.
The Annual Report underlines what the FCA is hoping to focus on in the future when it comes to both risks and investments.
However, a number of areas of concern for the coming year were also identified by the FCA.
The Annual Report shows that the financial position of the FCA remains strong, and objectives and key priorities are being met. However, some concern remains about the ongoing impact of Covid-19 on its supervisory and less urgent work, which could continue well into the next financial year.
TLT appointed to Vodafone's global legal panelRead more
Rules for large corporates on climate-related financial disclosures:...Read more
Making a claim for Covid-19 business interruption lossesRead more
Will brokers face professional negligence surrounding business...Read more
TLT’s Fintech School – trainee interviewRead more
Beyond BrexitRead more
Beyond Brexit: services trackerRead more
TLT advises SilverTree Equity on acquisition of Orbus SoftwareRead more
TLT launches Fintech School with MMURead more