This weekend's blog is the second in a series, that interprets what the FCA's Business Plan means in practice for both firms and the regulator.
Settling on the best way to give due weight to consumers' interests has been a longstanding challenge for the regulator. Taken together, the FCA's Mission, its various approach documents, and the Business Plan, move this forward, but in a way that poses as many questions as it answers.
There are four main ways for the regulator to capture consumer interests - structure, assessment framework, priorities and access. Here are some thoughts on each - where we are now and how we got here:
Structure: When the FSA was formed in 1998, it boasted a separate Consumer Division of approaching 100 staff, which dealt with a broad range of policy and research, including financial capability. However, this had less internal influence than hoped, as other areas, preoccupied with their own priorities, tended to leave consumer matters to the Consumer Division. So, a few years later, the division was disbanded, the idea being that consumers were everyone's responsibility. Which is more or less where we have been ever since. However it's still worth questioning whether there is an area of the FCA that combines both real consumer expertise and influence.
Assessment framework: The regulator has had a series of assessment frameworks over the years, all of which struggled with how to weight different types of consumer detriment, both against each other and against the likes of market integrity. The amounts involved, the severity of the loss to the individual, that individual's vulnerability, are only a few of the factors that come into play.
The current documents, understandably, don't go to this level of detail, so we'll need to wait for the results of the new approach. However, the prominence still given to the Treating Customers Fairly outcomes is slightly concerning. Designed before the crisis, and actually more about firm process, it's probably time for some fresh thinking in this space.
Priorities: Turning to the Business Plan itself, Brexit obviously dominates. However, looking at the other six priorities that emerge from the CEO's introduction - cyber and financial crime, data and open banking, innovation, MiFiD II, culture (SM&CR), and pensions - most of the potential timelines are on the long side, which perhaps points to some of the inherent limitations of regulation. In the short term, issues around remediation and enforcement will therefore continue as barometers of the FCA's consumer priorities.
Access: Historically, consumer organisations have communicated with the FCA primarily through its policy area. This hasn't always worked well, and they are often constrained by lack of resources and bandwidth and can easily be drowned out by firms and trade associations. Likewise, and for similar reasons, the top of the regulator has often been preoccupied with industry voices. It's not obvious from the recent documents whether this pattern has shifted to any significant extent.
However,it's clear that there's a huge amount to be gained by striking a better balance - the FCA's Ageing population paper and Mental Health TechSprint are excellent examples of what can be gained through direct consumer input.
Looking ahead, there are hints in the approach documents, notably Supervision, that there is more of an opening than to date for consumer organisations to build a dialogue with line Supervision, at senior levels. Done well, this could improve the quality of Supervisors' understanding of consumer issues, including in the clarity and quality of their discussions with firms. Everyone would benefit from that.
The priorities in this year’s Business Plan reflect the high level of resource the FCA needs to dedicate to European Union (EU) withdrawal, given its impact both on our regulation and the firms we regulate.