FCA Business Plan 2018/19

Business Plan

2018/19

Business Plan

Contents

Chair’s foreword 5

Chief Executive’s introduction 6

Our priority work for the year ahead 8

1 Our role 10

2 EU Withdrawal 16

3 Our priorities for 2018/19 19

4 Cross-sector priorities 20

Firms’ culture and governance 20

Financial crime (fraud & scams) and anti-money laundering (AML) 22

Data security, resilience and outsourcing 24

Innovation, big data, technology and competition 26

Treatment of existing customers 28

Long-term savings and pensions and intergenerational differences 30

High-cost credit 32

5 Sector priorities 34

Wholesale financial markets 34

Investment management 38

Retail lending 41

Pensions and retirement income 44

Retail investments 46

Retail banking 48

General insurance and protection 50

6 How we operate 53

Annex 1: Update on market-based activity 58

Annex 2: FCA organisational chart 60

Chair’s foreword

Charles Randell

It is a great privilege to introduce the

FCA’s Business Plan at the beginning of

my time as chair. The plan sets out the

range of work we undertake and how

it aligns to our objectives. The work

we do aects every household and

business in the UK.

The plan was approved by the FCA

board under John Griffith-Jones

as chair. He has chaired the FCA

for the last five years and I would

like to thank him in particular for

the commitment to public service

and resilience he has brought to his

leadership of the organisation.

This year is a challenging one for the

regulator. To achieve our priorities,

as well as plan for EU Withdrawal,

while continuing to deliver our core

regulatory activities effectively,

will require us to use our resources

efficiently and flexibly.

The work we do aects

every household and

business in the UK

I know we will also be looking hard

at how we can be an even more

accountable and transparent

regulator, as we continue to explain

to all our stakeholders why and how

we make our decisions.

I very much look forward to working

with the FCA’s staff and its Board in

the year ahead.

Charles Randell

Chair

Financial Conduct Authority

Business Plan 2018/19 Chair’s foreword

Chief Executive’s introduction

Andrew Bailey

The FCA regulates the UK’s nancial

services sector to ensure that

markets work well for individuals,

businesses and the UK economy as a

whole. This Business Plan explains our

priorities over the next year.

We publish this Business Plan

alongside our Sector Views. Sector

Views provide an assessment of the

developments, performance and

risks of each nancial services sector

in the previous year. They give us a

detailed picture of nancial sectors,

consumers and relevant macro-

economic and demographic factors,

which directly informs our activity.

The priorities in this year’s Business

Plan reect the high level of resource

we need to dedicate to EU Withdrawal,

given its impact both on our regulation

and on the rms we regulate. This

inevitably aects the amount of work

we can undertake in other areas. As a

result, agreeing our 2018/19 priorities

has involved particularly rigorous

scrutiny and challenge.

As we explained in Our Mission, our

aim is to use our tools eciently

and cost-eectively to deliver

the greatest public value. So we

have prioritised areas where we

consider both that the risks of harm

to consumers, market integrity or

competition are greatest and where

we assess our intervention will have

the most impact.

The aim of adding public value cuts

across all our activities. This year,

as the lease expires on our current

location, we move our London

oce to the International Quarter in

Stratford. This will nally allow us to

bring all our London sta together

in one building. The improved

technological infrastructure will

allow us to work more eectively and

collaboratively, meeting our public

interest objectives.

Our Mission also stresses the need for

us to be able to measure the impact of

our work more meaningfully, and we

will continue developing better ways

to do this over the next 12 months.

Planning our priorities for the

next year has again underlined

how technology is supporting

competition, transforming markets

and changing the way consumers

engage with them. The take-up of

technology and innovation across

and between rms is accelerating,

creating a conveyer belt of risks and

opportunities. These are often nely

nuanced, so this year we have agreed

two clearly dened priority themes

to address dierent aspects of

technological regulation, application

and resilience. This Business Plan

explains why tackling risks including

cyber and nancial crime, as well as

staying ahead of developments in Big

Data and Open Banking, remains a

priority.

FCA Innovate and our regulatory

sandbox are increasingly being

adopted as templates by many

overseas regulators, shaping

international standards in innovation.

Against this backdrop, the UK’s

Financial Conduct Authority

Business Plan 2018/19 Chief Executive’s introduction

Chief Executive’s introduction

Andrew Bailey

withdrawal from the EU makes it even

more important that UK markets

remain visibly clean, fair and reliable.

It is also important that we both

maintain and extend our levels of

international co-operation.

The requirements of the Markets in

Financial Instruments Directive

(MiFID II) illustrate the major changes to

improve market integrity in wholesale

markets in recent years. From tackling

conicts of interest to strengthening

the transaction reporting and Initial

Public Oering (IPO) regimes, we

will closely monitor how well rms

are complying with these new

requirements. To clarify how we take

decisions about intervening in markets,

this year we will also publish a document

which explains our approach to market

integrity. This joins documents already

published as part of Our Mission, which

explain our approach to consumers,

competition, authorisation, supervision

and enforcement.

Firms’ culture and governance is

pivotal to building public trust and

condence in the UK’s nancial

services industry, both domestically

and internationally. We continue

to implement the reforms that

followed the nancial crisis. The

extension of the Senior Managers

and Certication Regime (SM&CR)

to insurers this year will ensure that

key sta are accountable for their

conduct and decisions. We will publish

our policy and nal rules that set out

how the SM&CR will be extended to all

other FSMA rms in summer 2018.

Culture and governance is particularly

relevant when rms design new

products and services. They also

heavily inuence whether rms’

business models deliver the right

outcomes for consumers. The

shift to consumers having to

take more responsibility for their

nancial choices has coincided with

increasingly complex needs.

Perhaps nowhere is this more clearly

illustrated than in the retirement

income savings and pension market.

This presents a signicant public

challenge, both in terms of the need for

new and aordable savings products

and in the information rms give

consumers to help them take decisions.

In the past year, we have been

extremely concerned about some

rms exploiting consumers’ lack

of knowledge of pension products

when advising them to transfer out

of dened benet schemes. We

have recently published new rules

on pension transfer advice. These

rules aim to improve the quality

of pension transfer advice to help

consumers make informed decisions

for their individual circumstances.

We also published a Consultation

Paper (CP) proposing further changes

which include requiring pension

transfer specialists to have the

same qualications as investment

advisers. This CP also seeks views

on whether we should intervene

in charging structures for pension

transfer advice. In 2018 we will be

collecting details of practices across

the entire pensions transfer market

to build a national picture to assess

potential and actual harm and identify

the most eective ways to reduce it.

Over 2018/19 we will deliver a wider

package of remedies as part of our

Retirement Outcomes Review.

These are just some of our priorities

over the next 12 months. Delivering

our core work of authorisation,

supervision, enforcement and

developing and implementing policy

and rules will always demand most of

our resources.

In this particularly challenging year,

I am delighted to welcome Charles

Randell as the FCA’s new Chair. I

would also like to thank our outgoing

Chair, John Griffith-Jones and

pass on my and the FCA’s warmest

wishes for his future. Finally, I would

like to thank all of our staff. I am

consistently impressed with their

sheer hard work and commitment

to delivering the greatest possible

public value to firms, consumers and

the UK economy.

Andrew Bailey

Chief Executive

Financial Conduct Authority

This year’s Business Plan

priorities reect the

high level of resource

we need to dedicate to

EU Withdrawal

Financial Conduct Authority

Business Plan 2018/19

Chief Executive’s introduction

Cross-sector priorities:

Firms’ culture and

governance

Financial crime (fraud

& scams) & anti-money

laundering (AML)

Data security, resilience

and outsourcing

Finalising rules to extend

the Senior Managers and

Certication Regime to all

FSMA rms

Establishing a public register

Focusing on rms’

remuneration arrangements

Tackling money laundering

Publishing our ndings on

money laundering in the

e-money sector

Embedding the new Oce

for Professional Body

Anti-Money Laundering

Supervision (OPBAS)

Taking account of the

recommendations of

the Financial Action Task

Force’s evaluation

Raising awareness of fraud

and scams

Improving intelligence

sharing with law

enforcement partners and

agencies to ght money

laundering and nancial

crime

Supervisory assessment of

rms’ operational resilience

Assessing the risks of

outsourcing and third-party

providers

Monitoring the roll out of

technology and resilience

data as part of Open Banking

and the second Payment

Services Directive

EU Withdrawal:

Current priorities

Working with the

Government

Ensuring an appropriate

transition for EEA rms

Working with regulated rms

and monitoring the risks to

our objectives

Working towards our

operational readiness

Cooperating with our

international partners

Cross-sector priorities:

Innovation, big data,

technology and competition

Treatment of existing

customers

Long-term savings,

pensions and

intergenerational

differences

High-cost

credit

Assisting rms through the

FCA Innovate programme

Allowing rms to test viability

in the regulatory sandbox

Testing and applying RegTech

and advanced analytics to

regulation

Reviewing retail banking

business models

Reviewing rms’ use

of data and publishing

a Memorandum of

Understanding with the

Information Commissioner’s

Oce

Publishing new crowdfunding

rules

Review of cryptocurrencies as

part of the Treasury, Bank of

England and FCA Taskforce

Understanding rms’

pricing practices in retail

general insurance

Communicating with claims

management companies

in advance of regulation in

2019

Assessing claims ination in

general insurance

Helping consumers make

informed decisions on their

insurance needs

Improving competition in

current accounts

Publishing nal rules to

allow more Small and

Medium-Sized Enterprises

access to the Financial

Ombudsman Service

Improving competition in

the cash savings market

Delivering a package of

remedies as part of the

Retirement Outcomes

Review

Collecting and acting

on data from rms that

have pension transfer

permissions to assess

practices across the market

Understanding the levels of

consumer undersaving for

retirement

Publishing a feedback

statement on competition

in non-workplace pensions

Considering alternatives to

high-cost credit

Finalising our review of

high-cost credit products

including:

• rent-to-own

• home-collected credit

• catalogue credit

• arranged and unarranged

overdrafts, including the

monthly maximum

charge (MMC)

Our priority work for the year ahead

Sector priorities:

Wholesale financial

markets

Investment

management

Retail

lending

Pensions and

retirement income

Clarifying our approach to

market integrity

Reviewing money laundering

in capital markets

Monitoring rms’ compliance

with new conicts of interest

requirements

Addressing operational

resilience

Monitoring rms’ compliance

with our rules on IPOs

Publishing nal rules and our

approach to industry codes

of conduct for unregulated

markets

Finalising rule changes

following the Asset

Management Market Study

Working with European

Supervisory Authorities

in the implementation and

review of the Packaged

Retail and Insurance-Based

Investments Products

Regulation (PRIIPS)

Consulting on new rules

and guidance on liquidity

management

Considering the extension

of governance remedies to

with-prots and unit-linked

funds

Assisting the Treasury

in the development of a

new prudential regime

for investment rms

authorised under MiFID II

Publishing research that

explores the rise of passive

investment

Assessing creditworthiness

in consumer credit

Launching our Market

Study on Credit Information

Publishing our interim

report on our Mortgage

Market Study

Reviewing the commission

between credit brokers and

other rms

Ensuring the debt

management sector works

well for consumers

Reviewing the motor

nance market

Reviewing retained

Consumer Credit Act

provisions

Developing a joint pensions

strategy with The Pensions

Regulator

Potentially extending

the remit of Independent

Governance Committees

for workplace pension

schemes

Helping consumers

avoid scams

Sector priorities:

Retail

investments

Retail

banking

General insurance

and protection

Assessing the impact of

the Financial Advice Market

Review (FAMR) and the Retail

Distribution Review (RDR)

Reviewing High-risk and

complex investments

Evaluating our interventions

on Contracts for Dierence

Publishing our report on the

Investment Platforms Market

Study

Raising awareness of fraud

and scams

Continuing to help rms

prepare for ring fencing

Developing a payments

sector strategy

Delivering the revised

Payment Services Directive

(PSD2)

Continuing our awareness

campaign on the Payment

Protection Insurance

redress deadline

Implementing the Insurance

Distribution Directive

Publishing our interim report

from the Wholesale Insurance

Brokers Market Study

Concluding our initial

diagnostic work on general

insurance distribution chains

Publishing the ndings from

our Call for Input on access to

travel insurance

Evaluating the eectiveness

of our 2015 rules on

Guaranteed Asset Protection

insurance

Our objectives, set by Parliament, ensure that we

act in the public interest. Our aim is to add public

value by improving how financial markets operate, to

benefit individuals, businesses and the UK economy.

We have a single strategic objective under the Financial

Services and Markets Act 2000 (FSMA) – to ensure the

markets we regulate function well. We also have three

operational objectives under FSMA to advance this.

We are the conduct regulator for

over 58,000 financial services firms

in the UK and 145,000 approved

persons.

We are also the prudential supervisor

for approximately 46,000 firms.

For 18,000 of these firms, we have

detailed standards that need to be

met. Even those firms that have

no minimum financial resource

requirements must still ensure

they have adequate resources, as

outlined in the threshold conditions.

Protect consumers:

to secure an appropriate

degree of protection for

consumers

Protect the integrity

of nancial markets:

to protect and enhance

the integrity of the UK

financial system

Promote competition:

to promote effective

competition in the interest

of consumers.

Operational objectives

Our role

Chapter 1

Our role

Financial Conduct Authority

Business Plan 2018/19

We concentrate our resources

on the markets and firms most

likely to create consumer harm,

damage market integrity or weaken

competition. Our Mission

provides

the framework (see Fig 1) for the

strategic decisions we take, the

reasoning behind our work and the

way we choose how we intervene.

We aim to use our tools efficiently to

identify and mitigate harm.

We are committed to achieving

value for money in addressing harms

and delivering our objectives. We

adhere to the National Audit Office

definition of value for money as

the optimal use of resources to

achieve an intended outcome. We

are focused on minimising our costs

while achieving our objectives,

through continuous improvement

and a range of activities to increase

efficiency.

We analyse issues across financial

sectors, and within specific sectors,

that affect consumers’ changing

circumstances and needs. Every

year, we publish a summary of

our Sector Views, along with our

Business Plan. Together, they set

out the issues and harms we have

identified, and drive our activities for

the coming year.

The Mission outlines five categories

of harm, which relate to our

operational objectives. We deliver

on our operational objectives by

reducing or preventing this harm in

cost effective ways, thus serving the

public interest (see Table 1).

Since we published Our Mission

2017, we have published five further

documents which give more detail

about our approach towards

consumers and in our authorisation,

competition, supervision and

enforcement functions.

In 2018/19,

we will publish our approach to

market integrity.

1 www.fca.org.uk/publication/corporate/our-mission-2017.pdf

2 www.fca.org.uk/publications/corporate-documents/our-approach

Table 1

Type of harm

Relevant FCA

operational

objective(s)

Condence and participation in markets threatened by

unacceptable conduct such as market abuse, unreliable

performance or by disorderly failure

Market integrity

Consumer protection

Eective competition

Buying unsuitable or mis-sold products; customer

service/treatment

Consumer protection

Eective competition

Important consumer needs are not met because of gaps

in the existing range of products, consumer exclusion,

lack of market resilience

Consumer protection

Eective competition

Prices too high, or quality too low, compared to

ecient costs

Eective competition

Risk of signicant harmful side-eects on wider markets,

the UK economy and wider society, e.g. crime/terrorism

Market integrity

Our decision-making framework

Evaluation

Diagnostic

tools

Remedy tools

Identification of

harm

Our remit

User needs

Our impact

Figure 1

Chapter 1

Our role

Financial Conduct Authority

Business Plan 2018/19

Consumers: Our Future Approach

to Consumers paper, published

in November 2017, built on the

Mission and developed our position

on complex consumer issues such

as exclusion and vulnerability. It

explored when and how we should

intervene in areas that fall into the

social policy field. It also set out how

we use and prioritise the different

tools we have to prevent harm to all

retail consumers.

Overall, our approach is based

wherever possible on what we know

about how consumers actually

behave. We use data to identify

consumer harm and act where

appropriate. We enforce our rules,

such as our financial promotions and

consumer contract rules, to prevent

harm to consumers. And we prevent

potential harm to consumers

from firms designing or marketing

products that are unfair, unclear or

misleading, or from sales models

which encourage bad rather than

good consumer decisions. We also

look at cases where markets do not

give access to particular services or

consumer groups.

There have also been calls for the

FCA to introduce a new duty of

care provision for firms. We initially

intended to deliver this work as part

of our Handbook Review following

the UK’s exit from the EU in 2019.

This was because it would be difficult

to make extensive changes to the

FCA Handbook at the same time

as undertaking the major overhaul

needed to put the EU Withdrawal

legislation into effect. However,

we recognise the wider debate and

feedback from our stakeholders,

and the likelihood now that an EU

transition or implementation period

will delay our Handbook review. We

intend to advance some aspects of

this work, beginning with the launch

of an initial Discussion Paper in

summer 2018.

The issues we are exploring are

complex and challenging. It is right

that we consult our stakeholders and

ask for their support and challenge

as we formulate ways of working.

We intend to publish a Feedback

Statement and final version of Our

Approach to Consumers in summer

2018.

Authorisation: We use authorisation

primarily to prevent harm from

occurring. Authorisation ensures

that all regulated firms and

individuals meet minimum standards

from the start, and keeps those

that do not out of the market. When

we assess these standards, we

take a proportionate look at many

factors, such as a firm’s business

model, key personnel and overall

resources. Individuals that hold

specific important functions in

firms are required to be approved

by us. Additionally, following the

introduction of the Senior Managers

and Certification Regime (SM&CR)

for deposit takers, we also require

senior managers to have a clear

statement of the activities they

are responsible for. We want to

remove unnecessary barriers for

new firms that can hinder effective

competition, while still ensuring all

firms maintain minimum standards

to prevent harm to our consumer

protection and market integrity

objectives.

We assess and approve changes

that firms want to make to key areas

such as appointing individuals into

key roles, changing their business

models or the services they

offer, mergers and acquisitions.

We will intervene where we think

these changes do not meet our

requirements. We run a range

of initiatives to help firms and

individuals understand and meet our

authorisation requirements and our

expectations.

Supervision: The firms we regulate

and their senior managers are

responsible for ensuring that

they act in accordance with our

principles and rules. The focus

of our supervision is to maintain

continuous oversight of regulated

firms to identify, reduce or prevent

harm to consumers and markets.

Chapter 1

Our role

Financial Conduct Authority

Business Plan 2018/19

Our approach is based on

what we know about how

consumers actually behave

To do this, we take a forward-

looking and strategic approach.

This includes looking both at the

conduct of individual firms and, more

widely, at how retail and wholesale

markets are evolving. To supervise

effectively, we need a thorough

understanding of the business

models, strategies and cultures of

the firms we regulate. This allows us

to recognise more effectively the

risks of harm that a firm, or group of

firms, pose.

We tailor our approach to

supervision taking account of the

potential impact on consumers and

markets. We give greater scrutiny

and focus to the firms that pose the

greatest risk of harm to consumers

and market integrity. For firms that

pose less, but still significant, risk

of harm, we have a programme

of targeted engagement which

specifically focuses on the activities

with the greatest risk of harm in their

sector. We assess sectors, markets

and firms with similar business

models to identify outliers and key

risks we need to address in our work

with firms.

Proactively working with the most

significant firms in each sector

allows us not only to diagnose the

risk of harm in that firm but also

to spot emerging market events,

assess firms’ reactions to them and

work with firms to understand how

they may play out. We then diagnose

the likely harm to consumers or

markets and which combination of

our tools will best address them.

This direct relationship with firms

ensures that we have a key source of

intelligence and trusted channels to

influence market behaviour.

Our prudential supervision work

aims to avoid disorderly failure and

minimise the harm to consumers

or the integrity of the UK financial

system. This harm can be loss of

money and confidence and reduced

participation in financial markets. So

understanding a firm’s financial risks,

its proximity to failure and how harm

is minimised in the event of failure

is an important component of our

supervisory work.

Competition: We are one of the few

financial regulators with a primary

objective to promote effective

competition in the interests of

consumers. Our work across

wholesale and retail markets aims

to promote innovation and keep

markets open and competitive,

driving benefits to consumers and

the wider economy.

Chapter 1

Our role

Financial Conduct Authority

Business Plan 2018/19

Proactively working

with the most

significant firms

allows us not only to

diagnose the risk of

harm in that firm but

also to spot emerging

market events

To advance our competition

objective we do three things:

1. We look at the structure and

dynamics of markets through

our market studies and, where

necessary, adjust our rules

to improve the outcomes for

consumers and to support

consumer choice

2. We take action against

anti-competitive behaviour,

investigating breaches of the

Competition Act 1998 and its

EU equivalent

3. We ensure regulation promotes,

rather than hinders, healthy

competition. An important aspect

of this is to support new and

innovative initiatives with rms

whose business models may test

the boundaries of our current

regulations

Enforcement: We take action

against firms and individuals where

their behaviour fails to meet our

standards, is dishonest or illegal. Our

aim is to prevent consumer harm and

damage to market integrity before it

happens, or reduce further harm if it

has already happened. Enforcement

has a particularly visible role in our

regulation. Investigating misconduct

fairly and promptly and holding those

responsible to account helps us to

maintain public confidence in the

integrity and fairness of UK markets.

We also tackle the consequences

of misconduct including, where

possible, seeking redress or remedy

for those harmed. We explain where

and why we have taken action. This

ensures our actions are transparent

and fair and that those we regulate

can use this information to evaluate

and improve their own conduct.

Market Oversight: We deliver public

value to the wider economy through

our oversight of UK capital markets.

This includes overseeing the conduct

of issuance, issuer and sponsors,

3 Activities set out in FSMA 2000 and the Regulated Activities Order.

as well as market participants in

secondary markets. Misconduct and

poor investor protection in capital

markets can damage condencein

their integrity and eectiveness. This

harms investors who suer losses in

unfair markets and harms the broader

UK economy by preventing the

stimulus that robust and fair capital

markets provide.

The role we play in overseeing and

implementing change in the UK’s

markets allows the full spectrum

of issuers to access deep and liquid

pools of capitalfor growth. It aims

to guarantee that the process of

price formation is robust and that all

participants can rely on it. It provides

investors with the appropriate

levels of protection they need to

sustain their confidence in market

activity. In the secondary market, our

programme ranges from education

through to enforcement, and aims

to ensure there are strong conduct

standards and integrity in trading

activity on UK markets. This helps

ensure these markets function in

the interests of investors and issuers

alike, benefitting the broader UK

economy.

Policy: We use our policy-making

powers to implement and maintain

a framework of rules and guidance

that reduces harm and make

markets work better. Our policy work

is guided by the following principles:

• Prioritising where we can add the

most public value.

• Only making or supporting new

rules if they will be an eective and

proportionate solution to an issue.

• Reviewing rules where they no

longer achieve the right outcomes.

We seek to inuence and guide, and

align our work with, international

initiatives.

We set out what we expect from

those we regulate and consult

widely before we nalise our rules

and guidance. We use evidence and

analysis to assess the costs and

benets of our proposals to ensure

that they are an eective and ecient

response to an identied harm.

International: We ensure markets

work well, working collaboratively

with international partners to shape

the global regulatory agenda. We

shape and lead changes in the

international environment, for

example delivering the optimal

regulatory response to EU

Withdrawal, focusing on minimising

harm and proactively making the

most of opportunities.

Regulatory perimeter: Our central

focus is on the conduct of regulated

activities.

As well as regulated

activities, authorised firms also

carry out activities that are outside

the regulatory perimeter but which

have an impact on our objectives.

For example, while the process

for setting LIBOR was outside our

perimeter, LIBOR malpractice had

a major impact on market integrity.

As Our Mission explains, we have

powers to act outside the perimeter

in certain circumstances. We will

be more likely to do this when the

unregulated activity could potentially

undermine confidence in the UK

financial system or have an impact

on a regulated activity. Where we

decide we cannot or will not act,

we will publicly explain why and, for

example, raise the matter with other

bodies or regulators who are better

placed to deal with it or with the

Government.

Chapter 1

Our role

Financial Conduct Authority

Business Plan 2018/19

Investigating misconduct fairly

and promptly and holding those

responsible to account helps us

to maintain public confidence

in the integrity and fairness of

UK markets

The UK’s decision to leave the European Union (EU)

has, and will continue to have, a substantial impact

on the way we work. A significant proportion of our

resources are already focused on the forthcoming exit,

including arrangements to implement the change.

To fulfil our regulatory objectives and provide technical

support to the Government in the run up to withdrawal,

we have increased the level of resource dedicated to

co-ordinating and managing this work.

The additional cost of our EU Withdrawal work outside

our redeployed resources is £16m. We explain how we

propose to fund this in our How we operate chapter.

EU Withdrawal

We expect our work on the

implications of EU Withdrawal

will continue beyond March 2019,

throughout any implementation

period. We will keep our EU

Withdrawal priorities and

resources under review as we

gain greater certainty on the

outcome of negotiations and the

implementation timeframe.

Although our Annual Funding

Requirement has increased by £5m

to cover EU Withdrawal work, we have

still made dicult and challenging

decisions about our priority activities

across all business areas that are not

related to work on EU Withdrawal,

including limiting the number of

new initiatives we’ve taken on. We

recognise the particular signicance of

EU Withdrawal on wholesale nancial

markets, investment management

and the general insurance sectors, and

our decisions have been driven by our

recognition of the capacity of industry

to absorb change.

Existing financial regulation remains

in place, including EU regulation.

We expect the focus of our work on

EU Withdrawal in 2018/19 to be in the

following areas.

Working with the Government

We will:

• Continue to support the

Government and provide technical

assistance to negotiations with

the EU and other countries where

the Government seeks a free

trade agreement and where it is

appropriate for us to be involved.

We have made dicult and challenging

decisions about our priority activities that

are not related to work on EU Withdrawal

Chapter 2

EU Withdrawal

Financial Conduct Authority

Business Plan 2018/19

• Provide technical advice on the

legislation introduced by the

Government. The EU (Withdrawal)

Bill will convert existing EU legislation

into UK law, and preserve existing

UK laws which implement EU

obligations. This will enable us to

have a robust regulatory system on

the day the UK leaves the EU.

• Review our Handbook in light of the

legislative changes (including looking

at duty of care and the potential for

increased automation) and make

changes where appropriate.

• Advise the Treasury and other

areas of the Government on how

the UK’s future relationship with

the EU may aect the nancial

services industry and its users. This

includes considering cooperation

arrangements with the EEA

countries and the rest of the world.

• Assess the impact of transitional

arrangements on the UK’s regulated

rms and their users, and take action

where appropriate.

• Continue to liaise closely with the

Bank of England in our work on

areas of joint responsibility and

dual-regulated rms.

Future functions

• We will ensure there is an appropriate

transition to a future model for

authorisation and supervision

of EEA rms. This will include

implementing the legislation on

the temporary permissions regime

if necessary, as announced by the

Treasury in December 2017.

• The Treasury has stated that it

intends to provide us with functions

and powers for UK and non-UK

credit-rating agencies and trade

repositories. We will work closely

with the Government and with

UK credit-rating agencies and

trade repositories with the aim of

ensuring a smooth transition to the

new UK regime.

Supervision and risk

• We will continue to work with

regulated rms to understand their

plans for future operations and the

impact on markets and consumers.

• We will monitor the risks to our

regulatory objectives. We will also

identify and consider potential

harms to consumers that may

arise in the run-up to, and after,

withdrawal.

Our operations

• We will work towards achieving

operational readiness for our exit

and the FCA overall, including

considering the impacts on our

systems and technology.

International cooperation

• We will continue to work with

regulatory authorities across the EU

and globally to ensure appropriate

supervisory cooperation and

information sharing in respect of

rms and markets, policies and

future regulatory regimes.

Chapter 2

EU Withdrawal

Financial Conduct Authority

Business Plan 2018/19

Our Business Plan sets out our main areas of focus across seven themes

that span the seven specific sectors we regulate. Preparing for and

implementing changes resulting from EU Withdrawal is inevitably the

priority for our discretionary activity. For 2018/19 we outline our approach

to delivering necessary changes across the sectors we regulate.

Our priorities for 2018/19

Many of the issues and risks covered

and the harms we address are complex

and often deep-seated problems

that will continue to be priorities for

future Business Plans. We will continue

to monitor these issues, such as

technological and societal change, and

adapt our approach to the ever-evolving

landscape.

Unexpected issues can arise and

priorities can change. So we ensure that

our processes for deciding priorities are

flexible and that our governance provides

sufficient challenge to change priorities

when needed.

Our key planned activities for this year are

mainly set out in our cross-sector themes

because, in most cases, these issues

occur in several sectors. Under our sector

priorities, we have cross-referenced

those pieces of work where relevant.

Measuring our performance

The Mission confirmed our three-tier

framework for performance reporting.

This covers:

Tier 1: The efficiency of internal

processes

We have worked to improve reporting

at each level. For example, we have

updated the way we report on our Service

Standards, which show how efficiently we

carry out specific internal processes. Our

updated Service Standards document

provides a better explanation of the link

between the efficiency of our processes

and outcomes.

Tier 2: The impact of our interventions

We have published our approach to

post-intervention evaluation alongside

this Business Plan. This explains how we

will assess the effectiveness of some

significant interventions every year.

Tier 3: Outcomes in the sectors we

regulate

We intend to improve our approach

further by building more indicators and

reporting clearly on how we see the

market developing in subsequent years.

Our 2017/18 Annual Report and Accounts

will include examples of key indicators

that reflect some of the harms we have

prioritised. These indicators should be

understood in the context of wider

market information.

Chapter 3

Our priorities for 2018/19

Financial Conduct Authority

Business Plan 2018/19

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

XXX

Cross-sector priorities

Firms’ culture and governance

should drive behaviours and produce

outcomes that are likely to benet

consumers and markets. We will

continue to support and engage with

rms, sharing our expectations and

working to promote eective cultures

and governance across the industry.

This will ensure that rms have the right

people in the right roles, working in the

interest of consumers. It will also make

sure that markets and our stakeholders

understand our approach.

We expect firms to be able to demonstrate that their

purpose, leadership, governance arrangements and

approach to rewarding and managing staff do not lead

to avoidable or unnecessary harm to their customers.

This should be a collaborative effort driven forward by

staff at all levels. We support individuals who contact

us as whistleblowers and we ensure that they are

provided with the anonymity they need.

We believe it is important that all firms, regardless

of size, are well governed and that individuals are

accountable for their actions. Firms should be able

to show the effectiveness of their governance

arrangements in identifying, managing and mitigating

the risk of harm.

Our key activities

Accountability and governance

Lack of accountability of senior

management can drive poor

conduct, from selling unsuitable

products to excessive risk taking or

mis-selling, that harms those who

use financial services.

We are working on finalising the

rules for the extension of the Senior

Managers and Certification Regime

(SM&CR) to all FSMA firms, including

dual-regulated insurers (FCA and

PRA regulated). Our proposals

will reflect our intention to tailor

the extended regime to reflect

the different risks, impact and

complexity of firms in a clear, simple

and proportionate way. In total, the

SM&CR will cover approximately

47,000 firms. We intend to publish

our Policy Statement and new rules

in summer 2018.

The Treasury has confirmed the

Regime will start for insurers on

10 December 2018. It will confirm

the date for when these rules

commence for solo-regulated firms

(firms regulated only by the FCA,

rather than by both the FCA and the

PRA) in due course. We will work with

firms to ensure that the regime is

implemented effectively.

Establishing a public register

In July 2017, we published proposals to

extend the SM&CR to all FSMA rms.

Under these proposals, only senior

managers will appear on the Financial

Services Register. We have received

substantial feedback on this and will

consult by summer 2018 on policy

proposals to introduce a public register.

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Remuneration

We have published a Policy

Statement that explains how

consumer credit firms can

improve how they manage the

risks that their staff incentives,

remuneration and performance

management policies may pose

to consumers. We will review

how firms respond to this Policy

Statement.

We will also take a broader

look at all firms’ remuneration

arrangements in 2018/19 to

identify the potential or actual

harm from the remuneration

schemes of firms that are not

subject to our Remuneration

Codes.

Monitoring change

We do not attempt to measure or

assess culture directly; instead

we seek to form judgements as to

whether the drivers of behaviour

we are interested in as a regulator

are driving appropriate behaviours

which are unlikely to cause harm.

This includes looking at firms’

remuneration practices and the

number of whistleblowing cases

we receive to determine the

effectiveness of firms’ internal

processes and whether they meet

our expectations.

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

Along with the work set out below,

our proactive work to tackle market

abuse (covered under the Wholesale

section) is an important way in which

we seek to combat financial crime.

Tackling money laundering

Our permanent programme of work

includes regular inspections of the

largest firms, as well as other firms

that we believe present high money

laundering risk. This work, alongside

our supervision and authorisation

frameworks, enables us to identify

and reduce the potential for firms

to be used for money laundering

and other financial crime. We use

the full range of supervision and

regulatory enforcement tools

in our financial crime work. This

includes authorisation interviews,

proactive and reactive supervisory

work, consumer alerts, FCA-led or

jointly-run education programmes,

as well as enforcement tools such as

business restrictions and regulatory

and criminal investigations.

We use intelligence, including liaising

with other agencies in the UK and

internationally, to support the work

we do to supervise and enforce our

principles and rules. We also conduct

random sampling of small, lower-

risk firms to ensure they maintain

high standards and check that our

assessment of risks in different

sectors remains current.

Building a better picture of

money laundering

The recently published UK National

Risk Assessment of Money

Laundering and Terrorist Financing

identified that the UK needs a

more comprehensive picture of

how capital markets are being

used for money laundering. We will

undertake diagnostic work on this

The safeguards we put in place to

prevent financial crime are designed

to make the UK and the financial

services sector a hostile place for

criminals, a safe place for consumers,

and ensure we meet latest

international standards.

Financial crime, including money laundering, harms

society and the wider economy by causing nancial loss

to victims and enabling criminal activity. The UK’s nancial

markets are very large, complex and operate globally. This

makes them attractive to money launderers and other

criminals who operate across borders.

We want to ensure that the safeguards in place are

proportionate, operate efficiently and minimise

any unintended consequences of regulation. We

also want to reduce and prevent the harm caused

by scams and increase consumer awareness of the

dangers of fraud.

Cross-sector priorities

Financial crime (fraud & scams)

and anti-money laundering (AML)

The UK’s nancial markets are large,

complex and operate globally. This

makes them attractive to money

launderers and other criminals

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

issue to enable us to decide the

best approach, covering a range

of different firms. Better systems

and controls in capital markets will

protect society as a whole, as well

as the integrity of the UK’s financial

system and of the global financial

framework. We are also undertaking

diagnostic work on money laundering

and terrorist financing risks in the

e-money sector. This is important

because if e-money firms have

ineffective systems and controls this

could undermine confidence and

participation in e-money services

and the integrity of the financial

system. We will share our findings in

Q2 2018/19.

The new Office for Professional Body

Anti-Money Laundering Supervision

(OPBAS) was established in

February 2018. OPBAS oversees 22

professional body supervisors for

anti-money laundering. OPBAS aims

to ensure a robust and consistent

standard of AML supervision

across the legal and accountancy

sectors, and improve and enable

collaboration and information

and intelligence sharing between

professional body AML supervisors,

statutory supervisors and law

enforcement agencies.

In December 2017, the Home

Secretary announced a package of

measures to tackle economic crime.

We are working closely with the

Government and industry on reform

of the suspicious activity reporting

regime and to establish a new National

Economic Crime Centre. We will

continue to use intelligence, including

from whistleblowers, to make it more

dicult for money launderers to use

the nancial system.

Taking account of FATF Mutual

Evaluation recommendations

We are a major participant in the UK

delegation to the Financial Action Task

Force (FATF). We have been closely

involved in the preparation for the

FATF’s Mutual Evaluation of the UK

which will conclude in October 2018.

We will continue to review and rene

our AML supervisory approach and

take account of any recommendations

from FATF’s evaluation.

Raising awareness of fraud

and scams

The aim of our ScamSmart

communication campaign is to help

protect consumers from falling

victim to investment fraud. Scams

are becoming more sophisticated,

while consumers’ increased use of

data sharing and social media can

also make them more susceptible

to fraud. Scams continually evolve

and there is now a significant overlap

between pension and investment

fraud. In 2018 we will work with

The Pensions Regulator to deliver

a single, co-ordinated awareness

campaign to tackle pension and

investment scams.

Collaborating with our partners and

other agencies

Not all fraud and scams fall within

our remit but we have a range of

enforcement action to tackle those

that do. These include civil court

action to stop activity and freeze

assets, insolvency proceedings,

prohibiting individuals from financial

services roles and, for the most

serious cases, criminal prosecution.

Monitoring change

We assess the quality of firms’

AML controls and consumers’

use of our online resources, such

as ScamSmart, as one indicator

of whether the potential harm to

consumers and market integrity

in this area is likely to have

reduced.

OPBAS will monitor the

quality and consistency of the

professional bodies’ own efforts

to supervise their members’

money laundering controls and

how effectively information

is being shared between their

members and law enforcement.

We believe that effective

information-sharing is essential

to tackling the harm that arises

from financial crime.

We collaborate with law

enforcement partners and other

agencies at home and abroad

on AML, scams and other types

of financial crime, to help the

relevant organisations take action.

This year, we will convene an

international TechSprint. This will

bring together a range of experts

to explore whether new technology

can be used more effectively to

fight financial crime. Working in

collaboration with others improves

intelligence-sharing arrangements

to help fight money laundering and

financial crime. This leads to more

effective and consistent standards

and ultimately delivers better

outcomes.

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

Addressing industry’s operational

resilience

Our aim is to help firms to become

more resilient to cyber-attacks, to

enhance market integrity and to

protect consumers.

Over the next year, we will strengthen

our supervisory assessments of

the highest impact rms to better

understand their current and planned

use of technology, resilience to

cyber-attacks and sta expertise.

We will also review how governance,

strategy, systems architecture, risk

management and culture contribute

to rms’ data security. This will ensure

we can better assess potential harm

and explain to rms what we expect

from them. Where necessary, we

will ensure they address any specic

issues we have found.

We will also conduct focused

thematic work with ‘lower impact’

firms, based on harms we have

identified in each sector. This

could include firms that are new

to financial services as well as

established firms. We will continue

the communications approach we

began in 2017/18 and give smaller

firms additional information on

how to improve their resilience.

Our approach to cyber resilience

is aligned to the UK’s National

Cyber Security Strategy and we will

continue to work closely with the

National Cyber Security Centre

(NCSC) to share good practice

with industry.

Technology plays a pivotal role in

delivering financial products and

services. It enables firms’ innovation

(see the Innovation, big data,

technology and competition cross-

sector theme) and supports their

business strategies. New technologies

can lead to harm if they are not safely

adopted and managed. For example,

new technologies such as distributed

ledger (blockchain) and artificial

intelligence rely on access to sensitive

and high quality data. But new

technologies present opportunities

for helping firms to meet Know Your

Customer or anti-money laundering

requirements more efficiently.

Cyber-attacks in the financial services sector are

becoming more frequent and widespread. This is

potentially made worse by the use of complex and

ageing IT systems, outsourcing of operations and the

growing transfer of data between firms.

Our work focuses on ensuring that firms are more

resilient to cyber-attacks and technology outages, so

reducing the risk and frequency of disruption and also

ensuring new and replacement technologies

are resilient.

We work closely with global bodies such as

the International Organisation of Securities

Commissions (IOSCO), Group of Seven (G7), Financial

Stability Board (FSB) and others who prioritise data

security, resilience and outsourcing.

Cross-sector priorities

Data security, resilience

and outsourcing

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Monitoring change

To monitor the risk of harm to

consumers, we look at firms’

resilience and their ability to keep

systems running in the event of

major operational problems. We

look for reduction in any impact

on consumers caused by IT issues

and cyber-attacks.

Cyber security is a shared

responsibility, and we take a

co-operative approach to address

this threat, working with the

Government, other regulators,

nationally and internationally on this

important issue. Working with the

Bank of England, we will continue to

develop regulatory tools to better

assess firms and identify where harm

could occur. We will also continue

to work with firms to minimise the

impact of breaches and systems

failures on consumers and the

market, liaising closely with the

Bank of England, the Treasury, the

National Cyber Security Centre and

the National Crime Agency.

Assessing the risks of outsourcing

and third-party providers

An increasing number of firms are

outsourcing the delivery of major and

critical services often to unregulated

providers. Regulated firms should

have appropriate oversight and

control over third-party providers

and take responsibility for the

service they provide. Doing so will

reduce the risk of third-party failures

or weak controls which could lead to

operational disruption, unauthorised

loss or disclosure of consumer data.

One area we are focusing on is

outsourcing arrangements where

the service provider supports

many firms and so the impact of

any disruption is magnified. Over

2018/19, we will increase our

understanding of both outsourced

services and core infrastructure

provision across different sectors

through several pieces of thematic

and firm-specific work. This will

include diagnosing how firms use

third parties, their concentration in

the market and the potential harm

that results.

Joining up our work on resilience

We will also look at risks to

firms’ resilience. These include

ring-fencing where significant

restructuring, with the potential

to affect resilience, will continue

into 2018. Our implementation

of PSD2 will continue to evolve.

While it will increase competition in

payments, it also has the potential

to increase cyber attacks and

data breaches. From August

2018, we will monitor the roll-out

of the Competition and Markets

Authority recommendations to

measure consumer understanding

of resilience by requiring firms to

publish service quality data on

technology and resilience issues.

One area we are focusing

on is outsourcing

arrangements where the

service provider supports

many rms and so the

impact of any disruption

is magnied

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

Assisting rms through the FCA

Innovate programme

Our FCA Innovate programme provides

assistance to rms which are using

innovation to improve consumer

outcomes. We help them better

understand our rules, processes and

guidance. In turn, this helps us keep

ahead of developing trends and potential

harms in the market, including in new

areas such as initial coin oerings and

distributed ledger technology.

Allowing rms to test viability in the

regulatory sandbox

Our regulatory sandbox gives

businesses of every size the

opportunity to test the commercial

and regulatory viability of their

innovative concepts before they invest

more heavily in them, while providing

safeguards for consumers. The

sandbox also gives us an understanding

of the opportunities and risks of harm

that innovation can create.

Over the coming year we will undertake

work that uses lessons we have learned

since the sandbox was created in 2016.

We aim to further reduce unnecessary

barriers to entry for innovative rms.

Global sandbox

Our sandbox currently only allows rms

to conduct tests in the UK but many

aspects of nancial markets and FinTech

are global. We are hearing from rms that

there is real value in being able to operate

globally. This would involve working with

other regulators across the globe to

conduct tests in dierent jurisdictions

at the same time. Last month we invited

stakeholders to share their views on what

a global sandbox could look like; there is a

lot of interest in the idea of cross-border

testing and the benets this could bring,

such as reducing cost and complexity

and accelerating expansion into other

Financial Technology (FinTech

) is

already driving change in markets and

encouraging further innovation. It is

increasing competition and reducing

costs, offering consumers better value

products and services and easier ways

for firms and consumers to engage

with each other. For many consumers

it has already improved access to

products and services. Increasing

amounts of data from a wider range

of sources, alongside sophisticated

analytical tools, can improve pricing,

access and service for consumers,

including those who may previously not

have been able to access services.

The increased use of big data also has the potential

to cause harm. There is a risk that if technology and

innovation move too quickly, the more vulnerable in

society could be at a disadvantage. As both old and

new firms grapple with the challenges and benefits of

innovation we also expect them to develop plans to

deal with those who are more vulnerable. Problems

can also occur because of data loss and weak cyber

resilience. This theme is strongly linked to our

cross-sector theme of ‘Data security, resilience and

outsourcing’.

Our approach is to sustain a regulatory environment

where consumers and firms can maximise the

opportunities of competition, innovation and big data

while reducing or mitigating the associated harms.

4 ‘FinTech’ is the term which describes the intersection between nance and

technology. It can refer to technical innovation applied in a traditional nancial

services context or to innovative nancial services that disrupt the existing

nancial services market.

Cross-sector priorities

Innovation, big data, technology

and competition

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

jurisdictions – especially for start-ups

who are keen to expand internationally.

Over the next few months we will

work with interested regulators on a

blueprint of the global sandbox.

Testing and applying RegTech and

advanced analytics

RegTech describes new technologies

developed to help overcome regulatory

challenges faced by nancial services

rms.In 2018/19 we will take forward

work to deliver cost savings, both for

rms submitting regulatory returns to

us and in how we use this information.

At the start of 2018 we published a Call

for Input which summarised our work to

date on machine executable regulatory

reporting and the ‘proof of concept’

developed during our November 2017

TechSprint. In summer 2018 we will

publish a feedback statement that

brings together the results of the

feedback from this Call for Input and

further industry discussions.

Some of the experiments we are

conducting with advanced analytics

over this year include:

• automated detection of

unauthorised business activity on

the internet through a variety of new

technologies

• testing advanced Natural

Language Processing (NLP)

technologies and semantic

language models in an effort to

automate what would otherwise

be manual supervisory tasks

• automated evaluation and detection

of misleading advertising

The automated processes will allow

us to review the total population of

high-risk markets, rather than only

sampling a proportion.

Reviewing rms’ use of data

We will review the use of data by

nancial services rms, including

machine learning analysis of big

data pools, algo trading and wider

articial intelligence. This work will

help us better assess both potential

opportunities and harm and where we

may need to intervene.

We will further develop our relationship

with the Information Commissioner’s

Oce as the General Data Protection

Regulation (GDPR) comes into

force in May 2018. We will then

publish an updated Memorandum of

Understanding setting out how we will

work together in future.

Reviewing retail banking

business models

This review looks at the core

dierences between emerging and

traditional retail banking business

models. It assesses how these

dierences are being driven by

technological change and innovation

and how they aect competition and

rms’ conduct. We particularly want to

understand what impact the growing

use of digital channels and declining

use of branches is having on business

models and the implications of this for

consumers.

We are analysing the information we

have collected from retail banks. We

will publish an update in the rst half

of 2018, explaining the results of this

preliminary analysis and our proposed

next steps.

Crowdfunding post-implementation

review

Crowdfunding markets are

continuing to develop rapidly.

Since the publication of our

interim feedback in 2016, we have

been working on additional rules

to address areas of concern,

in particular for loan-based

crowdfunding. This has been an

extensive process due to the

continually evolving market but we

need to ensure that there remains an

appropriate framework for regulating

the crowdfunding industry. We want

a sector that can innovate, compete

and challenge established firms and

business models without putting

consumers at unacceptable risk.

We will nalise the proposed

new rules and publish them for

consultation in 2018.

Cryptocurrencies

Cryptocurrencies has been an area

of increasing interest for markets

and regulators globally. In the

UK, the Treasury Committee has

announced that it will be launching

an enquiry, to which we intend

to respond.

Cryptocurrencies themselves

(i.e. those designed primarily as

a means of payment/exchange)

are not currently within our

regulatory perimeter. However,

some models of use or packaging

cryptocurrencies bring them

within our perimeter, making the

landscape complex.

Last year, we issued consumer

warnings on cryptocurrency

Contracts for Dierence and

the risks of Initial Coin Oerings

(ICOs). We will work with the Bank of

England and the Treasury as part of

a taskforce to develop thinking and

publish a Discussion Paper later this

year outlining our policy thinking on

cryptocurrencies.

Monitoring change

To see whether FinTech is helping

to improve competition in the

interest of consumers, we will look

at metrics such as the number of

new entrants to the market and

the emergence of new innovative

products to meet consumer

needs. We continue to measure

feedback and the number of

firms we help through our FCA

Innovate work.

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

Understanding firms’ pricing

practices in retail general insurance

In 2018/19 we will continue work on

pricing practices in retail general

insurance. We will conclude the rst

phase of our diagnostic work to give

us a better understanding of retail

general insurers’ and intermediaries’

pricing practices and how these aect

household insurance customers. This

work has also looked at the types of

systems and data that rms use to

decide the nal price to consumers

and the governance and oversight

arrangements within rms.

Drawing on the emerging themes

from that work, our earlier Call for Input

on Big Data in retail general insurance

and recent public debate, we are

currently scoping work to formalise

that debate and to assess whether we

need to act to ensure future insurance

pricing practices support a market

that works well for its customers. We

will publish details of the scope of this

work in due course.

Regulation of claims

management companies

We expect to take over the

responsibility of regulating claims

management companies (CMCs)

from the Ministry of Justice, subject

to legislation, in spring 2019. While

CMCs can provide access to justice

for consumers who may be unwilling

or unable to bring a claim themselves,

some rms may not always operate

in consumers’ best interests. We are

developing a package of information

to ensure CMCs are clear about the

rules and principles they will have

to meet when we take over their

regulation. We will also continue to

build our knowledge of the sector and

consult on draft rules to deliver robust

regulation to protect consumers later

this year.

Cross-sector priorities

Treatment of existing customers

Our aim is to ensure that existing

customers enjoy the benefits

of increased competition and

innovation. Firms should not give

longstanding customers less attention

than new customers or treat them in a

way which results in poorer outcomes.

All customers should be well informed

about the financial products they

buy or are invested in, including

performance and charges.

If competition is working well in a market, it should

not overly disadvantage existing customers over new

customers. While many firms have made progress in

putting customers more firmly at the centre of their

business models, they need to further improve both

competition and their standards of treatment for

existing customers.

While claims management companies

can provide access to justice, some

rms may not always operate in

consumers’ best interests

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Monitoring change

To see whether existing

customers are being treated fairly,

we consider firms’ practices,

how easy it is for customers to

compare products and services

across providers and to switch

between them.

Assessing claims inflation in

general insurance

We will carry out diagnostic work

to assess how far brokers and

motor insurers are inflating claims

through referrals to CMCs and

keeping volume discounts from their

own repairers. This will give us an

understanding of the issues CMCs

will need to address when we take

over their regulation.

Helping consumers make informed

decisions on their insurance needs

To help consumers make informed

decisions about insurance needs,

we published the second set of

data from our value measures pilot

in March 2018. This year, we will

evaluate the extent to which the

data collected have influenced

behaviours and decide whether

to conduct a third pilot. We have

already seen examples of where

publishing the first set of data

has incentivised insurers to make

product improvements and focus

more on overall product value. We

expect that stakeholders’ use of

the published data will help increase

market focus on suitability and value,

as well as the headline price.

Improving competition in

current accounts

Our rules now require retail

banks and building societies to

publish standardised, comparable

information about personal and

small business current account

services. This information will

be published for the first time in

August 2018, to coincide with the

publication of service quality survey

data required by the CMA.

In 2018/19, we will report on our work

on the monthly maximum charge

(MMC) for unarranged overdrafts,

introduced by the CMA in 2017.

Any proposals we make as a result

of our High-Cost Credit Review will

take account of the impact these

remedies may have on consumers

and the wider market. We will also

report our findings from our trials

of prompts and alerts to improve

consumers’ engagement with their

overdraft use and charges, as well

as their awareness of the potential

benefits of switching.

Providing access to Alternative

Dispute Resolution for Small and

Medium-sized Enterprises (SMEs)

We believe our rules broadly strike

the right balance between protecting

businesses and ensuring SMEs can

access nancial services. However,

we are concerned that many SMEs

struggle to resolve disputes with

nancial services rms and seek

redress. Given this, we are consulting

on proposed new rules that will allow

more SMEs to refer disputes to the

Financial Ombudsman Service. We will

consider feedback to this consultation

and publish a Policy Statement with

our nal rules in summer 2018.

Competition in the

cash savings market

We have implemented a number of

remedies as a result of our 2015 cash

savings market study to improve the

switching process and the way rms

communicate with their customers.

However, we remain concerned that

providers hold a signicant amount

of customers’ savings balances

in accounts opened long ago (eg

more than ve years ago). Yet these

accounts tend to pay lower interest

rates than those opened more

recently. So we continue to explore

whether competition in the cash

savings market could be improved,

particularly to ensure the fair

treatment of longstanding consumers.

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

Retirement Outcomes Review

Since we published the interim

report from our Retirement

Outcomes Review, with potential

remedies, we have received

feedback and undertaken further

analysis on the types and level of

consumer harm that drawdown

charges and investment choices may

cause. We will publish our final report

in 2018, together with a Consultation

Paper on our proposed remedies.

Unsuitable pension transfer advice

Some firms have responded to

the pension reforms by changing

their business models in ways

that potentially cause harm to

consumers. We will not hesitate

to intervene, where necessary, if

we see evidence of firms providing

unsuitable pension transfer advice.

We will be collecting data from all

firms that have pension transfer

permission to assess practices

across the entire market. Our work

will identify the extent of consumer

harm and where and how we can

intervene most effectively to stop it.

Savings adequacy work

We are undertaking a piece of

research looking at the levels of

undersaving for retirement. As part

of this project, we are investigating

which consumer groups are most

at risk of experiencing a shortfall in

their expected retirement provision.

Effective competition in

non-workplace pensions

We are continuing our diagnostic

work to better understand the

market for non-workplace pensions.

In particular, we are exploring

whether the weaknesses previously

Our work on long-term savings and

pensions and intergenerational

dierences covers a broad group

of issues around the changing UK

population and their nancial needs.

In some sectors, including pensions

and retirement income, retail banking,

general insurance and protection and

retail lending, some older consumers’

nancial services needs are not being

fully met, resulting in exclusion, poor

customer outcomes and potential harm.

An ageing population, increased life expectancy

and individuals taking on more responsibility for

financing their longevity shows that our society

is undergoing dramatic social and demographic

change. The pronounced fall in real interest rates has

reduced savings growth and created concerns that

consumers may be unable to meet their expectations

of sufficient retirement savings.

Additionally, the reduced cost of servicing household

debt has created an incentive to borrow, while the

cost of building up assets to support retirement

income has gone up.

Cross-sector priorities

Long-term savings and pensions

and intergenerational differences

We will not hesitate to intervene,

where necessary, if we see

evidence of rms providing

unsuitable pension transfer advice

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Monitoring change

We will use a variety of metrics,

particularly through our

diagnostic work, to assess how

consumers are saving and how

this varies across generations.

The measures in this cross-sector

theme are likely to link to our

outcome indicators in Pensions

and retirement income and

Retail investments.

identified in the workplace

pensions market exist, in whole

or in part, in the market for non-

workplace pensions. We also want

to understand:

• whether providers are competing

on charges

• if there are barriers to consumers

identifying, and choosing, from

more competitive products

• how the dierences and

similarities between the

workplace and non-workplace

markets impact competition and

consumer outcomes

We will assess the feedback

received from our Discussion

Paper and data request and publish

a Feedback Statement by the end

of 2018.

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

Alternatives to high-cost credit

For low-income, high-risk

consumers, even in a well-regulated

sector, borrowing remains expensive

and the consequences can create

harm for consumers. Drawing on

our research and our extensive

stakeholder discussions, we have

identified key issues that can

create barriers to the expansion

of alternatives to high-cost credit.

These include access to sustainable

capital, lack of access to alternative

lending options and uncertainty

about regulatory requirements from

organisations such as Registered

Social Landlords referring

consumers to lenders.

As part of our ongoing review of

high-cost credit, we will look at

solutions designed to increase

the choice and availability of

alternatives to high-cost credit.

We will also consider the options to

improve transparency of regulatory

requirements and, if needed, will

consult on further guidance and

rule changes.

Our High-Cost Credit Review

focuses on specific high-cost credit

markets where we consider there

may be a need for additional rules

and guidance. We explain the specific

problems we intend to address

regarding the different products.

We have already made a significant

impact in the high-cost credit

market. We have taken action

to protect potentially vulnerable

consumers by putting in place new

rules for high-cost short-term credit

firms. We have taken supervisory and

enforcement action against non-

compliance across all credit markets.

Our work on high-cost credit complements our work

on Retail lending which covers the wider borrowing

needs of consumers across mortgages and

consumer credit.

The harms caused by high-cost credit products tend

to disproportionately affect vulnerable consumers

who may turn to them in financial difficulty. We have

a responsibility to ensure there is a framework of

rules that allows consumers access to products and

services that are suitable, affordable and right for

their circumstances.

We want to send a clear message to firms and

consumers that more work is needed in some parts

of the market to improve consumer protection.

Cross-sector priorities

High-cost credit

We want to send a clear message

to rms and consumers that more

work is needed in some parts of

the market to improve consumer

protection

Chapter 4

Cross-sector priorities

Financial Conduct Authority

Business Plan 2018/19

Monitoring change

Our review will give an overview

of how this market is changing

and where we can intervene to

have the most impact. We will

also look at measures such as the

volume of complaints, arrears and

default rates for high-cost credit

products.

Rent-to-own

We are examining firms’ pricing

policies for rent-to-own services,

including charges for add-ons like

insurance and warranties which can

substantially increase the overall

amounts consumers pay. We have

previously examined the extent

to which behavioural biases can

affect the choices consumer make

about add-ons. We will assess the

potential impact of these costs on

consumers’ finances and whether

consumers consider the costs or

value of these products before

buying them.

Home-collected credit

Some forms of refinancing loans

may result in consumers paying

significantly more interest on

the amounts originally borrowed.

This can happen when consumers

take out additional borrowing that

incorporates the outstanding

balance from the previous loan into

the new loan.

We recognise that consumers

value continuing access to home-

collected credit and that weekly

repayments on separate loans

may not be affordable, but we are

examining if repeat borrowing could

work better for consumers. This year

we will consult on any changes we

need to make to improve outcomes

for consumers.

Catalogue credit

We are examining potential concerns

about the high level of arrears among

catalogue credit customers, the fees

and charges this triggers and the

related risk of nancial distress. We

are also looking at the complexity

of these products and how this can

aect consumers.

We will complete analysis of firms’

policies and practices, including

the information they provide to

customers. We will also publish the

results of consumer research into

how consumers use these products

and their impact. Using this new

information, we will consult on any

changes we consider we need to

make in 2018.

Arranged and unarranged

overdrafts

We remain concerned about

the long-term use of arranged

overdrafts at levels which can be

persistent and unsustainable,

and the use and high charges of

unarranged overdrafts.

Arranged and unarranged overdrafts

cannot be considered in isolation of

one another or of the wider current

accounts offered by firms. So, to

reduce the risks of unintended

effects, we will use the evidence

and insight from the Strategic

Review of Retail Banking Models (see

Innovation, big data, technology and

competition) to inform our exact

design of any package of remedies.

We aim to consult on measures

around overdrafts to address

low customer engagement,

promote competition and improve

transparency for customers in

May 2018. Subsequently, we will

use the evidence and insight from

the Strategic Review to inform the

exact design of any wider package

of remedies. We will therefore look

to consult on any further remedies

towards the end of 2018 taking

into account the findings of the

Strategic Review.

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

The UK is a leading international financial centre and

plays a key role in global wholesale financial markets.

Healthy wholesale financial markets enable firms and

governments to access short-term finance and

long-term capital to provide investment opportunities

for retail and institutional investors, undertake

domestic and international trade, and fund growth.

Their effectiveness relies on them being visibly fair,

transparent and efficient. So clean markets where

competition works well are vital to the UK’s prosperity,

and we have a role in facilitating this.

Sector priorities

Wholesale financial markets

Our work is concentrated on four

broad principal drivers of harm in

wholesale markets.

First, market participants that

undermine clean markets through

financial crime and market abuse.

The integrity of the UK financial

system suffers if those undertaking

unlawful activities benefit at the

expense of others.

Second, market participants

failing to deal with each other

appropriately. This could be either

through conflicts of interests, poor

governance or weak oversight.

These conflicts can affect the

incentive for dealers to act in their

client’s best interest, resulting

in clients buying unsuitable or

overpriced products.

Thirdly, fast-paced technology

changes coupled with poor

operational controls leading to

company failures, successful

cyber-attacks and market turbulence

(eg flash crashes) can harm both

market participants and the wider

economy.

Finally, we identify markets, such

as primary markets, that are not

working as well as they could be.

We intervene, where appropriate,

to improve their efficiency and

effectiveness so that they can better

serve their users.

Work on EU Withdrawal will be a

key focus of our activities in the

wholesale financial markets.

Financial Conduct Authority

Business Plan 2018/19

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our key activities

Clarifying our approach to

market integrity

Wholesale nancial markets are

complex. They have undergone

large-scale and complex regulatory

change, including the Markets in

Financial Instruments Directive

(MiFID II) and the Market Abuse

Regulation (MAR). Technology

and innovation are aecting their

business models and their users have

dierent levels of sophistication. All

of this creates particular challenges

for rms and individuals who need to

be clear about the conduct that we

expect of them. To provide necessary

clarity and certainty, in 2018/19 we

will publish a document outlining

our ‘Approach to Market Integrity’.

It will help rms and individuals to

take responsibility for their part in

maintaining clean, fair, eective and

competitive markets and be clear

about our approach to regulating

these markets.

Promoting clean financial markets

Insider dealing illegally exploits

privileged information for profit,

disadvantaging those who abide by

the rules. Market manipulation and

other forms of market abuse distort

the effective allocation of capital,

damage competition and reduce

confidence in market fairness

and integrity.

MiFID II has updated the transaction

reporting regime. The regime’s scope

has been signicantly expanded

across new instruments and asset

classes, providing more information

on transactions.Over the next

year, we will monitor, detect and

investigate potential abuse in these

markets and enforce against unlawful

behaviour where appropriate. We will

focus our supervision monitoring on

the xed income, commodity and

non-standard derivative markets.

These have previously received

less focus than equities, but make

up a large and important part of the

wholesale nancial markets.

In 2018/19 we will carry out a

thematic review to increase our

understanding and assessment

of the harms caused by money

laundering in capital markets (see

Financial crime (fraud and scams)

and anti-money laundering).

Financial Conduct Authority

Business Plan 2018/19

MiFID II provides us

with better tools to

deal with potential

harms from algorithmic

High-Frequency

Trading (HFT) by

introducing new

obligations and

systems and controls

for both traders

and venues

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

5 Previous analysis, has shown that regulation has improved the accuracy of the Intercontinental Exchange (ICE) Swap rate benchmark, as well as the liquidity of the underlying

market: see Occasional Paper No.27: Benchmark Regulation and Market Quality.

6 www.fca.org.uk/news/press-releases/bank-fca-launch-next-phase-sterling-libor-transition-work

Addressing conflicts of interest

Conflicts of interest and a lack of

clarity by market participants about

the capacity they are acting in

causes harm in wholesale markets.

This includes participants overpaying

for services or products, purchasing

poorly performing products and

buying products or services that do

not meet their needs.

MiFID II introduced a number of

requirements, such as new rules

around research unbundling, best

execution and restricting the

practice of payment for order ow.

Our supervision work will focus on

ensuring that rms are complying

with these changes and we will assess

if the rules are working as intended.

Our work last year on the

effectiveness of primary markets

found that users of the IPO process

are harmed because of a lack of

timely and high-quality information

during the IPO process. Investor

information is driven by ‘connected

research’. This hampers the

efficiency and integrity of the price

formation process and impairs its

effectiveness as a way of supporting

the broader economy. Over 2018/19

we will monitor firm compliance

with new requirements to address

conflicts of interest in producing

connected research.

Addressing operational resilience

Wholesale markets rely on

their infrastructure - trading

venues, benchmarks and other

administrative services. This

infrastructure needs to be reliable

and resilient to operational outages,

whether caused by cyber-attack or

traditional operational failures.

Benchmarks are fundamental

elements of financial markets’

infrastructure. Trustworthy

benchmarks enable individual savers

and institutional investors to assess

investments.

Markets need to be

able to trust that the rates set are fair

and accurately reflect the underlying

markets. Additionally, benchmarks

based on judgements rather than

observable transactions, particularly

those with less active underlying

markets to support them, can be

manipulated more easily.

It is potentially unsustainable, and

undesirable, for market participants

to rely indefinitely on reference rates

that do not have active underlying

markets to support them. Given

this, we will not require banks to

continue to submit to LIBOR after

the end of 2021. So those who

currently use the rate will need to

actively plan during the next three

years for the possibility that LIBOR

will not be produced after this date.

We are working closely with the

Bank of England and other market

participants to develop SONIA

as an

alternative sterling risk-free rate.

As in other sectors, technology

plays a central and developing role

in wholesale financial markets.

Fast-paced technological changes,

such as artificial intelligence,

algorithms and machine learning

can result in faster decision making,

innovation, increased competition

and reduced costs. But weak

controls and poor understanding

of the new technology can result in

systems failures, poor design and

inappropriate use. This can lead to

significant harm, including major

service interruption, financial loss

and potential systemic harm in

wholesale financial markets.

MiFID II provides us with better tools

to deal with potential harms from

algorithmic High-Frequency Trading

(HFT) by introducing new obligations

and systems and controls for both

traders and venues. We will focus

supervisory efforts on monitoring

compliance with these new rules and

increasing our understanding of the

use of trading algorithms and other

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

innovations across the wholesale

financial markets. We will use existing

diagnostic work on HFTs, circuit

breakers and mini-flash crashes to

inform this work. This will enable us

to anticipate and deal with potential

harms this kind of technological

advancement may create.

Effectiveness of primary and

secondary markets

Poorly functioning primary markets

lead to badly allocated economic

resources and capital. The UK IPO

process plays a vital role in helping

companies raise finance and

provides investment opportunities

for a wide range of investors. For

example, between 2011 and 2015,

a total of 460 companies floated on

the London Stock Exchange, raising

an estimated £53 billion

(including

capital raised on the Alternative

Investment Market (AIM)).

Recently, our work has focused on

two key drivers of harm in primary

markets. The first is the disparity in

the information provided to investors

during the IPO processes and the

second is the difficulties market

participants had in interpreting our

Listings Rules.

During 2018/19 we will monitor

firms’ compliance with the final rules

on IPOs we made last year. We will

assess if the rules are working as

intended and if firms are making the

right information available at the

right time during the UK IPO process.

Following our review of the

eectiveness of primary markets

three topics require further focus:

the future structure of the UK listing

regime (premium listing and standard

listing), the provision of patient capital

to companies that require long-term

investment and retail access to

debt markets. As elements of these

topics are based on powers from EU

legislation and involve EU market

structures, progress on the follow-

7 Paragraph 1.1 of DP16/3: Availability of information in the UK Equity IPO Process.

8 FS17/3 and PS17/22.

9 Fidessa Fragulator data.

up work will depend on the outcome

of EU Withdrawal negotiations and

clarity on future arrangements. But we

expect to complete a more specic

aspect of further work aimed at issuers

controlled by sovereign countries.

We have already begun preparations

for the Europe-wide adoption of

electronic filing of annual reports in

formats supporting structured data,

due to come into force in 2020 and

we will be progressing this further

in 2018/19.

MiFID II introduced important

changes to the wholesale market

structure by establishing new

trading venues and, in some

instances, limiting the amount of

trading that takes place outside

organised venues. These changes

may have a significant impact on

wholesale financial markets, for

example in 2016 a total £5,375

billion of UK equities were traded via

over-the-counter trading.

There

may be important unintended

consequences to these regulatory

changes, such as less liquidity in

some markets. We will undertake

monitoring and diagnostic work to

ensure that we can anticipate any

such changes and act if we consider

that they may lead to potential harm.

Industry codes of conduct

Many of the recent conduct issues

that have caused harm in wholesale

financial markets involved authorised

firms carrying out activities that

are outside our remit (known as

the ‘regulatory perimeter’). While

voluntary industry codes can help

raise standards of market conduct,

historically their status has been

unclear and they have lacked teeth.

So last year we proposed to recognise

some industry codes of conduct for

unregulated markets and in 2018

we will publish a Policy Statement

outlining our nal rules and approach

to these codes. Our aim is to

encourage the industry to develop

and adopt new codes for rms to

achieve strong conduct standards.

These standards can be a useful

way for the industry to police itself in

support of our regulatory work, and

can help rms to communicate what

they expect from their senior sta

when linked to the Senior Managers

and Certication Regime.

Outcome indicators

We will use indicators such as market

cleanliness data and the number of

suspicious transaction and order

reports to assess the potential harm

from market abuse which damages

confidence and participation in

the market.

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

The investment management sector is an important

contributor to the UK economy, with just over £8

trillion in total assets under management at the end

of 2016. It has grown steadily in recent years and this

growth is expected to continue. It is important that we

have a competitive sector which is both attractive and

works well for those who rely on it for their financial

wellbeing.

Sector priorities

Investment management

Key issues in this sector include:

poor quality and value for money of

products, inadequate disclosure and

lack of transparency, susceptibility

to nancial crime, and cyber and

technological resilience risks. These

issues may cause harms such as

investors paying too much for

products, inappropriate purchases and

products that do not deliver or behave

as expected. Investment management

rms also have responsibilities to

uphold market integrity.

The cumulative impact of important

regulatory changes (e.g. MiFID II

and PRIIPS) can potentially have

wide-ranging and positive impacts

on the sector, in relation to costs,

transparency of fees and governance.

But they may also create prudential

and conduct harms that we will need

to carefully monitor.

In the current low interest-rate

environment, it is even more

important that consumers earn the

most they can from their savings

and investments. The Asset

Management Market Study is a step

in this direction.

The UK’s withdrawal from the EU

presents challenges in this sector.

One important challenge would arise

from any changes to the existing

global regulatory framework that

could make it harder for asset

managers to delegate portfolio

management from the jurisdiction of

the fund to the jurisdiction(s) where

portfolios are managed. We are

gathering intelligence to understand

key changes to firms’ business

models, planning assumptions

and governance after withdrawal.

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our work will aim to deliver strong

regulatory cooperation that

supports open markets.

Our key activities

Our work in the investment

management sector will aim to

ensure that firms act as good

agents to their investors and as

effective participants in wholesale

markets. This is especially important

in a continued low interest-rate

environment that drives a ‘hunt

for yield’ and where technology

advances rapidly.

It is crucial that rms’ decision-making

gives due prominence to customers’

interests. Our ‘ve conduct questions’

form the framework we use to assess

the eectiveness of a rm’s culture

and governance. Firms also need to

ensure they have eective systems

and controls to avoid being used as

conduits for nancial crime, including

market abuse.

This sector is using new and

innovative technologies, for example,

distributed ledger technology and

articial intelligence. Technology

has the potential to create real

benets for both consumers and

rms by increasing competitiveness,

innovation and eciency. But it also

brings with it important potential

harms, such as service disruption, loss

of data and exposure to cyber crime.

We will engage with rms to ensure

they allocate sucient expertise

and resources to these important

developments to prevent consumer

harm and avoid disruption of critical

services. This work will also help to

inform our future strategy with new

technology. In 2017, we launched the

Asset Management Authorisations

Hub to streamline the authorisation

process for new asset managers

looking to set up in the UK. This is

part of our commitment to ecient

regulation and enhanced competition.

We will continue to welcome

applications throughout 2018.

Asset Management Market Study

We estimate that over three-quarters

of the UK population are exposed to

the asset management sector, either

directly or through their pensions. It

is important that competition works

well in this market as, for example,

even small dierences in the charges

they pay can have a signicant impact

on people’s savings over time.

Given that even small

differences in charges

can have a significant

impact on people’s

savings over time, the

harm is significant

We are implementing a

comprehensive remedies package

on asset management to tackle the

harm we have found by promoting

increased competition in the

interests of investors and to better

protect them from the results of

weak competition where necessary.

In September 2017 we referred

investment consulting and fiduciary

management to the Competition

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

and Markets Authority (CMA) for a

full market investigation. The CMA

will publish their provisional findings

on how competition is working in this

part of the market in summer 2018

and will finalise the investigation

including recommendations for

remedies by March 2019.

In 2018/19 we will issue a further

Policy Statement on the final rules

and guidance outlined in our recently

published Consultation Paper. We

will also issue a second Consultation

Paper on remedies focused on

measures to ensure investors

receive clear, comprehensive and

consistent information.

PRIIPs Regulation

The sector continues to be affected

by important regulatory changes

that should mitigate actual and

potential harm to investors.

The Packaged Retail and Insurance-

based Investment Products (PRIIPs)

Regulation has applied since January

2018. It introduced a requirement for

rms to produce, publish and provide

a standardised key information

document (KID) for PRIIPs. This was

so that investors can make better and

fully informed decisions by being able

to compare key features, risks and

rewards of PRIIPS, through access to a

short and consumer-friendly KID.

Some firms have told us they

have concerns about this directly

applicable EU regulation.In

response, in January we published

a statement clarifying some of our

views on the KID.We will continue

to engage with firms and their trade

associations to consider how their

concerns may be resolved so that

investors get the full benefits of

the Regulation.

We will also continue to work with the

European Supervisory Authorities,

and contribute to the European

Commission’s post-implementation

review of the PRIIPs Regulation.

10 Bank of England Financial Stability Report, July 2016.

Liquidity strategy

We have reviewed the feedback

from our 2017 discussion paper on

liquidity management in open-ended

funds. UK open-ended funds have

approximately £35 billion invested in

commercial real estate.

Our paper

looked at the tension from funds

that offer daily redemption terms,

while managing assets that are not

revalued on a daily basis. It noted the

potential harms to investors who

are unable to withdraw their money

or do not receive a fair sale price for

their assets. We will consult on a

package of new rules and guidance

that takes on board the responses

we received, as well as the wider

international agenda, particularly

the International Organization of

Securities Commission’s updated

‘Collective Investment Schemes

(CIS) Liquidity Risk Management

Recommendations’ published in

January 2018.

Our aim is to ensure that our

regulatory framework does

not prevent investors having

access to diversified investment

opportunities. It should also support

the fair treatment of all investors

in these funds and not amplify

disruptions to the financial system in

stressed market conditions.

Strengthening governance

Alongside the governance remedies

we proposed following the Asset

Management Market Study, we are

considering whether we should

extend similar remedies to

with-profits and unit-linked funds.

The SM&CR is being extended to

cover most of the firms we regulate,

including investment managers. We

give more information on this work

in the Firms’ culture and governance

chapter.

Investment Firms Review

In December 2017 the EU

Commission published a legislative

proposal for a new prudential

regime for investment firms

authorised under MiFID. The

proposal is a prudential regime

for these firms that mitigates the

potential harm they may cause if

they have insufficient resources

to stay financially viable. The aim

of the review is to formulate more

proportionate rules for these

firms, rather than subject them to a

regime primarily intended for banks.

Over the next year we will provide

technical assistance to the Treasury

during the negotiations of the

proposed text.

We believe that together these

new and proposed measures will

strengthen the governance of

investment managers, helping them

to better act in the interests of their

underlying investors.

Impact of passive investment

Given the rapid growth in the

proportion of investor wealth

managed passively, it is important

for us to understand the economic

implications of this development

on both individual investors and

UK financial markets generally.

By the end of 2018/19, we plan to

publish research that will look at

the rise of passive management in

the UK and will explore the impact

on core aspects of financial market

performance such as corporate

governance, market efficiency and

financial stability.

Outcome indicators

Following our Asset Management

Market Study, we will monitor the

market to assess how outcomes

are changing in this sector. Relevant

information will include measures of

price clustering and whether firms

are passing on gains from economies

of scale to their customers. We also

cover governance, technology and

cyber issues for this sector in our

cross-sector themes.

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

11 Bank of England Statistics - Money and Credit, April 2017

The mortgage market is by far the

largest retail lending market in terms

of value, which means that even

relatively isolated misconduct in the

sector can cause significant harm.

We aim to ensure that firms sell

products to customers that are

affordable and suitable for their

circumstances, and take appropriate

action when customers are in

financial difficulty. We expect firms

to put customers’ interests first

without focusing on generating

short-term profits.

While smaller in value, the consumer

credit market aects many more

people in the UK and includes a large

number of vulnerable customers.

The consumer credit market grew by

10.4% to £198 billion in the 12 months

to April 2017.

While interest rates

are expected to remain low, a gradual

increase in interest rates could have

a detrimental impact on consumers

who carry high levels of debt.

Since we took over regulation of

consumer credit firms from the

Office of Fair Trading in 2014, we

have worked to drive up standards

in the market, including by refusing

authorisation for firms that do not

meet our standards. This has been

particularly effective in the debt

management sector, where our

Authorisation and Supervision teams

have worked closely with

firms and achieved significant

change. However, we have a number

of concerns, particularly around

the quality of debt advice and the

long-term sustainability of some

business models.

Our key activities

Assessing creditworthiness in

consumer credit

Following our consultation on

creditworthiness we will publish a

Policy Statement on rules which will

clarify our expectations of firms

when carrying out creditworthiness

assessments on their customers.

Market Study on credit information

Consumers’ credit information

affects how likely they are to be

able to access a range of financial

services, including mortgages,

loans and credit cards. Credit

reference agencies (CRAs) play an

important role in the provision of

this information to inform firms’

assessments of credit risk and

affordability. Consumers may

Many UK households have debts, including a mixture

of both secured and unsecured credit. Credit has an

important economic function and is largely beneficial

for many customers. Yet for the minority who do

experience harm, it can be significant. Our focus is on

the harms caused by poor conduct, particularly when

more vulnerable customers are affected.

Sector priorities

Retail lending

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

experience harm if this information

is not shared effectively or is not of

good quality through inappropriate

lending decisions or restricted

access to credit.

In our consultation on Assessing

Creditworthiness in Consumer

Credit, we invited views on a range

of issues in relation to firms’ access

to, and use of, credit information

including the coverage, timeliness

and consistency of data and

products provided by CRAs. Building

on the responses received to our

consultation we intend to launch a

market study on credit information

in Q4 2018. We will collect evidence

to gain a better understanding of the

potential for harm in this market and,

if necessary, identify remedies. Our

aim is to ensure that this important

market works as well as possible to

maximise the benefits that it can

deliver for consumers.

Making the mortgage market work

better for consumers

Our Mortgage Market Study has

looked at whether available tools,

including advice, help mortgage

consumers make effective

decisions. It has also examined

whether commercial arrangements

between lenders, brokers and other

players cause harm to consumers.

We will publish our interim report in

Q2 of 2018, setting out our findings

and inviting views on any potential

remedies. We will consider feedback

received before publishing our final

findings, a summary of the feedback

and our next steps later in 2018/19.

Credit-broking remuneration

models at the point of sale

We are currently carrying out

a thematic review looking at

commission and other remuneration

models between credit brokers and

other firms (such as lenders) and

whether they lead to poor customer

outcomes. We are assessing how

inter-firm payments affect which

credit products are offered to

consumers and how they are sold.

We will report our findings towards

the end of 2018.

Poor practices by

debt management

companies pose a

high risk of harm

to consumers,

particularly those

in vulnerable

circumstances

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

Ensuring the debt management

sector works well

Poor practices by debt management

rms pose a high risk of harm to

consumers, particularly those in

vulnerable circumstances. So it is

important that we have the best

possible understanding of how the

market as a whole is working for

consumers.Financial Lives data

suggest that 3% of UK adults used

debt advice or debt management

services in the last twelve months and,

of these, 19% used a paid-for service.

Close engagement with the debt

management sector through our

authorisation and supervision work

has led to a debt management

sector with fewer, and more

regulatory compliant, firms. A

large number of issues still remain

however, particularly around the

quality of debt advice and the

long-term sustainability of the

business model. Our supervision

function continues to engage closely

with the largest authorised firms

to ensure that they act in the best

interests of consumers.

Last year, we started a thematic

review to look at fee-charging

and free-to-customer debt

management providers to help

us build up a full picture of the

sector.This year, we will look at how

these providers are meeting their

customers’ needs. We will review

customer files and visit providers

to interview staff and assess their

processes and how they deal with

customers. We will look at both

the initial debt advice process

and the continuing service.We

want to understand where there

is good practice that helps

consumers manage their debts,

as well as identifying areas where

improvement could be made.We

expect to complete this review and

report on findings in Q1 2019.

12 FCA Financial Lives survey, 2017

13 FLA Data. The FLA has subsequently stated that the annual rate of growth slowed to 6.0% in the twelve months to December 2017.

14 FLA Data. New POS lending to consumers for car purchases in the twelve months to December 2017 totalled £34.2 billion.

Motor finance

The motor finance market grew 8.2%

in the twelve months to April 2017

with new point-of-sale lending for

car purchases totalling £32.6 billion

in the twelve months to the end of

Q1 2017.

Our recently published

update explains that we want to

identify whether consumers have

sufficient, timely and transparent

information when taking out motor

finance. We are testing this in a

number of ways, including through a

mystery shopping exercise.

We are undertaking further work on

responsible lending, particularly the

approach taken by motor nance

lenders to assessing creditworthiness

(including aordability). Our work

will primarily focus on higher

credit-risk consumers, but we will

test how lenders assess aordability

and whether current procedures

are working in the interests of all

consumers.

We are also doing further work on

commission arrangements. Some

commission structures create a

strong link between the dealer

commission and the interest rate

charged to consumers. We are

therefore assessing whether lender

controls and current regulatory

requirements minimise the potential

for harm to consumers.

We expect to complete our review of

the motor finance market by the end

2018. At that stage, we will publish

our findings, setting out any areas of

concern we have identified and how

we intend to tackle them.

Review of retained CCA provisions

Our rules aim to ensure consumers are

adequately protected while not placing

disproportionate burdens on rms. We

are required to review the Consumer

Credit Act 1974 (CCA) retained

provisions which were not replaced

with FCA rules or repealed during the

transfer of regulation, and to report

to the Treasury by 1 April 2019. We will

consider whether the repeal of CCA

provisions would negatively aect

appropriate consumer protection

and whether the provisions could be

replaced by FCA rules or guidance.

We will also take into account whether

some provisions remain appropriate

in today’s market and whether they

should be amended or updated. We will

publish an interim report setting out

our initial views and invite responses.

Outcome indicators

We will use various sources of

information to see how drivers of

harm that lead to unaffordable or

unsuitable product purchase are

changing.

We have only regulated consumer

credit since 2014. Therefore,

we will continue to increase our

understanding of issues and improve

the evidence on which we base our

interventions in this area.

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

We want to ensure that consumers are equipped to

make good decisions to fund their retirement, such

as through appropriate advice or guidance, and can

access good quality, value-for-money retirement

products. We also want to ensure consumers know

how to avoid pension scams and poor deals. The

number of consumers contributing to workplace

pensions continues to grow, driven in large part by

auto-enrolment. In the first quarter of 2016, 68% of all

employees were enrolled in a pension, equating to 78%

of all eligible employees.

Sector priorities

Pensions and retirement income

15 ONS, Annual Survey of Hours and Earnings 2016. ONS, Workplace Pension Participation and Savings Trends of Eligible Savers Ocial Statistics: 2006 to 2016.

16 FCA, Product Sales Data 2016.

17 FCA, retirement income data 2016.

The decisions consumers make

during their working life about saving

for retirement will influence their

financial wellbeing in later life. The

subsequent decisions they make on

how to take their retirement savings

are also hugely significant. Yet many

consumers feel unequipped to make

these decisions confidently.

The market has been adapting to

changes from the Government’s

pension freedom reforms in 2015.

Our regulation of the market has

focused on making adjustments to

our rules to support the reforms. We

have continued to see a shift away

from consumers using annuities

to purchase a guaranteed income

towards drawdown products that

offer greater flexibility.

Drawdown

products attracted inflows of

approximately £16.2 billion in 2016

versus £4.6 billion for annuities.

Our key activities

We also cover our work on Pensions

and retirement income, such as our

Retirement Outcomes Review, in

our Long-term savings, pensions

and intergenerational cross-sector

chapter.

Pensions strategy

This year our focus is on producing a

clear strategy that makes it easier for

all our stakeholders to understand

our role in the pensions sector. We

are working closely with The Pensions

Regulator to produce a joint Pensions

Strategy which will set out how we

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

will work together to tackle the key

regulatory risks facing the pensions

sector in the next 5-10 years. This

will be informed both by our own

research and views from other key

stakeholders, including the outcome

of the House of Commons Work and

Pensions Select Committee’s inquiry

into the pension freedoms. We will

jointly host a series of stakeholder

events and a webinar with The

Pensions Regulator to ensure that all

relevant issues are covered.

Potential extension of the remit

of Independent Governance

Committees for workplace pension

schemes

We are currently undertaking

wider policy work on Independent

Governance Committees (IGCs)

for workplace pension schemes to

look at the possibility of extending

their remit. This wider work includes

possible changes to the rules for IGCs

to improve governance and value

for money for consumers, following

recommendations on social investing

from the Law Commission.

Helping consumers avoid scams

Where appropriate, we take robust

action against scammers both

to stop them and deter others.

Alongside our ScamSmart work

(covered in Financial crime and AML),

we continue to monitor, quantify and

tackle cases of systemic pension

mis-selling and fraud. This involves

firms we regulate and unregulated

firms that introduce business to

them. We also work with firms to

ensure they take the necessary

steps to protect consumers and

collaborate with other agencies

to tackle scams. We will continue

to work with the Treasury and

Department for Work and Pensions

on legislative measures to combat

pension scams, including a ban on

pension cold calling.

Outcome indicators

We use a variety of data to assess

harm in this sector. These include

how many consumers shop around

for drawdown products, how much

they understand about their options

and the number of products that

are fully cashed-in. Working with the

DWP, we can use charges to assess

the cost of workplace pensions and

how that may harm consumers. Our

workstream on assessing suitability

enables us to measure whether

customers are making unsuitable

purchases or choices due to

unsuitable advice.

We take robust action

against scammers

both to stop them and

deter others

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

Our Assessing Suitability Review

found that 93% of advice was suitable

for consumer needs. These are

positive results for the sector and

reect the successful adoption of the

Retail Distribution Review (RDR)

by advisers.

Our strategy for supervising the

quality of retail investment advice

is twofold.First, we aim to improve

standards across the market and

periodically assess this. Second, we

focus on specific areas where advice

is less suitable, including high-risk

investments and pension transfers.

Our key activities

Financial Advice Market Review

(FAMR)

FAMR made recommendations to

improve access to financial advice,

in part by seeking to lower costs

and increase the availability of

automated advice for consumers.

FAMR recommendations also sought

to create market conditions that

allowed firms to deliver affordable

and accessible financial advice and

guidance, including streamlined

advice on specific investment needs.

We will review the impact of FAMR

and the RDR in 2019.

Technological developments in

the advice market, through ‘robo’

or automated advice models, are

offering consumers new ways to

access investments. These can

potentially lower the cost of advice

and so extend it to those who

currently decide it is unaffordable.

We are carrying out a review of

robo-advice models across a number

of firms and our Advice Unit is

providing individual feedback to firms

developing these models.

High-risk and complex

investments

High-risk investments are

characterised by unusual, speculative

or complex product structures,

investment strategies or terms and

features. As consumers look for better

returns, some are buying products

which are unlikely to meet their savings

or investment needs.

Sector priorities

Retail investments

Where consumers decide to take advice on investments they need

to know that it is suitable for their needs, consistent with their

approach to risk and that they are not being overcharged. Advisers

must be appropriately incentivised when recommending products

to their customers, and the distribution chain should be free from

conflicts of interest. This is increasingly important as, following the

introduction of the pension freedoms, many consumers now face

complex financial choices.

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

In 2018/19 we will carry out a

programme of work to tackle

incidences of consumers entering

into high-risk investments which

are unsuitable for their needs. This

work will enable us to identify where

there are problems with high-risk

investments. We will also strengthen

our authorisations gateway and

supervision for firms that provide

advice on high-risk and complex

investments. This will ensure they

improve their disclosure and reduce

the risks of harm to retail investors.

Contracts for Difference

As part of our programme of work

we continue to mitigate harm

from firms selling Contracts for

Difference (CFDs) and spread bets

to retail consumers who often do

not understand the risks of these

complex, leveraged instruments.

We are also focused on binary

options, which entered our regime

from January 2018. Our work

involves a coordinated programme

of policy and supervisory activity.

In 2018, we will evaluate how well

our interventions have worked and

act where firms fail to meet our

expectations.

We support the European Securities

and Markets Authority’s (ESMA)

agreed EU-wide temporary product

intervention measures announced

27 March 2018. These include

the prohibition of the marketing,

distribution or sale of binary

options to retail clients and a range

of restrictions on the marketing,

distribution or sale of CFDs to retail

clients, including rolling spot forex.

We expect to consult on whether

to apply the ESMA measures on a

permanent basis to firms offering

CFDs and binary options to retail

clients.

Investment platforms

market study

The assets administered by

investment platforms continue to

grow at a significant rate. Direct-to-

18 Platforum – UK D2C Guide, February 2017.

consumer (D2C) platforms and share

dealing services currently administer

£170 billion of assets. The assets

under administration in both the

D2C and adviser platform market

grew rapidly in 2016, by 15% and 18%

respectively.

Our market study is

looking at how platforms compete

and their impact on the overall

charges investors pay for their retail

investment products. We will publish

our interim report in summer 2018,

setting out any problems we see in

the market and any action we intend

to take to tackle them.

The report will cover the tools that

platforms use to help consumers

make informed investment decisions

and evaluate the value for money of

investing through a platform. It will

consider the ‘model’ portfolios and

diagnose whether consumers can

understand what these portfolios

offer. The report will look at how

platforms promote the products

they offer and how this affects

consumer choice. We will also assess

what impact these relationships are

having on competition.

Raising awareness of fraud

and scams

We have a duty to protect

consumers from becoming victims

of scams and fraud. We note an

increase in fraudulent investment

firms that are advertising online

and on social media – for example,

offering trades in binary options.

Younger consumers are at increased

risk of online investment fraud, which

has now overtaken the telephone as

the most common contact method

for investment fraudsters. We cover

our work in this area in the earlier

section on Financial Crime (fraud and

scams) and anti-money laundering.

Outcome indicators

We use a range of factors when

analysing the suitability of products

and advice. These include findings

from our Assessing Suitability

Review, the number of consumers

who report mis-selling, consumer

perceptions of quality, price and

value, and reports of problems in

accessing appropriate advice.

Younger consumers are

at increased risk of online

investment fraud, which

has now overtaken the

telephone as the most

common contact method

for investment fraudsters

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

Retail banking is central to the lives of virtually

every consumer, business and organisation in the

UK, and the way customers use it is constantly

evolving.Technology and innovation now drive

customers’ expectations of how they run their finances

and how they make and receive payments. These

changes will profoundly shape the size and nature of the

market over the next decade.

Sector priorities

Retail banking

The last two years have seen major

regulatory changes to retail banking

to improve competition; many of

these are continuing. Our focus on

implementing these changes is on

tackling the main harms they are

designed to resolve. These harms

range from poor value and service,

high charges and theft of customers’

data and money through cyber

attack and fraud.

The Payment Services Directive

(PSD 2) will promote competition

by opening up third-party service

providers’ access to banking

customers’ account data. This may

increase the opportunities available

from using big data and advanced

analytics, creating potential for new

types of businesses that did not

previously exist.

Our key activities

Helping firms prepare for

ring-fencing

Banks undertaking ring-fencing

should have appropriate

data security controls and,

where applicable, outsourcing

arrangements to prevent customers

and the retail banking market

suffering harm. Ring-fencing

rules must be implemented by 1

January 2019. We will check that all

affected firms are managing risks

effectively and review firms’ IT plans

as mentioned in our Data security,

resilience and outsourcing chapter.

These rules will increase the

protections of essential banking

services used by ordinary depositors.

Current accounts, savings accounts

and payments will no longer be put

PSD2 will promote

competition by opening

up third party service

providers’ access to

banking customers’

account data

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

at risk by a failure in another part of

the business, such as investment

banking. After implementation,

we will review the effectiveness of

governance arrangements through

our regular supervisory interactions

with firms.

Developing a payments

sector strategy

The payments sector is

experiencing technological,

strategic and regulatory change

which is transforming the

traditional payments value chain.

We are working to improve our

understanding of the payments

system by identifying the key players

and current and emerging trends

that may cause harm in future.

We will undertake diagnostic work on

payment fraud, including Authorised

Push Payment Fraud, to develop

appropriate interventions as well as

support industry initiatives. We will

use evidence sent to the Payments

Systems Regulator by the consumer

group Which? to help inform this work.

The Bank of England has committed

to opening up direct access to its

Real-Time Gross Settlement (RTGS)

system to non-bank Payment

Service Providers. This will give

electronic money institutions and

payment institutions direct access

to payment schemes. We are

strengthening our supervision of all

applicants to support this initiative

which will help improve competition

and innovation in payments.

Delivering the revised Payment

Services Directive (PSD2)

PSD2 has brought two service

providers, Account Information

Service Providers and Payment

Initiation Service Providers,

under our regulation for the first

time. These services could help

consumers manage their finances

better and more conveniently.

We will supervise these providers

and develop our understanding of

the emerging business models. This

will ensure we identify and deliver a

proportionate response to any harm

to consumers or markets, and ensure

rms comply with the Regulations.

PSD2 is also designed to improve

consumer protection and give

consumers a quicker and more

streamlined service when making

or receiving payments. Regulatory

Technical Standards on strong

customer authentication and secure

communication (the ‘SCARTS’) has

been published as a Commission

Delegated Regulation in the Official

Journal of the European Union.

These are key to achieving enhanced

consumer protection, promoting

innovation and improving the

security of payment services.

Payment Protection Insurance

redress (PPI)

Our PPI deadline awareness

campaign will continue to run

throughout 2018/19 up until the

deadline of 29 August 2019. The

campaign aims to raise awareness

of the deadline date and prompt

all those who intend to complain

to do so. We continue to monitor

our performance and optimise our

approach so that the campaign

effectively delivers its objectives.

Before the end of year we will publish

an interim report giving findings on

the performance of our campaign

and our key supervisory reviews

of, and interventions in, firms’

treatment of consumers.

Outcome indicators

To measure whether competition

is improving, we look at how easy

customers find it to compare

products across providers and

industry data on how many of them

have switched accounts as a result.

We also monitor how many people

complain about barriers to accessing

financial products and, if they have

been rejected for a product or

service, identify why. We also look

at whether firms are meeting our

requirements to publish information

about current accounts.

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

General insurance and protection products

allow both individuals and businesses to protect

themselves against uncertainty, enabling a

wide range of economic activity that might

otherwise be seen as too risky. It has a central

role in enabling activity in industries such as

construction, agriculture, manufacturing, leisure

and professional services. So it is vital this market,

including the wholesale market underpinning

it, works well and keeps adapting to meet new

needs and changing circumstances.

One of the most significant

regulatory changes in 2018/19 will be

the implementation of the Insurance

Distribution Directive (IDD) which

comes into force on 1 October 2018.

The IDD will help reduce conflicts

of interest and ensure firms act in

consumers’ best interests. We will

work with firms to ensure that they

comply with our rules set out in our

Policy Statement.

Our priorities are fairness, access

and value for retail customers, and

an eectively functioning wholesale

market. Within this sector, the key

drivers of harm include suitability of

products, renewal pricing, mis-selling,

low value products, operational

resilience and cyber-crime. Our work

to understand rms’ pricing practices

is covered in our treatment of existing

customers chapter.

Our key activities

Publishing our interim findings on

wholesale insurance brokers

There have been significant changes

in the wholesale insurance sector

in recent years which has seen

brokers developing new services

and business practices. Given these

changes, we are exploring how well

competition is currently working and

whether it could work better in the

interests of clients.

In 2017 we began a market study to

assess whether brokers use their

bargaining power to get clients a

good deal, if any conflicts of interest

exist and how broker conduct affects

competition.

Sector priorities

General insurance and protection

Chapter 5

Sector priorities

Financial Conduct Authority

Business Plan 2018/19

We aim to publish our interim ndings

from the market study by the end

of 2018. This report will set out our

analysis and preliminary conclusions,

and any potential solutions to address

identied concerns.

Value in general insurance

distribution chains

In 2018/19 we will conclude the

first phase of our diagnostic work

on value in the distribution chain.

This has looked at three insurance

products – tradesman insurance,

travel insurance and motor ancillary

insurances, including Guaranteed

Asset Protection (GAP) insurance.

This follows our thematic reviews of

delegated authority and appointed

representatives, which showed that

the value of insurance products and

related services could be eroded

through the distribution chain.

We will look into the end-to-end

relationships in a sample of distribution

chains. This will enable us to identify

how the amounts customers pay

divides up between the various parties

and how dierent distribution chains

can aect the value of insurance

product customer services. We will

report our ndings and set out any

next steps in the second half of 2018.

Protecting vulnerable consumers

Our ‘Future Approach to Consumers’

shows how dierent consumers

can become vulnerable at dierent

times in their lives and the need for

rms to adapt to these changing

circumstances. In summer 2018, we

will publish our Feedback Statement

from our Call for Input on Access to

Travel Insurance, which looked at

the challenges for rms and

consumers in providing and accessing

fairly-priced cover for people with

pre-existing medical conditions. We

want to understand the market and

consumers’ journeys better and use

this as an opportunity for industry,

regulators and consumer groups to

work together to produce meaningful

change for vulnerable consumers.

Product design and oversight

The IDD should reduce the risk that

firms will sell unsuitable products

to consumers. It requires firms

to identify the target audience

for products to ensure they are

designed to meet these consumers’

needs, and regularly review these

products to ensure they continue

to do so.

Keeping our rules on GAP insurance

under review

Our Mission explains how we

continually assess the impact

our rules and guidance have on

consumers, firms and markets.

In 2018/19 we will evaluate the

effectiveness of our 2015 rules on

GAP insurance to assess if they

are improving competition and

increasing consumer understanding.

Outcome indicators

We use a mixture of data to help us

understand the drivers of harms

in this sector, including sales data,

pricing trends and consumer surveys.

In addition, we consider operational

resilience and cyber-crime within our

cross-sector themes.

We will look into

the end-to-end

relationships

in a sample of

general insurance

distribution chains

This section provides details on our operational

activities and our finances.

How we operate

Our budget

Our annual budget reflects the cost of the

resources we need to carry out our work

in 2018/19.

The key elements of our budget are:

• the cost of our core operating activities

(our Ongoing Regulatory Activity, ORA),

the largest element of which is our people

• the total amount we charge the industry

to fund our activities (our Annual Funding

Requirement)

• capital expenditure for the development

of our technology and information

systems and new regulatory and

operational requirements

Annual Funding Requirement (AFR)

Our AFR for 2018/19 is £543.9m, an

increase of 3.2%. Our AFR includes our

ORA budget costs, the costs we need

to recover for changes to our regulated

activities (Scope Change) and EU

Withdrawal. The actual fees we collect will

reflect the AFR net of rebates related to

financial penalties collected (estimated at

£48.2m).

Annual Funding Requirement (AFR)



£m

FCA Budget

2017/18 2018/19 Change % Change

Base ORA Budget 508.0 523.2 15.2 3.0%

Payments Department 2.0 2.0

OPBAS Department 2.0 2.0

Total ORA Budget 508.0 527.2 19.2 3.8%

EU Withdrawal 2.5 5.0 2.5 100.0%

Scope Change Recovery (incl. OPBAS) 16.4 16.7 0.3 1.8%

ORA Reserves Utilised

-5.0 -5.0

Total AFR 526.9 543.9 17.0 3.2%

Section 6

How we operate

Financial Conduct Authority

Business Plan 2018/19

The ORA Budget

We are committed to delivering an

ORA budget that is flat in real terms,

subject to any changes in our wider

ongoing regulatory responsibilities.

Our 2018/19 budget reflects the

following changes in the scope of our

work:

• Additional regulatory responsibilities

around payments following the

introduction of PSD2.

• The formation of the Oce for

Professional Body Anti-Money

Laundering Supervision (OPBAS),

with £0.3m of set up costs reected

in Scope Change recovery.

Before taking these into account and

after utilising £5.0m of ORA reserves

to mitigate the impact on fee payers,

our budget, excluding EU Withdrawal

and Scope Change, increases by

£10.2m to £518.2m, an increase of

2% which is below the current rate of

inflation.

We continue to invest in our people

to ensure we deliver on our ongoing

objectives while preparing for EU

Withdrawal. It is vital that we attract

and retain the right people, and that

we have robust operational functions

that support our key regulatory

functions. The chart below reflects

how our ORA budget will be spent in

2018/19.

EU Withdrawal

EU Withdrawal £m

ORA spend on EU withdrawal 14

EU withdrawal fee 5

ORA reserves utilised 5

Firm specic costs 6

Total EU Withdrawal cost 30

We have identified total EU

withdrawal demand of around £30m.

We will absorb £14m of this within

the ORA budget by reprioritising;

delaying or reducing non-critical

activity and finding more effective

ways to deliver our regulatory

requirements.

This leaves a requirement for funding

for the remaining £16m for EU

withdrawal activity. We will raise £5m

of this through the fees we charge

firms, with a focus on the firms that

are most likely to be affected by EU

withdrawal. This is consistent with

our approach to raising additional

EU withdrawal funding in 2017/18. A

further £5m will be funded through

using ORA reserves. The remaining

£6m will be funded from specific

firms in the same manner as Scope

Change, where we will recover

the costs of implementing new

regulatory responsibilities, such

as passporting and on-shoring

credit rating agencies and trade

repositories, once we know the final

costs and number of firms’ affected.

There is still considerable

uncertainty about the scale and

timing of various activities in

connection with EU withdrawal. We

will closely monitor the progress of

negotiations and the potential for

any further impact on our cost base.

Scope change recovery

In 2018/19 we will recover scope

change costs for MiFID II, Consumer

Credit and OPBAS. Consumer credit

rms were not billed for the full costs

of regulation during the setup and

transition period of the FCA taking

over their regulation from the Oce

of Fair Trading. We will continue to

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Chapter 6

How we operate

Financial Conduct Authority

Business Plan 2018/19

recover the outstanding decit over a

ten year period at £6.2m per annum.

Capital expenditure

Our capital expenditure budget

increase (excluding our move to

Stratford) reflects the ongoing

investment and maintenance of

IT systems and infrastructure

development, as well as

implementing the necessary IT

change driven by legislation and EU

Withdrawal. Capital expenditure

is largely funded through the ORA

depreciation charge.

Move to Stratford

On expiry of our current leases in

Canary Wharf we, along with the

Payment Systems Regulator (PSR),

are moving to Stratford. We expect

to complete the move by summer

2018. The new site, in Endeavour

Square, Stratford, provides a modern

and t-for-purpose oce, updated

facilities and the infrastructure and

technology to meet our future needs.

One of the aims of introducing our

new technology is to reduce our

reliance on printing and paper.

We have signed an Agreement for

Lease for 20 years to move to the

new site. We are incurring costs to

get the building ready for occupation

and the current intention is that these

will be funded by external nancing,

the costs of which will be recovered

against the rent-free period.

Dual running costs for operating both

our Canary Wharf estate and our new

site in Stratford during the transition

period for 8 months are forecast

total £20m and will be funded from

our retained ORA reserves.

Our new building has been designed

with sustainability in mind. It features

innovative heating and cooling

systems that are fully integrated

to reduce heating costs and

environmental impact.

The building has qualified for

Building Research Establishment

Environmental Assessment Method

(BREEAM) Excellent. The Excellent

rating is awarded only to the top 10%

of new non-domestic buildings.

Payment Systems Regulator

The Payment Systems Regulator

(PSR) is a separate legal entity based

at the FCA, with its own board and

statutory objectives. Details of its

funding can be found in the PSR’s

Annual Plan. As an independently

accountable subsidiary of the FCA,

the PSR continues to utilise the FCA’s

operational support for services such

as human resources, nance and

information services where it is viable,

eective and ecient to do so.

In 2018/19, we will continue to work

collaboratively with the PSR to

carry on developing interventions to

reduce harm to consumers from

Authorised Push Payment scams.

We worked closely with the PSR on its

response to the Which? super

complaint in December 2016, on its

report and consultation published in

November 2017.

Value for money

Value for money (VFM) is central to

Our Mission; we continue to focus on

the best use of resources to reduce

harms and achieve our objectives.

This includes a range of actions and

activities to ensure we operate in the

most efficient and economical way.

Our prioritisation processes and

decision-making framework enable

us to prioritise and make best

use of our resources. Our three-

tier performance measurement

framework enables us to measure the

eciency of our approach.

Maintaining a robust authorisation

process and proactive and efficient

supervision, competition and

enforcement regimes remain

essential features of our regulatory

model. Our approach will continue to

evolve, making them more efficient

and proportionate.

We recognise that being efficient

with our resources also includes how

we make the best use of the data and

information available to us. We have

a number projects in train to improve

our ability to manage and analyse our

data to identify potential harms and

deliver our regulatory outcomes.

From an operational perspective

our move to Stratford will provide us

with an opportunity to improve ways

of working with greater flexibility to

work across functions and to share

knowledge more efficiently. We

are delivering more cost-effective

technology solutions such as

the move of our data centres to

cloud-based technology.

Finally, underpinning all of this we are

continuing to embed the concepts

of VFM and how we can apply

them in practice through a training

programme and support network

of subject matter experts. We are

further developing our approach

to continuous improvement

throughout all areas of our work and

we continue to work closely with the

National Audit Office to maintain an

effective relationship.

Chapter 6

How we operate

Financial Conduct Authority

Business Plan 2018/19

Capital Expenditure

2017/18

£m

2018/19

£m

IT Systems Development &

Infrastructure

41.6 50.1

Property, plant & equipment 1.0 1.0

Total Capital Excluding TIQ 42.6 51.1

TIQ (Stratford Property)* 70.0 10.0

Total Budget 112.6 61.1

* Note 2017/18 Stratford Property budget restated to align with the most up to date phasing

estimate of capital expenditure for the multi – year programme.

Our people

Our People Strategy reflects our

Mission:

• our new ‘At our best’ values will

directly support embedding the our

Mission and reinforcing the right

behaviours across the organisation

• a refreshed Leadership Framework,

including clear responsibilities

and accountabilities under our

application of the SM&CR, ensures

that our leaders know what is

expected of them and their role in

the organisation

• a forward-looking strategic

Employee Capability Plan tells us

what capabilities we will need in the

future and helps us ensure these are

in place

We are building a diverse and

inclusive place to work, both

because we want our people to be

themselves and because diversity

makes us a more effective regulator.

To demonstrate our commitment

to diversity and inclusion, we are

actively working towards the target

we set in 2016 for 45% of our senior

leadership team to identify as female

by 2020, and 50% by 2025, in addition

to our target for 8% of our senior

leadership to identify as Black, Asian

and Minority Ethnic (BAME) by 2020,

and 13% by 2025.

As well as building a diverse workforce

with a broad range of skills, we also

need to think strategically across

all of our people-related activities

to achieve the organisational and

behavioural changes to deliver

our Mission.

We continue to develop our people

to achieve their potential and to

keep our best talent. As well as our

rolling programme of events to keep

our sta up to date with economic

and market developments, we will

expand our successful secondment

programme to include a wider range

of regulated rms and consumer

organisations. We will also strengthen

our management framework through

the Future and Advanced Manager

Programmes, investing in our future

leadership and helping balance our

people’s technical expertise with

the best people and operational

management skills.

Corporate responsibility

We are proud of the fact that 39%

of our staff volunteered for a range

of initiatives, against a target of

30%. Our current initiatives are

diverse and engage people at all

levels and in a variety of teams

across the organisation. We

are also a London Living Wage

employer and incorporate corporate

responsibility requirements into our

supplier relationships through the

procurement process.

To build on our move to Stratford,

and after extensive research

and engagement with the local

community, we have agreed a new

community programme which

will focus on year seven students

(those in the first year of secondary

education). We are now working with

schools and community partners to

develop the programme, ready for

our move to Newham in 2018.

Working with others

In addition to our ‘Approach to’

documents, we have a central role in

developing and delivering key policy

initiatives, often in collaboration with

other regulators. We also monitor

and respond to issues around our

regulatory remit.

We help inuence domestic

and international initiatives and

legislation. We actively engage with a

wide range of global bodies, to shape

policy debates, ensure eective

cross-border cooperation, share

regulatory experience and help

identify new and emerging issues.

Many countries see our initiatives, for

example FCA Innovate, as industry-

leading and we collaborate with

international regulators to promote

innovation in our respective markets.

Our Chief Executive is a member

of the Financial Policy Committee

(FPC). The FPC identifies, monitors

and acts to remove or reduce

systemic risks with the aim of

protecting and enhancing the UK

financial system’s resilience. We

closely monitor risk to financial

stability and work closely with the

Bank of England on areas of interest

to the FPC, such as market liquidity.

We work closely with the Treasury,

the Competition and Markets

Authority , The Pensions Regulator,

the Financial Ombudsman Service,

the Money Advice Service , the

Financial Services Compensation

Scheme, the Prudential Regulation

Authority and the Bank of England,

other government agencies and

departments, and international

regulatory organisations to provide

evidence and input to advance

our objectives.

FCA statutory panels

We are required to consult on

the impact of our work with

four statutory panels. These

panels represent the interests of

consumers, practitioners, smaller

regulated firms and markets. We also

consult with the Listing Authority

Advisory Panel.

These panels play an important role

in both advising and challenging us,

and bring a depth of experience,

support and expertise in identifying

risks to the market and consumers.

We consider their views when we

develop our policies and decide

and implement other regulatory

interventions. The Panels are:

• The Consumer Panel

• The Practitioner Panel

• The Smaller Business Practitioner

Panel

• The Markets Practitioner Panel

• The Listing Authority Advisory Panel

Chapter 6

How we operate

Financial Conduct Authority

Business Plan 2018/19

Chapter 6

How we operate

Financial Conduct Authority

Business Plan 2018/19

Annex 1

Update on

market-based activity

Financial Conduct Authority

Business Plan 2018/19

Annex 1: Update on market-based activity

Firms’ culture and governance Publication type Timings

*Establishing a public register Consultation Paper Q2 2018/19

Accountability Policy Statement Q2 2018/19

  

Innovation, big data, technology and competition Publication type Timings

*Review of Cryptocurrencies

Assessment report in

conjunction with HMT and BoE

Q2 2018/19

  

Treatment of existing customers Publication type Timings

Providing SMEs access to FOS Policy Statement Q2 2018/19

  

Pensions and retirement income Publication type Timings

Retirement Outcomes Review Final report and

Consultation Paper

Q2 2018/19

Non-workplace pensions Feedback Statement Q3 2018/19

Fair treatment of with-prots customers Q3 2018/19

*Unsuitable pension transfer advice Policy Statement Q3 2018/19

*Savings adequacy Occasional Paper Q4 2018/19



Retail Banking Publication type Timings

Strategic Review of Retail Banking Business Models Consultation Paper Q3 2018/19

Improving competition in current accounts Policy Statement Q3 2018/19

 

Financial crime Publication type Timings

Financial crime review of e-money Report Q2 2018/19

  

General Insurance and protection Publication type Timings

Wholesale Insurance Brokers Market Study Interim report Q3 2018/19

Value in the distribution chain (Phase 1)  Q2 2018/19

*Assessing claims ination in General Insurance Q4 2018/19

* New projects

Annex 1

Update on

market-based activity

Financial Conduct Authority

Business Plan 2018/19

Retail Investments Publication type Timings

Investment Platforms Market Study Interim Report Q2 2018/19

Outcomes testing on auto advice  Q4 2018/19

High-Risk Complex Investments  Q3 2018/19

  

Investment Management Publication type Timings

Asset Management Market Study remedies Policy Statement Q4 2018/19

  

Mortgages and mutuals Publication type Timings

Mortgages Market Study Interim report Q1 2018/19

  

Consumer credit Publication type Timings

Motor nance Final Report Q3 2018/19

Consumer Credit Act retained provisions review Consultation Paper Q4 2018/19

Debt Management Sector Review  Q4 2018/19

*Market Study On Credit Information Terms of Reference Q4 2018/19

High-Cost Credit Review Consultation Paper

Policy Statement

Q4 2018/19

 

Wholesale financial markets Publication type Timings

LIBOR Transition  2020/2021

Implementation of the EU Benchmark Regulation Policy Statement Q1 2018/19

Reforms to the listing regime Consultation Paper Q2 2018/19

*Money Laundering in Capital Markets Report Q1 2019/20

*Approach to Market Integrity Report for Consultation Q4 2018/19

* New projects

Annex 2: FCA organisational chart

Annex 2

FCA organisational chart

Financial Conduct Authority

Business Plan 2018/19

Committees of the Board

External Risk & Strategy,

Audit, Remuneration,

Nominations, Oversight,

Regulatory Decisions,

Competition Decisions

Payment Systems

Regulator (PSR) is a wholly

owned subsidiary of the FCA

General Counsel’s Division

FCA Board

Chair

Strategy &

Competition

Supervision –

Investment,

Wholesale &

Specialists

Supervision

– Retail &

Authorisations

Enforcement

& Market

Oversight

Executive Committee

Operations International

Corporate Services

Risk & Compliance

Oversight

Internal Audit

Chief Executive Ocer

25 The North Colonnade Canary Wharf London E14 5HS

Telephone: +44 (0)20 7066 1000

Website: www.fca.org.uk