FCA to focus on 'results and outcomes' under new three-year strategy

The Financial Conduct Authority (FCA) has pledged to focus on results and outcomes rather than being driven by processes in its new three-year strategy, holding itself accountable against published outcomes for the first time ever.

The regulator's strategy outlined three new key areas of focus: committing to reducing and preventing serious harm, setting and testing higher standards, and promoting competition and positive change.

Shutting down problem firms that do not meet basic regulatory standards was highlighted as a key priority within this work, with the FCA recruiting 80 employees to work on this initiative, having already removed permissions from firms who were not using them 161 times in 2021.

The FCA also suggested that the rising cost of living has made addressing these issues more urgent, as it could leave consumers more exposed to risk and more reliant on financial services.

As part of the strategy, the FCA will also be holding itself accountable against published outcomes and performance metrics, for the first time, which will be developed and updated throughout 2022/23 as it enhances its understanding.

These targets will be broken down into two levels of outcomes: The consistent topline outcomes that financial services market is expected to deliver, and commitment outcomes, which are aligned with FCA's 13 commitments.

There are four consistent topline themes that FCA said it expects from financial services: Fair value, suitability and treatment, confidence, and access; with a number of metrics underpinning each of these.

The FCA also clarified, however, that all metrics have "limitation" and that "progress will not be immediate and will not be steady from year to year", emphasising that the movement of a metric is often affected by what other metrics, and other parties, are doing.

It also acknowledged that a proper assessment of the reasons behind any changes in value is key to understanding whether an increase or decrease should be regarded as consistent with its stated outcomes.

The regulator also announced plans to make the redress framework "fairer", noting that it was "not right" that the Financial Services Compensation Scheme (FSCS) levy had increased from £277m in 2011/12 to an expected £717m for 2021/22.

"This increase reflects too large a bill of unpaid redress liabilities from failed firms pushed onto those that remain in the market," it stated.

"We want to see more consumers get redress from the firm that owes them money. We will achieve this by improving firm conduct through the measures set out in our Consumer Investment Strategy, considering capital requirement rules and intervening early to prevent systemic harm.

"We will identify potential problems earlier and carry out redress exercises with firms,
where appropriate, so they quickly remedy harm.

"However, we do not run a zero-failure regime so firms may fail owing consumers redress, and in some cases the FSCS may be called upon. This should only be as a fund of last resort, a compensation scheme that is appropriate and proportionate in its scope and funding.

"We will measure our success by, over time, reducing the proportion of redress liabilities that insolvent firms leave in the system and stabilising the FSCS levy over a multi-year period."

In its publication, the FCA estimated that, for every pound spent on its operations, consumers and small businesses benefit by at least £11, although it suggested that it will also look to improve and expand how this analysis is conducted in future.

FCA chief executive, Nikhil Rathi, commented: “Our new strategy enables the FCA to respond more quickly to the rapidly changing financial services sector.

"It will give us a foundation to continuously improve for the benefit of our stakeholders, and respond swiftly to economic and geopolitical developments.”

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