FCA Business Plan 2020/21 & Consultation Paper 20/6

As we would expect given the current climate around Covid-19 and knock on effects in financial markets and businesses, the FCA have announced a somewhat more responsive Business Plan and proposals for 2020/21 and have taken the current situation into consideration when announcing their levies and those of other bodies collected on behalf of the treasury. They have been quite realistic about the fact that we do not know the long term impact that the current crisis will have on the markets and our industry, so we fully expect delays to their long term plans.

Their immediate focus on areas of greatest potential harm will continue to centre efforts on ensuring:

  • That markets function well.
  • That the most vulnerable are protected.
  • That the impact of firm failure is minimised.
  • That they are tackling scams.
  • That they are seeking to ensure consumers and small firms are treated fairly.

For a full breakdown of FCA Covid-19 support and policies see here.

The Business Plan is focused on the next 1-3 years so, longer-term, the focus will be ensuring consumers can make effective investment decisions about their savings and are not exposed to risky or poor value investment products, and something I would suspect most of us have been doing; but are now making a major priority, is transforming our own operations for a digital age.

The FCA will be looking to learn lessons from this emergency about the data they collect, how this is used, and how quickly it can be used to make decisions and deliver results.  A lot of the plans in here are around the transformation of the FCA and the current systems they use and how this can evolve to ensure that issues can be identified and dealt with at an early stage. In addition, they will continue to focus on the end outcomes for consumers and want all firms to do the same.

‘We want all firms to take the end outcomes for consumers and markets into greater account when they design and deliver services’.

They expect to measure this with the speed that they identify harm and make consequent decisions.

Of course, we can’t forget about Brexit! The FCA will be focusing on working with the Government and stakeholders to shape future regulatory framework.

Supervising firms

No change at a high level where they expect firms and their employees to meet these standards and hold them to account when they fail to do so.

There is a big but though, over the coming year, they will be shifting their focus towards smaller firms. As we know, most firms comply, but we are also aware there are the few which do not. They will, therefore, shift focus towards those firms that consistently fail to meet the required standards and move more swiftly to enforce action against them.

Enabling effective consumer investment decisions

At present, there is a significant risk of harm in markets. In part, driven by the way consumers have been given additional responsibility for complex investment decisions, through the shift to DC pensions following pension freedoms. The view is that the investment distribution process, and the support network around it, is not working well enough for consumers to make effective decisions about their investments.

The focus here is to ensure:

  • Investment products are appropriate for consumer needs.
  • Consumers can make effective decisions about their investments.
  • Consumers have access to high-quality advice and support, and are aware of how to protect themselves from scams and fraud.
  • Firms and individuals are operating to high standards and in the consumers’ best interest.

To help tackle this, the FCA is going to run an initial campaign to help consumers make better-informed investment decisions. This new campaign will target consumers investing in high risk, high return, illiquid investments. The FCA is consulting on a proposal to undertake this campaign and the basis of recovering the 2020/21 costs from fee-payers.

You can contribute to Consultation Paper 20/6 here.

This will be measured in a variety of indicators;

  • Continuing to assess the suitability of Defined Benefit (DB) to Defined Contribution (DC) transfer advice.
  • To start assessing the suitability of decumulation advice.

Other key focuses

Some of the other key areas of focus will be ensuring consumer credit markets work well, making payments safe and accessible and delivering fair value in a digital age.

Cross Cutting work

Alongside some of the individual key focuses mentioned above, the FCA will continue to work across sectors in areas that have a broad market impact’. Some of the areas highlighted include;

  • EU Withdrawal.
  • Climate change.
  • Innovation and technology.
  • Operational resilience – this will likely be a big focus considering the current situation! There is another consultation paper open for comment here.
  • Culture in financial services.
  • Financial crime.

Financial Budget

FCA annual funding requirement (AFR) for 2020/21 is £587.6m, an across the board increase of 5.2%.

AFR allocation across fee-blocks

Given the impact of Covid-19, in apportioning the AFR across fee-blocks the FCA have aimed to ensure that they protect the smallest firms by proposing a freeze of minimum fees which will remain unchanged from 2019/20. This means that the 71% of firms that are small enough to only pay minimum fees will see no change in the fees they pay.

That doesn’t, however, mean that fees are not going to rise as minimum fees are fixed amounts that each firm pays. The amount of AFR recovered from the A.0 FCA minimum fee fee-block depends on the number of existing firms that remain authorised at the beginning of the fee year (1 April), and the number of new firms that become authorised during the forthcoming year. It is likely that most firms will see a modest rise of 1.6%, which is far better than it could be.

What does this mean and how do I find out my proposed fees for 20/21?

You are able to calculate your proposed annual fees for 20/21 here.

But please bear in mind that these are only proposed and could change by the time they are approved by the FCA board in June 2020.

Small and medium-sized firms (total fees and levies in 20/21 of less than £10k) will have an extension to the period for paying their fees by two months to 90 days.

Authorisation application fees

The FCA is reviewing authorisation application fees, as these fees have been in place for the best part of 20 years. We expect to see the details in the Autumn and expect to see them increase in April 2021. The vast majority of firms newly applying to be directly authorised will see the current charge is £1,500 and this is expected to rise to circa £2,500.

When firms apply for variations of permission (VoP’s) that bring them into a new fee-block, they normally pay half of the application fee, or £250 if they stay in the same fee-block. There will now be a review on all of our application fees, with a view to simplifying their structure and, at least, bringing them into line with inflation.

Christian Markwick – Compliance Consultant