The Financial Conduct Authority has published its three-year strategy, focusing on reducing and preventing serious harm, setting and testing higher standards and promoting competition and positive change. It aims to improve consumer outcomes and remove ‘problem firms’ from the system after independent reviews found it could have done more.

 

A series of failures including the Arch cru investment fund and London Capital & Finance, as well as the British Steel Pension Scheme transfer scandal – for which the FCA will be called to the Public Accounts Committee soon – have called into question the effectiveness of the regulator in recent years. 

 

   

In an effort to address these issues, the FCA – which itself replaced the Financial Services Authority after the FSA was found to have been ineffective during the global financial crisis – has now set out a three-year strategy. In it, the watchdog promises to act more decisively, cracking down on ‘problem firms’ whether they pose a risk to consumers and markets or not – and to use its powers more quickly, even at the risk of greater legal challenge, by requiring firms to stop some activities or taking on new business. It is hiring 80 more people to work on shutting down problem firms. 

 

Chief executive Nikhil Rathi said: “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.” 

 

 

One of its measures will be to achieve a reduction in compensation from the Financial Services Compensation Scheme, which paid out £584m in 2020-21 to those entitled to redress from insolvent firms. As a result of high claims volumes and payments, its levy is increasing to an expected £717m in 2021-22, from £277m in 2011-12.  

 

The FCA said it aims to stabilise the levy over a multi-year period, but noted that because of the time lag between harm and redress, the levy is expected to go up further in the short term. Those eligible for compensation from the FSCS include members of the former British Steel Pension Scheme. 

 

The FCA also wants to see fewer complaints upheld by the Financial Ombudsman Service. “Overall standards of conduct are still too low. Firms are not consistently putting consumers first. The Financial Ombudsman Service complaints uphold rates of 34% suggest firms are getting things wrong, then getting them wrong again,” the strategy reads. 

 

 

In a first big step to overhaul financial services culture and improve outcomes, last year the regulator consulted on a new Consumer Duty. This would require firms to “ask themselves what outcomes consumers should be able to expect from their products and services, act to enable rather than hinder these outcomes, and assess the effectiveness of their actions”.  

 

It will measure the success of this by monitoring “whether consumers are getting products and services which meet their needs and provide fair value and whether this is leading to a reduction in upheld complaints about fees or charges or being sold inappropriate products”, among others. For pension providers, there will therefore be a question as to how outcomes will be looked at in the context of pensions, as these are usually not apparent until several decades later. 

 

The regulator has also considered the rising cost of living, which it said could drive greater demand for credit products and lead consumers to look for ways to make more of their money. It said it expects the rising cost of living and the Russian invasion of Ukraine to have “a lasting impact”. It also noted that a growing number of financial products sit outside its remit and that it will keep an eye on these developments. 

 

Earlier this year, Rathi clashed with employees after he went ahead with changing their reward structure, which he suggested did not incentivise good outcomes and was structured in a way that the regulated community is not allowed to anymore.