January
The Treasury Committee announced an inquiry into the LISA, looking into whether it’s still an appropriate financial product nine years after launch by George Osborne. This ties in with the government’s wish to simplify the ISA landscape.
The regulator provided updated guidance on its ‘Polluter Pays’ proposals, steering firms on managing redress liabilities and tackling “polluter behaviour” to protect consumers, maintain trust in the financial system and ensure firms meet regulatory obligations. It emphasised the impact of this poor behaviour on retail customers left without appropriate redress. Many affected individuals depend on the FSCS, which often cannot cover the full amount owed because of capped compensation.
The FCA duly responded to the PM’s demand aimed at regulators regarding growth, stressing it needs the government and Parliament to accept it will have to take greater risks and rigorously prioritise resources if they want to achieve growth. Its proposal that a Consumer Duty Board Champion is no longer required was unexpected, seemingly contradicting the focus on the Duty as the cornerstone of its regulatory approach. However, it would not remove the requirement for Consumer Duty Board Reports.
In late January, the regulator released its Adaptation Report in response to DEFRA, addressing climate change adaptation issues faced by financial services firms. It identified three major challenges: the need for better data and modelling to quantify and manage climate risks; barriers and enablers to insurance underwriting for climate risks, affecting lending and investment; and problems around allocating capital to climate adaptation. Additionally, financial firms need to protect critical infrastructure, especially IT systems, and ensure their net-zero transition plans include necessary adaptation measures.
In its January bulletin, the FCA covered the April launch of My FCA, giving firms a single point of sign-in, using their existing user details, for Connect, RegData and the firm's page on the Register. This enables firms to view all their regulatory reporting and attestation tasks, and their status, in one place. The objective is to make it easier to both locate all the information regarding the firm's regulatory activities and fulfil its regulatory responsibilities.
February
A speech by Emily Shepperd, the FCA’s COO, at the 2025 Risk Leader Summit centred on risk managers playing a major role in supporting continuing implementation of Consumer Duty. She stated that financial resilience, underpinned by the Duty, sits as one of four focus areas of the upcoming FCA Strategy to help people make informed financial decisions. Consumer protection and growth are mutually reinforcing, she affirmed, and through this partnership the market can be strengthened.
It was revealed that the House of Lords Financial Services Regulation Committee has told the FCA not to proceed with its ‘naming and shaming’ proposals arising from its February 2024 consultation (CP24/2) until the industry backlash is addressed. Concerns centre around the reputational damage that could arise from prematurely announcing investigations, especially if no regulatory action was taken. The regulator was criticised for poor communication, lack of sufficient evidence, and for causing unnecessary disquiet and uncertainty. There was also scepticism about whether the new public interest framework adequately balances consumer protection and transparency with the potential risks to firms, individuals and market stability. Under this pressure, in a letter to the Treasury Select Committee, the FCA backtracked on naming and shaming, as well as on its diversity proposals and non-financial misconduct, pending future legislation in this area.
Reporting on its review of ongoing advice, the regulator stated that financial advisers are delivering suitability reviews in the vast majority of cases examined (83%). The data provided by firms showed that in a further 15% of cases, clients either declined or did not respond to the offer of a review. In fewer than 2% of cases, firms reported they had made no effort to deliver the suitability review. The FCA is asking all advice firms to review its findings, and to consider whether they have met their regulatory requirements and contractual obligations regarding ongoing services. If not, they should take appropriate steps to remedy the situation.
In late February, the FCA issued a portfolio letter updating the asset management and alternatives sector on its supervisory priorities for 2025: supporting confident investing in private markets, building firm and financial system resilience against market disruption, and securing positive outcomes for consumers. It will also undertake targeted work to support trust in the market for sustainable investment and to reduce financial crime and market abuse. Moreover, as part of its consumer outcomes work, there will be a multi-firm MPS review looking at how firms are applying Consumer Duty.
March
The FCA published its review of firms' treatment of vulnerable customers, highlighting how firms are supporting customers in vulnerable circumstances and whether existing guidance remains relevant. It assessed firms' actions based on guidance (FG21/1) for fair treatment of vulnerable customers, and although it found many positive good practice examples, there were areas for improvement. It was acknowledged there was a renewed focus on good outcomes for vulnerable consumers, driven by Consumer Duty. However, consumers in vulnerable situations still reported poorer outcomes compared to others, especially those confronted by multiple vulnerabilities. The FCA is not revising its guidance or introducing new requirements, but it has signposted case studies of good practice and areas for improvement.
Another market study has been launched by the FCA to evaluate how well the distribution of pure protection products is working for consumers. While there have been positive outcomes for consumers and few complaints, concerns exist regarding the impact of commissions on product outcomes, value and design. The scrutiny will focus on whether commission structures encourage advisers to suggest unnecessary product switches, raise premiums to pay a higher commission to an intermediary, or affect product fairness and innovation. The regulator aims to release initial findings and proposed actions by the end of 2025.
A feedback statement (FS25/2) was issued by the FCA, covering its immediate areas for action and further plans for reviewing regulatory requirements following implementation of Consumer Duty. It acknowledged this was an ambitious programme of action designed to simplify firms’ requirements, as part of tackling long-standing concerns from firms about the length and complexity of current rules and guidance.
The FCA’s five-year strategy to 2030 was released, setting out its priorities to support growth, fight crime, help consumers and be a smarter regulator. Upcoming opportunities and challenges include dramatic technological change, economic growth, global uncertainty and volatility, consumers’ financial resilience, and demographic change owing to an aging population. The regulator intends to adopt a more “flexible approach” to regulation with supervision that is “less intensive”– for firms who are “seeking to do the right thing”.
HM Treasury issued a policy paper announcing a new approach to ensure regulators and regulation support growth – the next steps to reform the UK regulatory system across multiple sectors. The objectives are to support growth, be targeted and proportionate, transparent and predictable, and keep pace with innovation. Regulators, including the FCA, PRA and TPR, have made a range of pledges to support this.
Written by the lang cat
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