PRECISE. PROVEN. PERFORMANCE.

FCA Business Plan 2016/2017Key Priorities and Risks going Forward

Today’s Agenda

A Quick Look Back

The FCA Priorities for 2016/2017

Key Focus Areas for Firms

2015/2016 FCA’s Priorities

A strategic markets-led approach to regulation • CEO Departs• Banking Culture Review Scrapped• Implementation of MiFID II delayed to 2018• Asset Management Market Study kicked off November 2015

Protecting Consumers• Auto Enrolment Pensions rolled out over next 2 years• Finalised regulation process of Consumer Credit in March 2016

Individual Accountability • Senior Managers and Certification Regime implemented March 2016• More enforcement against individuals in 2015/2016 than previous years• Greater scrutiny on Whistleblowing measures

International Issues• Preparation for MAR, MiFID II implementation

Our People• FCA continuing drive for cultural and technical diversity

FCA Priorities for 2016/2017 Overview

Wholesale financial markets

Firms culture and governance

Innovation and technology

Treatment of existing customers

Pensions

Financial Crime and Anti-Money Laundering

Advice

Wholesale financial markets: Desired Outcomes

Risks- Volatility and Uncertainty impacting investor confidence

- Financial results take precedent over good conduct and performance

- Wholesale Banks fail to effect systems and controls

Outcomes- Increased confidence in wholesale financial markets

- Enhancement of monitoring and surveillance

- Increased market efficiency

- Greater responsibility over conduct

Wholesale financial markets:Achieving Outcomes

MAR/MiIFD II

• Strengthen UK Market Abuse Framework

• Wider Reporting Requirements

• Proactive approach and quicker response to Market Change

Fair and Effective Markets Review

(FEMR)• Supervising major UK

FICC benchmarks

• Enhanced rules on references

• Assist in SMR implementation

• FICC Market Standards Board

Primary Market Effectiveness

• Proposed Prospectus Regulation

• Availability of information

• Primary debt market effectiveness

• Review Listed market structure

Firms culture and governance:Desired Outcomes

Risks- Poor Culture in Firms

- Strategy and Governance not aligning with values and conduct

- Incentive structures lead to poor behaviour (Conduct Risk)

- Weak Governance and lack of accountability create poor oversight

Outcomes- Firms Develop Culture of accountability

- Firms and senior members aware of good conduct

- All business areas align with good Firm culture

- Proactive analysis of Firms issues

Firms culture and governanceAchieving Outcomes

Accountability and Governance

- Implementation of SMRC

- Assessment and mitigation of conduct risk

- Solvency II implications

- SMRC for FSMA authorised firms

Culture

- Remuneration and incentive controls

- Enforcement as a potential deterrent

- Review Governance changes

Innovation and technology: Desired Outcomes

Risks- Technology application limited by system vulnerability

- Complex IT infrastructure obstructing key services

- Outsourcing leading to marginal oversight of Third party systems

- Cyber Security and Cyber attacks

Outcomes- Regulation allows and encourages innovation

- RegTech – more efficient regulation and compliance

- Combat Cyber threats

- Robust Recovery and Continuity Processes

Innovation and technology:Achieving Outcomes

Encouraging Innovation and

new competition

Keeping up to date

Risk Based Approach to CombatCyber Crime

Treatment of existing customers:Desired Outcomes

Risks- Tough economy leading to disadvantaged consumers

- Difficulty to obtain Credit

- Lack of product transparency

- Unjustified exit and switching fees

Outcomes- More information and transparency for Consumers

- Greater product options

- Remove barriers to switch or exit

- Actively engage and retain customers

Treatment of existing customers:Achieving Outcomes

Increased Competition in Retail banking

• CMA retail banking Interim Findings

• 15 provisional remedies

• 4 additional remedies in March 2016

• Final Report to be Published

Cash Savings Market Study

• Switching should be easier for Customers of old accounts

• Consult on second package of transparency remedies

Fair Treatment in Life Insurance

Sector

• Thematic Review in March 2016 on Fair Treatment

• Industry wide discussion to take place

• Collaborative Approach with Firms

Pensions: Desired Outcomes

Risks- Aging Population- High cost and uncapped fees- Resorting to alternative investments- Struggle to contribute to pensions

Outcomes- Increased competition and innovation - Better value for money- Appropriate Advice- Educating Consumers- Protection from scams

Pensions: How to Achieve Outcomes?

Retirement

Outcomes Review

Early Exit Charges Cap

Independent Governance

Committees review

Crack down on scams

Secondary Market in annuities

Policy Statement on Oct 2015

changes

Key focus areas

Financial Crime and Anti-Money Laundering

Advice

Financial Crime:Desired Outcomes

Risks- Tweaking risk criteria to achieve profit and growth

- Less Investment in systems and controls

- Distortion of risk assessments

- Consumers vulnerable to fraud

Outcomes- Create hostile sector for money launderers

- Avoid unintended ML consequences

- AML processes do not exclude people without reason

- Proportionate AML Requirements

- Reduce Scams

Key Risk: Proportionality

• Important that financial crime regimes are proportionate and operate efficiently

• Minimise any unintended consequences of regulation• Key risk identified –

– Financial crime requirements, high costs and reduced profitability may cause firms to change risk weight of their products and change risk profile of their clients inappropriately.

– This may restrict access to financial services to whole groups of individuals or businesses.

Financial Crime Data Return

• Currently the FCA’s financial crime supervisory work relies on the use of ad hoc data requests to gather information

• Do not currently gather information from firms about financial crime regularly

• FCA to introduce REP CRIM return from 31 Dec 2016

– Content of REP CRIM:

• Location of customers• Jurisdiction the firm has business that it considers high risk• Resources allocated to tackling financial crime• Number of suspicious activity reports filed with authorities• Sanctions and Asset freezes• Firm’s general views on which are the most prevalent types of

fraud

4th Money Laundering Directive

• Adopted May 2015• To be implemented in all Member States by 26 June 2017• Key drivers and improvements:

– Global consistency– Beneficial ownership defined– Reinforced risk-based approach– Suspicious activity reportable in all EU states– Consistent sanctioning of breaches– EU-wide AML and CTF risk assessment – Third-country equivalence regime – Simplified due diligence to be justified– New definition of PEPs

4th Money Laundering Directive – Timeline

Q2/Q3 2016 – Consultation

Paper issued by HM Treasury detailing the

proposed amendments to

current legislation

Q3/Q4 – Draft regulations

Q1 2017 – Guidance finalised

June 2017 – Regulation comes

into effect

Advice:Desired Outcomes

Risks- Lack of Consumer Support

- Less than reliable advice provided by advisors

- Advices costs too high

- Lack of transparency in advisory fees

Outcomes- Affordable, accessible, bespoke advice

- Suitability

- Innovative and accessible delivery

- Clear and Transparent costs

- Available non-advised options

Planned Activities – Professionalism and Suitability of Advice

Increased standards of competence and professionalism of financial advisers

Increased communications between firms and clients

Continued focus on suitability

Financial Advice Market Review

• Launched in August 2015• Explores the supply and demand sides of the market for

financial advice, barriers to consumers and potential remedies

• Findings – concerns that market for financial advice was not working well for all consumers even under RDR

• Aim – develop a market that delivers affordable and accessible financial advice and guidance for everyone

Financial Advice Market Review: Key Areas

• Affordability– advice more cost effective for the mass market– automated advice models– technological development

• Accessibility – clear definition of regulated advice (‘personal recommendation’)– tackle barriers preventing consumers from seeking advice – employers to provide advice on financial planning

• Redress– increase consumers confidence in regulatory system– confirm liability of firms when giving wrong advice– increased transparency of how FOS reviews complaints– recommendations to FSCS

FAMR – FCA Recommendations

Simplify and clarify the regulation of financial advice

Support firms offering “streamlined advice” on a limited range of consumer needs

Create a specialist Advice Unit to give regulatory support to new automated advice models

Clarify certain rules relating to financial advisers

Consider introducing risk based levies or wider funding classes as part of the FSCS Funding Review

Questions?

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