3. Our priorities

3. Our priorities

How we decide our business planning priorities

Our work regulating firms is underpinned by our assessment of risk. Alongside the analysis of the medium to long term risks we explain in the Risk Outlook, we also bring together the intelligence we collect from a wide range of sources to enable us to form a view of the risks in each of the markets and sectors we regulate. This includes the information we have from our supervision and other engagement with firms and market participants, from our engagement with the Panels, from engaging with consumer bodies, findings from market research and interactions with consumers. This intelligence forms a rich picture of the markets we regulate and is the basis for our analysis of issues across the different financial sectors.


The core of our work, which takes up most of our resource, will always remain our day-to-day activities of developing policy, reviewing competition, authorising and supervising firms and setting and enforcing our rules. It is important that we maintain a sufficient presence across all sectors so that we are able to influence the participants effectively and, where necessary, crack down on poor behaviour rapidly.

However, we cannot mitigate every risk, nor do we aim to do so. Our resources need to be devoted to those areas where we believe we can have the most impact and make the most difference.

We, therefore, prioritise our work to focus on the areas that pose the highest risk to our objectives. We concentrate our resources on the markets and firms that are most exposed to risks that may give rise to poor outcomes for consumers, impact market integrity or where competition is not working for the benefit of consumers.

Priorities for 2016/17

As a result of our assessment of the risks we have identified seven priority themes for this Business Plan. These will form the primary focus of our discretionary work over the course of the year ahead:

  • Pensions
  • Financial crime and Anti-Money Laundering
  • Wholesale financial markets
  • Advice
  • Innovation and technology
  • Firms’ culture and governance
  • Treatment of existing customers

These priorities do not represent the totality of our work, but will be used to drive our decisions about our thematic projects and market studies and also inform the areas we will pay particular attention to in conducting our core activities.


This is a priority sector given the fundamental recent changes to the market. We will look across the sector to ensure our policies support fair treatment of customers and encourage competition. We will also target resources to raise consumer awareness, disrupt scams and take enforcement action against unauthorised businesses.


Policy changes and demographics will have major impacts on the pension sector over the longer term, with those aged 85-plus already the fastest growing segment of the UK population.[1]Consumer choices throughout retirement are becoming both more complex and more significant.

Pension products with high costs/uncapped fees can disproportionately reduce fund values, with a significant cumulative impact on consumers’ funds.

Some consumers have chosen alternative investments, with different risks and advice implications.

Some consumers are unable or unwilling to engage in their pension choices, and many struggle to contribute to a pension. This puts them at risk of an underfunded retirement.

Outcomes we seek

  • Increased competition and innovation in the pensions sector, particularly in products that are good value for money for consumers.
  • Firms offer consumers better value for money products and services and actively and honestly compete to keep them.
  • Appropriate advice and guidance is available and meets consumers’ needs.
  • Consumers know how to access suitable pensions advice and guidance.
  • Reduced harm to consumers from investment scams.[2]
  • Proportionate regulation which supports innovation and competition in the consumer interest.[3]

Our planned activities

Retirement Outcomes Review

Having considered market developments since the introduction of the pension reforms, other FCA work and wider initiatives, we expect to launch a review on Retirement Outcomes in 2016/17. The review will consider the impact of the pension reforms on competition and switching in the market.

This timing will allow us to integrate our review effectively with our related work and wider initiatives, including the Financial Advice Market Review, our ongoing consultation on changes to our pension rules and guidance, our data collection exercises and the Government’s next steps on exit charges and pension transfers.

In addition, our data analysis has found that many people are using the pension freedoms to either release their pension pot as cash or to choose drawdown products. These changes in behaviour present different risks to the risks of selecting an annuity. We will conduct work to help us understand how consumers react to ‘wake-up packs’, which encourage them to take action, and how they use and respond to the various annuity comparison tools. We will undertake work to ensure that consumers are able to make choices that are in their best interests given their circumstances.

Early exit charges cap

In February 2016, the Treasury published the results of a consultation on potential barriers to people accessing the new freedoms. The government concluded that many people face early exit charges at a level that may create a barrier to accessing their pension savings. Parliament has given us a duty to impose a cap on early exit charges, and we will develop and consult on proposals to discharge this duty. We will be consulting on this to ensure that consumers are able to use their pension freedoms and transfer their pensions more freely without unnecessary barriers.

The science behind consumer choices

The pension freedoms offer consumers new options and choices. Understanding these choices can be difficult for people with little previous experience of engaging with financial services. Yet their decisions can have a significant impact on their financial wellbeing for the rest of their lives. Consumers need the right information and encouragement to shop around for the best deal for them.

From our behavioural economics work, we know that how choices are ‘framed’ has a major impact on consumer behaviour around financial services. In 2014, for example, we undertook a research experiment to see how framing affected the behaviour of consumers choosing annuities.

Our study revealed that framing annuities as an ‘investment’ (how much it would ‘cost’) consistently led to consumers making very different choices compared to framing from a ‘consumption’ perspective (how much they would get in return). Consumers consistently chose the products framed by ‘consumption’, even when other choices made better financial sense. We published this research to help firms, advisers and the Government-funded Pension Wise service as they developed their communications in light of the new pension freedoms.

Towards the end of 2015, we published our consultation, Pension reforms – proposed changes to our rules and guidance, which explained that our rules on shopping around apply equally to consumers looking to take advantage of the new pension drawdown options. Our Retirement Income Market Study underlined how important it is that firms clearly explain the options available and the benefits of shopping around. We are now working with firms on new behavioural trials to test how to improve consumer communications around retirement options. We will publish the results to help ensure firms give consumers the information they need, in ways they can understand.

Pension reforms – changes to our rules and guidance

Since the pension reforms were announced in the 2014 Budget, we have made a number of necessary changes to our Handbook to protect consumers and ensure that firms were clear about our expectations in the new environment.

We also reviewed all of our regulatory requirements related to pensions and retirement income and consulted on changes to them in October 2015. We will publish a policy statement in Q2 this year, which will summarise responses to our consultation paper, and publish the final rules and guidance.

Annuities Sales Practices

We will continue our review of firms’ disclosures to existing customers about enhanced annuities through their nonadvised sales processes.

We took an initial sample which indicated that customers may have been given insufficient information about the availability of enhanced annuities, their potential eligibility and the fact that they could receive a higher income if they shopped around. We have therefore asked several firms to carry out a more extensive sample review of their past annuity sales, and will assess the results of this work to decide our next steps.

‘Those aged 85-plus are already the fastest growing segment of the UK population’

The secondary market in annuities

We will work with the Treasury, among others, to create a consumer protection model for the secondary annuities market which is scheduled for April 2017. We will issue a consultation paper to get input from stakeholders and consumers.

Accumulation[4] – effectiveness of Independent Governance Committees

In 2016/17 we will undertake a review of the effectiveness of Independent Governance Committees (IGCs). The review will assess how effective IGCs are in helping pension providers deliver value for money for workplace pension policyholders. This will include their effectiveness against the recommendations made by the Independent Project Board, where we will work closely with the Department for Work & Pensions (DWP).

Cracking down on scams

The ability to release pensions as cash heightens the risk of people being targeted by fraudsters. We will co-ordinate our intelligence and activities on pension scams and unsuitable advice, enabling us to take action as necessary, and continue to run our ScamSmart campaign to educate and empower consumers to actively avoid scams.

Measures of success

  • An improvement in consumers’ satisfaction with their pension providers.
  • A reduction in complaints about advice on pensions.
  • Over time, increased evidence of a range of products in the market tailored to the new pension reforms.
  • Increased consumer awareness and understanding of scams and techniques used by fraudsters.
  • Greater use of our online resources to help consumers avoid scams.

Financial crime and Anti-Money Laundering

The UK financial system is a major global hub which attracts investment and activity from across the world. However, this can also attract criminals and terrorist organisations seeking to hide the proceeds of crime among the huge volumes of legitimate business. It is imperative that the UK financial system has appropriate safeguards to prevent financial crime. At the same time, it is important we ensure that financial crime regimes are proportionate and operate efficiently and that any unintended consequences of regulation are minimised.

We also want to reduce and prevent the harm caused by investment scams, including pension scams, and increase consumer awareness of the dangers of investing in unauthorised schemes.

We recognise that these are areas where partner agencies also have responsibilities and a key role to play. We will undertake work on Anti-Money Laundering (AML) and scams in collaboration with law enforcement partners and other agencies, with actions being taken by the appropriate organisations.


In the search for profit and growth, firms may change the risk criteria they use to assess new clients leading to weaker checks and controls.

Higher costs and falling profits may cause firms to cut investment in systems and controls. The growth of digital tools increases the risk of online financial crime and cyber-attacks.

Financial crime requirements, together with a range of other factors, including reduced profitability, may cause banks to de-risk their product ranges inappropriately. This may restrict access to financial services to whole groups of individuals or businesses.

Consumers may become more vulnerable to fraudsters. Pension reforms create a new market for scammers.

Outcomes we seek

  • The UK financial system is a hostile sector for money launderers, using intelligence effectively to take early action that prevents money laundering.
  • The unintended consequences of Anti-Money Laundering regulation are minimised.
  • Firms’ AML processes do not exclude people unfairly or unreasonably from using financial services. We will explore new ways, including technology, of solving this issue.
  • AML requirements are proportionate and operate efficiently.
  • Harm to consumers from investment scams is reduced because:
    • we help consumers to spot the warning signs and avoid scams, including pension scams
    • ​we take action against those firms and individuals who perpetrate scams under the guise of regulated activity

Our planned activities

Anti-Money Laundering (AML)

We will continue our due diligence on firms and individuals applying for authorisation and our proactive supervisory assessments of firms whose business models present a higher inherent risk of money laundering.

We will roll out our Financial Crime Annual Data Return, enabling us to focus our supervision on the right firms. Where we find firms with material weaknesses in their money laundering controls, we will use our enforcement powers to send a deterrent message to industry and/or impose business restrictions to limit the level of risk. We will also refer cases to other law enforcement agencies where we identify suspected money laundering.

We will use intelligence, including from whistleblowers, to prevent money launderers using the financial system. To support this, we will further encourage good whistleblowing intelligence from the industry, either directly to firms covered by our new rules on whistleblowing or to us. We will continue to support individuals who blow the whistle to the FCA, and ensure that we provide them with the anonymity they need, as best we can.

We will work closely with the Treasury on the EU’s Fourth Money Laundering Directive (4MLD) which requires implementation in the UK by mid-2017. We will also continue to work with the European Supervisory Authorities on drafting guidance to support 4MLD.

The Financial Action Task Force (FATF) is a global intergovernmental body which sets standards for combating financial crime and related threats to the integrity of the international financial system. We will continue to be a major participant in the FATF and will carry out a mutual evaluation review of the UK in late 2017. We will continue to review and refine our AML supervisory approach so that it meets the latest international standards.

Proportionate and effective response to de-risking

We know that de-risking by banks is causing problems for some groups of consumers. While we do not control this process, we are undertaking work to help address the issue. We will complete our de-risking impact assessment in Q1 2016, giving us a clearer picture of the nature, scale and drivers of de-risking. We will work with Government, firms and others to create a proportionate strategic response.

We will also carry out work looking at how new technology can make AML processes more efficient, reduce financial exclusion, make it less onerous for customers and encourage easier switching between financial services providers.

ScamSmart campaign

Our 2015 ScamSmart[5] campaign was an effective crime prevention campaign aimed at retired consumers and those approaching retirement. It stresses the importance of rejecting cold calls, checking our warning list before making an investment and getting impartial advice.

In 2016/17, we will run a new phase of the ScamSmart campaign which will include advertising, new information on our website, press activity and communications through partners. We will use this to build further awareness and strengthen our key messages around the dangers posed by investment scams.

As part of ScamSmart we created an interactive tool, the FCA Warning List, to help people avoid potential scams. We also publish consumer alerts which provide a list of organisations we suspect are active but not authorised and regulated by the appropriate regulator. We will continue to monitor and improve these resources as part of our ongoing prevention work.


‘We will further encourage good whistleblowing intelligence from the industry, either directly to firms covered by our new rules on whistleblowing or to us’


We will focus on action against firms and individuals who perpetrate scams. We have a range of enforcement tools to tackle those engaging in unauthorised business, including civil court action to stop activity and freeze assets, insolvency proceedings and, for the most serious cases, criminal prosecution.

Only a limited number of investment scams will fall within our remit, so effective co-ordination with other agencies and a continued focus on prevention, including better consumer education, is critical to achieving long-term success in this area.

We will co-ordinate our efforts across our supervisory, intelligence and enforcement functions in our work on scams and, in particular, those that are targeted at consumers’ pensions. We will work closely with other regulators and law enforcement agencies through initiatives such as Project Bloom which tackles pension scams. We will also refresh our ScamSmart crime prevention campaign to help those most at risk to avoid being scammed.

We are a member of the Government’s Joint Fraud Taskforce, announced in February, which brings together law enforcement agencies, firms and regulators to better identify and respond to fraud.

Measures of success

  • Over the medium to long term, an improvement in firms’ AML controls, measured through scores from our routine AML supervisory work.
  • Over the medium to long term, an improvement in the perception of the UK’s AML regime from international assessors and overseas authorities.
  • Increased consumer awareness and understanding of scams and techniques used by fraudsters.
  • Greater use of our online resources to help consumers avoid scams.

Wholesale financial markets

Clean, effective and competitive wholesale financial markets are vital to the UK’s economic prosperity. Globally, they provide access to financing for firms and governments and investment opportunities for retail and institutional investors. Their effectiveness relies on them being, and being perceived to be, fair, transparent and efficient.


Heightened uncertainty about the global economic outlook and diverging monetary policies continue to create volatility in financial markets, which may undermine investor confidence and affect both prudential and conduct considerations.

Financial returns dictate business culture. Firms could prioritise financial results over good conduct in evaluating and incentivising staff performance.

Wholesale banks fail to strengthen their conflict of interest management and trader controls. Ineffective procedures and poor oversight of business, supplier and new client processes leads to misconduct and potential loss.

Outcomes we seek

  • Clean, effective and competitive wholesale financial markets that enjoy the confidence of all who undertake market activity in the UK, including raising debt and equity capital and enabling risk management.
  • We regulate wholesale financial markets proactively and respond to the way markets evolve to ensure market integrity.
  • An enhancement of the monitoring and surveillance capability of the FCA, markets participants’ and market infrastructures’ across markets to detect, disrupt and deter market misconduct.
  • An increase in the efficiency and effectiveness of primary markets to ensure they meet the needs of issuers and investors.
  • Both corporate and individual market participants take responsibility for their part in maintaining clean, fair, effective and competitive markets. Firms and individuals understand the standards and rules that apply to them and are held accountable for their conduct.

Our planned activities

Market Abuse Regulation (MAR) and Markets in Financial Instruments Regulation (MiFIR)

As wholesale markets continue to evolve with new technology and market practices, the rules proscribing and prohibiting abusive behaviour must remain effective and up-to-date.

In 2016 we will finish implementing, and start applying, the new EU Market Abuse Regulation (MAR). This will strengthen the existing UK market abuse framework by extending its scope to new markets, new platforms and new behaviours. Under the Markets in Financial Instruments Regulation (MiFIR), from January 2018 firms will be required to report across a wider range of fields and assets classes which will significantly contribute to the effectiveness of our market abuse efforts.

We will work further during the year to prepare for or embed these new regimes to produce the most effective response to the threat that market abuse poses to our markets.

Fair and Effective Markets Review (FEMR)

In 2014/15, the FCA worked with the Bank of England and the Treasury to conduct the Fair and Effective Markets Review (FEMR). This is a comprehensive and forward-looking assessment of the way wholesale Fixed Income, Currencies and Commodities (FICC) markets operate. The final report was published in June 2015 and made 21 recommendations for the UK authorities, the UK Government, international standard setters and the financial industry. We also provided advice and assistance to the Treasury on the FEMR recommendation to extend elements of the Senior Managers and Certification Regime (SM&CR) to authorised firms in FICC markets. Proposals to extend the SM&CR to all authorised firms are included in the Bank of England and Financial Services Bill now before Parliament.

In 2016/17 we will undertake work which includes:

  • Supervising the major UK FICC benchmarks which are now regulated as a result of the recommendations of FEMR.
  • Introducing enhanced regulatory reference rules as part of the new Senior Managers and Certification Regime to help firms prevent the ‘recycling’ of individuals with poor conduct records between firms.
  • Providing advice and assistance to the Treasury on FEMR recommendations that require primary legislation, including the proposed extension of elements of the Senior Managers and Certification Regimes to all authorised firms, via the Bank of England and Financial Services Bill.
  • Working with international counterparts to improve conduct and how wholesale financial markets at the global level are structured and operate, including supporting the Bank of England and other central banks in their work to develop a global FX code.
  • Liaising with the new FICC Market Standards Board (FMSB) regarding emerging risks in global FICC markets and other important industry-led efforts to raise standards in these markets.
  • Incorporating the Review’s findings into our forward- looking supervision of FICC markets and market participants.

The new MiFID regime

We will work to ensure that the implementation of the Markets in Financial Instruments Directive (MiFID) II realises the potential of the legislation to change markets significantly for the better.

MiFID, which sets the conditions for authorisation and ongoing regulatory requirements for investment firms, and regulates buying, selling and organised trading of shares, units in collective investment schemes, bonds and derivatives, has been revised. The new regime, known as MiFID II, is a comprehensive set of reforms. It will reshape the secondary trading of financial instruments, particularly derivatives. It aims to ensure firms make the best interests of clients central to their business across retail and wholesale markets.

The European Commission has proposed[6] that the date from which MiFID will apply should be put back by a year to January 2018. Domestically we will publish further consultation papers, following on from CP15/43, to make the necessary changes to our Handbook, primarily to add new conduct of business and organisational requirements. We will continue to educate and prepare firms for the implementation of the new rules and also develop our own capabilities in order to supervise against these requirements.

We will also continue to contribute to the practical work of the European Securities and Markets Authority (ESMA) on implementation and guidance on the interpretation of the legislation for market participants.

Primary market effectiveness

Primary markets play a crucial role in supporting prosperity and providing investment opportunities. In 2016/17 we will undertake a number of pieces of work to ensure the UK’s primary markets continue to be effective, by:

  • Contributing to the negotiation of the proposed new Prospectus Regulation (known as ‘PD3’), and implementing smoothly and in a way that is sympathetic to the broader aims of the Capital Markets Union initiative.
  • Working with market participants to examine options for improving the availability of information in the UK IPO process.
  • Improving the effectiveness of the UK’s primary debt markets to better meet the needs of issuers and investors.
  • Reviewing the structure of listed markets more generally to ensure they continue to best serve the needs of the modern economy.

Asset management market study

We will continue our market study into asset management to assess if competition is working effectively and whether investors get value for money when they purchase asset management services.

Last year we published the terms of reference for this market study.[7] We aim to publish an interim report in summer 2016 and a final report in early 2017.

Measures of success

An upward trend in the reputation of the UK as a financial centre.

An increase in confidence in relevant markets. This will be measured by perception surveys, data on trade volumes, fees and spreads in various asset classes and by the market cleanliness statistic, which provides an indication of the proportion of potential insider trading occurrences.


Changing consumer needs and pension reforms mean access to affordable, professional advice is now more important for consumers than ever. They are now having to make more, and more complex, financial decisions for themselves. In our research, for example, only 37% of those buying an annuity last year[8] used a regulated adviser. These choices can have a major impact on consumers’ financial wellbeing in retirement. A well-functioning advice market is crucial to ensure people can access the support they need to make informed financial decisions at every stage of their lives.


Consumers need more support. As consumers’ needs, finances and financial literacy become more varied and complex, the need for appropriate, accessible advice and products is growing.

Advisers may not always give consumers the most suitable investment advice, may offer a limited range of products or have staff reward schemes that motivate sales over suitability.

Consumers may reject paid-for financial advice because of the potential cost. They may choose non-advised sales, even when support is better for their needs.

Complex charging structures and poor transparency make it harder for consumers to compare products.

Outcomes we seek

  • Affordable, accessible advice options that meet consumers’ needs.
  • Advice is of appropriate quality and suitable for consumers’ needs.
  • Advice, including low cost advice, is delivered in innovative and accessible ways.
  • The cost of advice is clear and transparent.
  • Firms develop good quality, transparent and low cost non-advised options for consumers who do not want advised services.

Our planned activities

Delivering the Financial Advice Market Review

The Financial Advice Market Review (FAMR) was established with the aim of identifying ways to make the UK’s financial advice market work better for consumers. The Review had a wide scope, and aimed to look across the entire financial services market in order to improve the availability of support to help people with their financial decision-making, particularly those who do not have significant wealth or income.

We launched the Review in August 2015 and issued a joint Call for Input with the Treasury. The final report was published in March 2016. The report set out a series of recommendations aimed at stimulating the development of a market that provides affordable and accessible financial advice and guidance for everyone, at all stages of their lives. These included recommendations for the FCA to:

  • Simplify and clarify the regulation of financial guidance.
  • Support firms offering ‘streamlined advice’ on a limited range of consumer needs.
  • Create a specialist Advice Unit operating in a similar way to the FCA’s Project Innovate to give regulatory support to new automated advice models.
  • Clarify certain rules relating to financial advisers including on cross subsidisation, training and fact finds.
  • Consider introducing risk based levies or wider funding classes as part of the FSCS Funding Review.

The review also contained recommendations for the FCA, Government, and industry designed to increase consumer engagement with financial advice, including through the provision of workplace advice.

We will work on implementing the recommendations throughout the year, as well as developing clear policies to support the development of the advice market. The FSCS Funding Review will commence in April 2016.

The FCA and the Treasury will report jointly to the Economic Secretary and FCA Board in 2017 on the progress made towards implementation. In 2019, both organisations will conduct a review of the outcomes from FAMR.

‘The FAMR report sets out a series of recommendations aimed at stimulating the development of a market that provides affordable and accessible financial advice and guidance for everyone, at all stages of their lives’

Professionalism and the suitability of advice

Our supervisory focus will continue to be on supporting increased professionalism in the financial advice sector. We will increase our communications with the sector and continue to assess how suitable advice is, monitoring any changes that result from implementing proposals from the Financial Advice Market Review.

Measures of success

  • An improvement in consumer satisfaction scores about financial advice.
  • An improvement in consumer’s complaints data about advice.


Innovation and technology

Technology plays a fundamental and increasingly pivotal role in delivering innovative products and services. We must strike a balance between supporting innovation that benefits consumers and ensuring they have adequate protection.

There are also risks associated with technology. We have a role to play in ensuring firms’ technology and systems become more resilient to both cyber-attacks and more traditional outages, safeguarding consumers and markets and building confidence in the effectiveness of financial technology.


Widespread adoption of technology is likely to be limited by vulnerabilities in the design and management of systems and infrastructure.

Many firms remain reliant on complex IT infrastructures which can make it difficult for them to maintain key services such as payments. These risks may be exacerbated by the ring-fencing of retail banks, unless firms use appropriate planning to manage them.

Tighter margins are leading more firms to outsource processes to third-party firms, yet firms have little or no control over the security or functionality of these providers systems and processes.

Cyber-attacks are increasing and pose risks to consumers and markets. Some attacks are likely to be successful and firms may not have adequate defences or effective plans to identify and respond to them.

Rigid regulation may stifle innovation in financial services.

Outcomes we seek

  • Our regulation encourages an increase in innovation to the benefit of consumers, ensuring customers’ current and future needs are met affordably and appropriately.
  • Our support of RegTech[9] enables more efficient and effective regulation and compliance.
  • Firms’ and markets’ technology becomes increasingly resilient to cyber threats. Tested and successful plans mitigate the impact of cyber-attacks, increasing confidence.
  • Firms manage maintenance and change to infrastructure well. The frequency of events involving disruption of service or consumer loss reduces. If consumers suffer loss, firms deliver proportionate and timely redress.
  • Firms’ technology supports their current and future business strategy, enabling ongoing innovation which meets consumer and market needs

Our planned activities

Encouraging innovation, competition and new entrants to the market

We support innovation that advances our objectives and benefits consumers. Project Innovate is the FCA’s response to the wave of innovation taking place in financial services. It helps firms of all sizes develop innovative ideas that meet consumer needs. We will increase both awareness and the capacity of Project Innovate to provide advice and support for innovative developments which increase competition in the interests of consumers.

We will increase our signposting of firms to regulators in other jurisdictions to encourage UK-based firms to grow internationally, and support non-UK investors entering the UK market.

We will launch a Regulatory Sandbox, creating a safe place for businesses to test new ideas to ensure they meet regulatory requirements. This will accelerate the development and testing of genuinely novel products which benefit consumers and provide a leading example to regulators in other countries. We expect more firms to come to market as a result.

We will use the results from our Call for Input on RegTech to shape our strategy to reduce the regulatory burden on firms on both RegTech and FinTech, [10] while delivering greater compliance. We will also define our, and the industry’s, risk tolerances in this area.

Operational resilience

Firms’ reliance on complex infrastructures increases the potential for problems and outages of key systems. Our work in this area will include communicating to firms our expectations of them with regard to effective IT and operational resilience, and working with them to understand their capabilities in this area. This will include the ability for firms to identify key assets, manage and protect them appropriately, be able to detect when things go wrong, respond and recover effectively, as well as having the necessary governance in place to manage the risks and learn from experiences. We will also continue to carry out reactive work when outages occur to understand their impact on consumers and markets and how firms respond to them.

Keeping pace with developments in Big Data

We will use the results from our Call for Input on Big Data use in the general insurance sector to better understand how Big Data affects customers and whether it fosters competition. We will also analyse how our regulatory framework affects Big Data developments to decide whether we will conduct a market study or take a different approach. This will be our first detailed study of Big Data and we will use what we learn in our work with other sectors.

Cyber crime

We will continue to work collaboratively with the Treasury, the Bank of England and other authorities to ensure a joined-up and risk-based approach to cyber-crime. This will ensure we direct our resources at areas of greatest need and work directly with the firms and markets with the greatest risks.

We will also provide education tools to help all firms deal with the risk of cyber-crime and respond swiftly to cyberattacks.

Automated advice

For new products, we will continue to monitor the development of automated advisory services (often described as ‘robo advice’) in the financial sector, as well as new drawdown products being designed and delivered in response to the new pension freedoms.

We have accepted FAMR’s recommendation to create an ‘Advice Unit’ to support firms with automated advice models with the potential to deliver affordable and accessible financial advice to consumers.

Measures of success

  • An increase in the number of requests for Innovation Hub support.
  • Positive feedback from participants in the Innovation Hub, and new market entries.
  • In the medium term, a reduction in the number of critical system failures or outages in firms.

A ‘safe space’ to test innovation

Consumer needs are constantly evolving and innovative solutions are required to meet them. Too often, however, firms have to spend considerable amounts of money bringing innovation to market, not least because they must meet regulatory requirements immediately. This acts as a brake on developing new services and products and limits competition.

We wanted to find ways to reduce the time and potential cost of getting innovative ideas to market. We also wanted to work with innovators to build in consumer protection from the start. So this Spring we plan to expand our successful Project Innovate to open a Regulatory Sandbox. This will give firms which meet our eligibility criteria a safe space to test innovation without immediately having to meet all the normal regulatory requirements.

They will be able to test new products, services, business models and delivery systems. Unauthorised firms will benefit from restricted authorisation for testing purposes, and all eligible firms will have the potential benefit of individual guidance, waivers and no enforcement action letters.

We want more firms to embrace innovation. One of our recommendations is for industry to consider setting up a not-for-profit company to act as a sandbox ‘umbrella’, and we look forward to their response. In the meantime, we hope our sandbox will speed up the time it takes for new and innovative products to reach market and start benefitting consumers.


Firms’ culture and governance

We want to see firms managed in a way that promotes appropriate culture and behaviours. We want firms’ governance and culture to contribute to delivering good outcomes for customers and market integrity, and to promote effective competition in the interest of consumers.

We expect firms to have effective governance arrangements in place to identify the risks they run in their business models and operations, and a strategy to manage and mitigate these risks to deliver fair outcomes to customers, clients and market integrity. While the specific design of governance arrangements provides an infrastructure for how firms are run, our focus is on their effectiveness. Firms’ senior managers have a crucial role in demonstrating that they are accountable and responsible for their part in delivering effective governance, including taking responsibility and being accountable for the decisions they make and exercising rigorous oversight of the business areas they lead.

Culture is a set of shared values and norms that characterise a particular organisation – the mind-sets that drive behaviours in firms. Firms need to own and manage their cultures at all levels and understand the drivers that will help or hinder them to achieve the cultures they aspire to. We want firms to understand the importance we attach to delivering culture change, where it is relevant to our statutory objectives, and evidence it by outcomes, with clear indicators that the drivers of culture are measured, monitored and managed.

Boards have a critical role in setting the ‘tone from the top’. We expect them to take responsibility for their firms’ culture, ensure it remains high on firms’ agendas and that this tone is replicated throughout the firm. Senior managers need to ensure that their firm’s business processes, people and other drivers of culture support and reinforce the culture they want to embed.

This should, over time, result in improved culture and governance in the industry. It should also promote public confidence that firms have the right people in the right roles, working in the interests of consumers and markets.


Poor cultures in firms drive behaviours that result in poor outcomes for consumers and markets.

Firms’ strategies, business models and governance arrangements are not aligned with firms’ values and good conduct.

Incentive structures and performance management do not reward behaviours that act in the long-term interests of customers and market integrity.

Weak governance and lack of accountability create poor oversight of risks to customer and market integrity risks in how firms are run.

Outcomes we seek

  • Firms develop a culture of accountability at all levels and senior individuals are fully accountable for defined business activities and material risks.
  • Firms and senior managers can explain principles of good conduct towards customers and markets and incorporate them throughout their business, producing better consumer outcomes.
  • Firms proactively identify the risks their strategies, business models and cultures present to delivering good market and consumer outcomes. They act to address them, using appropriate systems and controls and acting appropriately on whistleblowing intelligence.
  • Firms ensure that their strategies, business models, systems and controls and other drivers of culture are aligned with firms’ values and support good outcomes; incentive structures and performance management reward positive behaviours and create a culture that works in the long-term interests of the firm, its customers and market integrity.
  • Firms take steps to proactively identify and address issues when things go wrong, and can demonstrate that they learn from such events.
  • Increased trust in financial services in the UK.

Our planned activities

Accountability and governance

The key aims of the SM&CR are to enhance individual accountability at the most senior levels in deposit takers and PRA-designated investment firms, and enhance their standards of conduct at all levels. We expect firms and their senior managers to apply the spirit, as well as the letter, of the regime.

Our revised framework for insurers is another important part of our drive to raise standards of individual conduct across financial services. Different requirements exist to ensure proportionate requirements on firms, depending on whether they fall under Solvency II.

The new regimes should provide clarity for both firms and regulators about each senior manager’s responsibilities. We will use firms’ responsibilities maps and individual senior managers’ statements of responsibilities throughout the regulatory lifecycle, including when approving individuals, supervising individuals and firms and considering enforcement. These tools will further help us to identify and assess key senior individuals in the context of their management and governance arrangements. We will use the new tools with relevant firms as part of our proactive engagement, for example to inform discussions about management and governance arrangements.

Relevant firms will also need to carry out fitness and propriety checks on all individuals subject to the Certification Regime, and comply with notification and training requirements for the application of conduct rules to all but ancillary staff.

We will continue to embed the new regime in our supervisory approach and processes, and focus on how SM&CR is integrated in the way deposit takers and PRA-designated firms are run.

We will also begin developing our policy on extending the accountability regime to all FSMA firms, including further developing the regime for insurers.


Our focus on the culture in financial services firms and its impact on conduct has been, and remains, a priority, and we will continue this work with firms and other bodies. As regulators, our focus is on the most significant drivers of good or poor mindsets and behaviours, such as incentives and remuneration, and the steps firms take which address associated risks. We are interested in the direction of travel of firms’ cultures and if indicators show progress. We will use a range of supervisory tools and methods to engage with firms individually on issues of conduct and culture, tailored to each sector. We will continue to demand high standards of conduct, backed by supervision and enforcement action if necessary so that appropriate culture remains a top priority for firms’ management.

We have carried out significant work on incentives and performance management and we will continue our focus on remuneration. We have enhanced our Remuneration Code for dual-regulated firms to encourage more effective risk management, and to better align individual decision making with good standards of conduct.

We want to ensure that remuneration policies and practices promote the link between risk and individual reward, discourage excessive risk taking and short termism and encourage sound and effective risk management. In turn, this will support positive behaviours and a strong and appropriate culture within firms.

In 2016/17, we will continue to review our regulatory framework governing remuneration, including supporting firms to understand and implement remuneration requirements. We will continue to review the firms’ approaches to regime implementation to ensure these are in line with regulatory requirements and our wider objectives.

We will also continue to support and drive culture change as the conduct regulator. We will promote constructive discussions with various stakeholders, including industry and consumer groups, to gain a better understanding of how to achieve long-lasting cultural change across markets. This will include understanding the key drivers of culture and how they can be used to promote good conduct. We will also continue to offer support to, and participate in, the increasing number of initiatives on culture in financial services from outside the FCA.


We have covered our Fair and Effective Markets Review work in the Wholesale financial markets section of this Business Plan.

Measures of success

Over the medium to long term:

  • Senior managers are demonstrably accountable and effective, and there is a culture of accountability at all levels.
  • Firms respond to material risk events by applying robust, comprehensive remuneration measures based on actual loss and harm.
  • Firms can demonstrate that they act appropriately on whistleblowing intelligence.
  • An increase in the proportion of crystallised risks that are self-identified and proactively addressed by the firms rather than by the regulator.

Treatment of existing customers

We have seen poor practice in the treatment of existing customers who become inactive (back books). This includes firms not informing customers about other available products, applying switching or exit fees or creating other barriers to reduce competition and discourage existing customers from changing providers or products.


Tougher economic conditions may lead to firms seeking to ‘manage’ back book customers into more expensive/default products.

A growing number of over-indebted mortgage holders and those with limited access to credit. A future rise in interest rates may make it harder for borrowers, including those already in payment difficulties, to repay. If credit conditions tighten this can leave higher risk consumers with limited options.

Firms may restructure products, bundling together add-on services to make comparison difficult or lock borrowers into higher rates.

Firms may apply unjustified exit or switching fees which reduce competition.

Consumers’ weak bargaining position could give Investment Management firms little incentive to compete on value for money.

Outcomes we seek

Existing consumers enjoy the benefits of increased competition and innovation by firms in products and services, particularly:

  • Firms give more information to customers on renewal in the relevant sectors, making pricing more transparent.
  • There is greater product choice and availability.
  • Barriers to switching or exiting are removed.
  • Firms pay due regard to the interests of their existing customers and actively engage with them to give them a good service and improved outcomes.
  • Firms actively compete to retain customers rather than taking loyalty for granted.

‘We have seen poor practice in the treatment of existing customers who become inactive’

Our planned activities

Competition in retail banking

In 2014, following concerns that essential parts of the UK retail banking sector do not compete effectively and fail to meet the needs of personal consumers or small and medium-sized enterprises (SMEs), the Competition and Markets Authority (CMA) launched its retail banking investigation.

We have worked with the CMA throughout this investigation, giving them constructive feedback and sharing our experience of financial services sectors. In 2015 the CMA published its interim findings and 15 provisional remedies. In March this year, the CMA also published four additional remedies focusing on overdrafts. This package of proposed remedies aims to:

  • Increase customer awareness of the potential benefits of switching and prompt shopping around.
  • Support customers’ ability to make comparisons between providers.
  • Make Business Current Account opening easier.
  • Improve the switching process.
  • Reduce the advantages banks have from incumbency (existing customers’ reluctance to switch).
  • Help SMEs compare the different loans available to them.

The CMA will publish its final report this summer and its provisional decision on remedies in May. The CMA has suggested it may make recommendations to the FCA to implement a number of the final proposals. We expect this to be a key element of our work to improve the effectiveness of competition in retail banking.

‘Consumers are often put off switching because they expect it to be difficult’

Cash savings market study follow-up

Our Cash savings market study found that the market was not working well for many consumers. In particular, many providers hold significant amounts of consumers’ savings balances in accounts opened more than five years ago. These older accounts pay lower interest rates than newer ones, and firms currently give little information to these customers about alternative products. Consumers are often put off switching because they expect it to be difficult and see little gain from opening another account.

We are developing a package of remedies to deliver improved customer awareness about the interest rates on their accounts, their providers’ strategies to long-standing customers and to encourage more shopping around. In 2015, following consultation, we published our final rules for various disclosure remedies. This year, following completion of real-life trials, we will consult on a second package of remedies to improve transparency and increase shopping around and switching.

Fair treatment of long-standing customers in the life insurance sector

In March 2016 we published a report setting out our findings from the thematic review of the fair treatment of long-standing customers in life insurance. We found a mixed picture in the firms we reviewed, demonstrating good practice in one or more areas and poor practice in other areas.

We have therefore decided to undertake further work in relation to this matter. We will consult on non-Handbook guidance which will provide firms with extra detail on the actions they should be taking in order to treat their closedbook customers fairly in the future. We will convene an industry-wide discussion with a view to industry reaching a voluntary solution to capping or removing exit and/or paid-up charges on investments of the type that were the subject of the thematic review.

We will work with the firms we reviewed to address the specific findings identified through our ongoing supervisory work. In addition, we will consider whether some of the firms have failed to meet our standards and, if so, whether remedial and/or disciplinary action is necessary in relation to these firms or others across the market.

Measures of success

Over the medium to long term we expect to see an upward trend in existing customers’ perception of:

  • Choice of products.
  • Comparison between products and services.
  • Ease of switching.


  1. ^ http://www.fca.org.uk/news/dp16-01-ageing-population
  2. ^ See further detail in the Financial Crime and Anti Money Laundering section of this Business Plan.
  3. ^ See further detail in the Innovation and Technology section of this Business Plan.
  4. ^ Accumulation means saving for retirement.
  5. ^ www.scamsmart.fca.org.uk
  6. ^ http://europa.eu/rapid/press-release_IP-16-265_en.htm?locale=en
  7. ^ https://www.fca.org.uk/news/asset-management-market-study
  8. ^ FCA ‘Retirement Income Market Data: July – September 2015’: www.fca.org.uk/your-fca/documents/retirement-income-market-data-july-september-2015
  9. ^ ‘RegTech’ is the adoption and use of technology to assist financial services firms to understand and meet their regulatory requirements more efficiently or effectively.
  10. ^ ‘FinTech’ is the term which describes the intersection between finance and technology. It can refer to technical innovation applied in a traditional financial services context or to innovative financial services that disrupt the existing financial services market.