Speech by Andrew Bailey, Chief Executive of the FCA, at the press conference for the publication of FCA corporate documents.
Speaker: Andrew Bailey, Chief Executive
Event: FCA Press Conference, London
Delivered: 18 April 2017
Note: this is the speech as drafted and may differ from the delivered version
- Today we have published five documents: Our Mission, our Sector Views, our Business Plan 2017/18, our annual consultation on fees, and a feedback statement to our Mission consultation.
- These represent a big step forward, both in explaining how we see our role and in our transparency.
- Our Mission is to serve the public interest, and to add public value through our contribution to society.
Our Mission is to serve the public interest, and to add public value through our contribution to society.
This morning we are publishing five documents:
- Our Mission
- our Sector Views
- our Business Plan 2017/18
- our annual consultation on fees, and
- a feedback statement to our Mission consultation
Taken together, these represent a big step forward in explaining how we see our role and in our transparency. They explain how and why we regulate financial conduct in the UK and what we want our regulation to achieve, our view of the issues and challenges in the sectors we regulate, our plan and priorities for the period ahead and and the budget we are setting.
Our Mission is to serve the public interest, and to add public value through our contribution to society. This sounds obvious I am sure, but the lesson of history is that we can’t take it for granted. The FCA remains a young institution – we have just had our fourth birthday – so we have a lot of work to do to ensure that our role is well understood.
This is the backdrop to the Mission Statement. The FCA operates on a big landscape – 56,000 firms under our regulation is one indicator. Parliament has given us the overall objective to ensure that the markets we regulate function well. To advance this strategic objective we also have three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers. To pursue these objectives we have a range of powers and tools. But with such broad objectives and tools, there needs to be clear explanation of what we are about, namely our Mission.
The Mission sets out a framework which underpins our decision-making, including decisions on how we prioritise within and across the different sectors we regulate; how we respond to specific issues within markets or firms; and decisions on how our individual functions, such as policy, competition, authorisation, supervision and enforcement, operate. The size of our landscape means that we have to take many such decisions – for instance on prioritisation – and we need to be as transparent as possible on how we do this.
To assist this transparency, in the Mission we set out key stages of our processes:
- the identification of harm, potential harm or that markets are not working as well as they could
- the diagnostic tools we employ
- the remedies at our disposal, and
- how we evaluate the effectiveness of our remedies
At each of these stages there are important judgements to be made. Our judgements mean that some providers of financial services will get more attention from us than others and that some types of harm are reduced before others. This, again, puts an emphasis on clarity of explanation and transparency.
We cannot remove all harm from markets or operate a zero-failure regime. We need to be clear on this. We recognise that different groups of consumers will have different needs, and we consider both consumer capability and vulnerability when making decisions.
Understanding vulnerability, and thus susceptibility to harm, is central to how we make decisions. We will prioritise consumers who are unable to exercise choice or have restricted access to financial services they need over those who can exercise such choices, whether or not they choose to do so. We recognise that vulnerability itself changes during any individual’s life, determined by more than one factor.
Wholesale market needs are often quite different from consumer needs. Our aim is to ensure that wholesale markets are fair and effective and work well for their users. We want to ensure that they demonstrate clear proportionate and consistent standards of market practice, transparency, open access, integrity and competition.
In the next year we will publish a number of documents that will give a clearer explanation of how we carry out our main activities and the approach set out in this Mission. They will cover our approach to authorising and supervising of firms, our approach to enforcement, and likewise how we carry out our competition role.
Moving on to our Sector Views. These give us a view of how each sector is performing, the issues and developments we are seeing, and where we need to know more in order to reach a view on our statutory objectives. They help to determine our priorities, our resourcing decisions and thus our plans. Once we have identified an area as a priority, we will use the intervention framework described in the Mission to establish what is causing the harm. We analyse the scale and impact and assess how effective different remedies could be. Our Business Plan explains how we intend to achieve our statutory objectives. It starts with the Risk Outlook, which sets the context for our plan and thus how we decide on our priorities. These priorities reflect the speed and variety of changes affecting both wider society and financial services. Firms are being challenged by rapidly evolving user needs, as well as heightened uncertainty in the economic and political outlook. They need to adapt and compete to meet these challenges successfully. Both they and consumers require markets that are stable, demonstrate integrity and are regulated effectively and proportionately.
The UK’s decision to leave the European Union creates uncertainty for both the UK’s financial industry and the FCA. Both we and the Government are keen to ensure that the financial services industry remains resilient and can make the most of opportunities in a post-Brexit world. The UK’s withdrawal from the European Union will have important implications for the FCA over the coming years. We are liaising closely with the Treasury and the Bank of England to ensure a smooth transfer of EU rules and legislation into the domestic framework. We are providing the Government with impartial technical support, and will continue doing so throughout the withdrawal process.
Finally, we are continuing to implement EU legislation that will come into force before the UK leaves the EU.
Consumer vulnerability and access to financial services is a theme of the Business Plan. This priority runs across financial sectors, is an important part of our Mission and will also be a key focus of our forthcoming ‘Consumer Approach’ document. This strategy will reflect consumers’ growing responsibility for their own financial choices, at a time when these choices are becoming more complex.
The social and economic implications of an ageing population, together with factors like continuing low interest rates and a rise in less secure forms of employment, are likely to have major implications for the pensions and retirement income sector. This Business Plan explains how we will encourage firms to address this growing need and ensure they provide consumers with the information they need to make suitable choices.
Firms themselves will always have the most important role to play in ensuring continuing trust and confidence in the UK’s financial services. As well as embedding the Senior Managers and Certification Regime, we will also consult on our proposals to extend the accountability regime to all firms under the Financial Services and Markets Act. Our aim is to ensure firms are well prepared for implementation in 2018 and that we deliver a regime which is simple, proportionate and clear. Similarly, implementing the Markets in Financial Instruments Directive II (MiFID II) allows us to introduce major reforms to improve resilience and strengthen integrity and competition in wholesale markets.
Finally, I want to turn briefly to our budget for the year ahead. We are setting an annual funding requirement for the year ahead of £526.9 million. This represents a 1% increase to reflect higher inflation over the last year as well as a specific allocation of £2.5 million for EU withdrawal costs. Wherever possible, we have sought to absorb the cost of EU withdrawal within our continuing funding requirement, but we judge that this specific allocation is an unavoidable additional cost.
We are determined to be a leader in fair, effective and transparent regulation.
The vast majority of our resources will always be used for our core business. Authorising firms and individuals, maintaining oversight of firms’ activities, conduct and behaviour, supporting effective competition and implementing and enforcing policy and rules are the bedrock of our regulation. We look forward to working with our growing number of stakeholders in the year ahead to deliver financial regulation that serves the public interest in respect of the activities of firms, the experiences of consumers and the resilience of the UK economy.
The FCA is an exciting place to be, the challenges come thick and fast. As I hope these publications show, we are determined to be a leader in fair, effective and transparent regulation.