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FCA Annual Report

  • United Kingdom
  • Banking and finance
  • Competition, EU and Trade
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  • Fraud and financial crime
  • Insurance and reinsurance
  • Investment funds and asset management
  • Pensions
  • Financial services



The FCA’s Annual Report and Accounts 2019/20 (the “Report”) came out in September.  Our team of experts comments on the FCA’s priorities and what it has achieved in the last year.  As the FCA mentions in its introduction, 2019/20 was already expected to be a year of challenges even before COVID hit.

The Report was discussed by the FCA at its recent socially distanced and virtual Annual Public Meeting, of which is has released a transcript.

See also our previous client briefing on the FCA Business Plan 2020/21.


Sumitra Subramanian, in our financial services contentious regulatory practice, comments,

“While preparations for EU withdrawal have been a key FCA priority in recent years, activity since March this year has been dominated by the response to coronavirus.  The financial services sector now faces two potentially seismic shifts – the end of the EU withdrawal transition period and living with coronavirus – but firms mustn’t lose sight of the FCA’s longer-standing cross-sector priorities, including culture and governance, operational resilience and financial crime.”   

EU withdrawal and international engagement

Thomas Pritchard, in our Financial Services team comments,

“The FCA has been assiduous in the steps it has taken to ensure that EU financial services law will be onshored into UK law with appropriate amendments, while its international engagement during the COVID 19 crisis has been as strong as ever, including with its EU counterparts, auguring well for future co-operation.  While Brexit will never be frictionless, the FCA is taking every step to minimise disruption.”

Cross-sector priorities

Culture and governance

For a number of years now the FCA has had a strong focus on the role of healthy firm cultures in producing positive outcomes for consumers and markets.  The FCA is focused on four drivers of behaviour: leadership, approach to reward and managing people, governance and purpose. 

Hayley Astles, in our financial services contentious regulatory practice, comments,

“In his speech ‘A regulatory perspective: the drivers of culture and the role of purpose and governance’ earlier this month, Mark Teasdale explained: “when the FCA talks about purpose, it really means that combination of a firm’s business model, and the way in which it thinks about the social or economic contribution it provides.”  The FCA has been clear that it is important that firms do not pay lip service to the concept of purpose, and that it needs to be seen manifestly through the choices made on a day-to-day basis throughout the corporate structure.  In 2020/21, firms can expect to see an increased focus on remuneration practices, given comments in the annual report regarding incentive arrangements which focus on financial measures.  In light of this, it would seem prudent for firms to review their policies and procedures to ensure that these take into account broader factors such as behaviours, conduct and good customer outcomes.”

Sumitra Subramanian, in our financial services contentious regulatory practice, comments,

“Healthy cultures are underpinned by diverse and inclusive workforces, and it is notable that many of the FCA’s communications on culture have emphasised this point.  In recent years financial services firms have taken steps to improve their record on diversity and inclusion, having recognised that this can deliver benefits such as better decision-making, good conduct, and a reduction in harm to consumers.  Despite this, progress has been limited: it has become clear that having good intentions, or approaching this as a tick-box exercise, is not enough.  Firms should treat this as a business and regulatory imperative, rather than a HR matter, and aim to embed diversity and inclusion into their cultures.  The FCA is increasing its supervisory focus on diversity and inclusion – it is a core aspect of the regulator’s work on culture and governance – and a failure to make progress could develop into a regulatory issue for firms that do not give this sufficient attention.”

Simon Collins, MD of Financial Services Compliance with Konexo, comments,

“Last year whilst Andrew Bailey was still the FCA’s CEO he mentioned “We define culture quite simply as the typical behaviours that characterise a firm. We care about it because it is a key cause of major conduct failings.”  The conduct failings that have prompted the latest FCA interventions reflect concerns over the culture of some firms across the financial services sector and how and why the leadership of financial services firms can oversee practices that overtly disadvantage customers.”

Integral to the FCA’s objective of promoting and embedding healthy cultures is the role of the whistleblower, which is discussed in Eversheds Sutherland’s recent briefing “FCA: Time to ‘speak up’”.

Operational resilience

The FCA has reiterated its focus on operational resilience and outlined some of its expectations for firms now the joint consultation with the Bank of England is concluded. 

The FCA’s continuing aim is to drive fewer operational incidents and shorter outage times, which appears pertinent in circumstances where in FY 19/20 the FCA received 790 incident reports.  Of these, 684 were technology related, which has driven the FCA to undertake thematic work to understand why change management is the greatest cause of incidents reported.  The FCA is expecting to publish its findings from this, along with best practice, by the end of 2020. 

The other main area of weakness is in outsourcing: third parties were the root cause of 16% of reported incidents in 2019/20.  In particular, key issues identified are failure to understand dependence on third parties and ineffective oversight of suppliers.  The FCA also reminds firms in the annual report of its expectations that, when things do go wrong, they should respond promptly, communicating clearly with customers and markets.  However, we are yet to see any formal precedent or guidance from the FCA on such matters.

Jake McQuitty, in our financial services contentious regulatory practice, comments,

“As well as learning lessons from the industry’s response to the Covid crisis, the FCA is increasingly focused on third-party and intragroup outsourcing arrangements, especially arrangements involving IT, data processing and cloud services.  Testing how well firms have learnt from the Covid crisis and the long-term implications for firms’ digital resilience arrangements is likely to be a critical topic of conversation with regulatory supervisors over the next 12 months.”

Financial crime – Anti-money laundering (AML) and fraud

The FCA’s present key priorities in respect of its continuing agenda to reduce the likelihood of financial crime are as follows:

  • sharing intelligence with the Government and other relevant agencies
  • using intelligence, data and technology to improve its approach to money laundering, bribery and corruption
  • tackling fraud

In 2019/20 the FCA imposed 15 financial penalties totalling £224.4m; £140.2m (62%) of which comprised the fines levied on Standard Charted Bank and Commerzbank in relation to AML systems and controls failings.  However, the statistics show that the number of open financial crime cases has decreased by 14% to 71 open cases (65 of which are AML-related).  Further, we know from a freedom of information request made recently by Eversheds Sutherland that in 2020 the FCA discontinued half of its criminal investigations into breaches of the money laundering regulations.  As a result, only one single-track criminal investigation and six dual track are currently being investigated.  More broadly, the number of new enforcement cases opened dropped by a remarkable 43% from 343 to 189.  This may signal a shift at policy level to opening fewer cases and only pursuing criminal investigations, which are invariably more complex, in the most egregious of circumstances.

Ruth Paley, in our Financial Crime team and author of the freedom of information request, comments:

“The FCA’s move to halt half of its portfolio of criminal investigations into MLR breaches since the beginning of the year is a surprising one, particularly in view of comments made by Mark Steward in early 2019, claiming that the FCA was looking to ‘enliven the criminal jurisdiction’ in its investigation of money laundering regulation breaches.  Whilst a degree of caution should be exercised in drawing conclusions from what are relatively small numbers, the figures may signal a gradual realisation from the regulator that prosecuting breaches of the MLR to the criminal standard is less than straightforward; that it is much quicker, easier and less expensive to pursue a civil outcome against regulated firms for breaches of MLR;  and that, in view of the nature of many of the breaches under investigation, a civil/regulatory sanction will often be the more proportionate outcome.

Fair treatment of existing customers

Peter Harper, in our Competition team, comments,

“The FCA’s annual report highlights its recent work to improve the pricing offered to existing customers in insurance, cash savings and mortgages.  This is part of a broader set of initiatives and recommendations put forward by the Competition and Markets Authority to tackle the so-called “loyalty penalty” whereby longstanding customers are perceived to be penalised for not switching suppliers.

“This continues the FCA’s recent theme in its competition work of emphasising the importance of fair outcomes and provides a clear indication that the FCA intends to look closely at the impact of digitisation including on vulnerable consumers.”

Innovation, data and data ethics

It has been a busy year in the context of open finance and data ethics.  What is clear is that consumers alike want and require greater transparency, competition, trust and accountability.  The outcome of the UK government’s recent Smart Data Review (September 2020) and the update to its Data Ethics Framework (September 2020) demonstrates this is front and centre in its push for open finance, data driven, innovation (which all forms part of its new National Data Strategy, published 9 September).

Philip James, in our Data Protection team comments,

“As the Smart Data executive summary review points out: ‘The most advanced Smart Data initiative and the best example of how it works in practice is Open Banking’.  This is why Eversheds Sutherland is the official legal partner of Open Banking Excellence to support fintech innovation and help clients looking to leverage the benefits and opportunities from open finance and enhanced data ethics frameworks which are enabled open banking systems.”

Future of Regulation

Steffi Sahla-Jones, in our Asset Management and Funds team comments,

“In its Business Plan 2019/20, the FCA said it would review its approach to ensure it is able to meet existing and new regulatory challenges.  During 2019/20, the FCA has explored what some of the most significant challenges are and how to respond, including through a stronger focus on outcomes-based regulation.  Its key priorities are:

  • reviewing the regulatory cost to firms and companies of complying with the FCA Handbook
  • developing approaches to tackling consumer harm that occurs on or around the perimeter of what the FCA does and does not regulate

“Understandably, the FCA’s progress in a number of areas in the regulatory space, such as its review of how it applies the regulatory framework, particularly the Principles for Businesses, has been delayed due to coronavirus, but the FCA intends to consult on potential options for change when it can.  The FCA has also begun some research to better understand users’ experiences of its Handbook and how it might be improved. 

“Technology and innovation, changing consumer needs and new business models and services continue to transform financial services.  Brexit and coronavirus have underlined the need to ensure the way the FCA regulates keeps pace with changing circumstances.  The FCA’s work has highlighted the need to ensure it has the right regulatory framework to support its work and to make best use of its regulatory toolkit, to deliver good outcomes.”

Climate change and green finance

With the huge array of ESG regulation flowing into the asset management and financial reporting space, it is no surprise that the FCA has included some focus on climate change and green finance.  The Report acknowledges that this is an area that will be “far-reaching” and will have an impact on various products and services.  In addition to an overview of some of the FCA’s existing efforts, for example the new disclosure rules for premium listed issuers, and the FCA’s effective stewardship workshop, the Report sets out the FCA’s intentions going forward.  These include an aim “to be pro-active in ensuring that firms provide greater transparency of how ‘green’ products actually work and are held accountable for the labelling and selling of such products and services”. 

In addition, three key priorities in respect of ESG are set out:

  1. improving climate-related disclosures;
  2. ensuring firms consider material climate-related financial risks and opportunities; and
  3. improving consumer access to green financial products and services.

Although the full extent of these proposals is not yet clear, they do reflect ongoing concerns around green washing that other regulators are also dealing with, and they are consistent with incoming requirements such as the Regulation on sustainability‐related disclosures in the financial services sector (SFDR).  There is also recognition of the FCA’s expectation with respect to the inclusion of ESG type risks and that these should be considered by firms across a number of business decisions, a similar theme to the proposed updates to the UCITS Directive and AIFMD which require that the relevant firms integrate sustainability risks into their operations. The FCA has concluded its consultation on its proposals to introduce new “comply or explain” ESG disclosure requirements for UK premium listed companies and indicated that next steps include carrying out further policy analysis on greenwashing and taking action (e.g. guidance and rules) to address concerns.

Hannah Jones, in our Authorised Funds team comments,

“It is helpful to see some further detail from the FCA as to their intentions in respect of ESG.  This is an area that needs to be high on the agenda for financial services firms and one that will dominate a lot of resource over the next year as policies, operations and disclosures are finalised.  However, as firms grapple with the various incoming regulations it may be some time before the full extent of ESG practice and disclosures is understood.”

Kari McCormick, in our financial services contentious practice, comments

“Greenwashing has been described as having the potential to be the next mis-selling scandal.  Further guidance in this complex area is to be welcomed and firms will need to be careful they do not overstate green credentials if they are to avoid challenge from the regulator.”

Sector priorities

Investment management

Katie Taylor, in our Authorised Funds team comments:

“Following the suspension of the LF Woodford Equity Income Fund, it is clear that the FCA are keen to highlight their consumer protection objective and stress the action they have taken to protect investors.  

“The Asset Management Market Study (AMMS) was a thorough review and firms took up the challenge, with several firms undergoing detailed re-writes of fund objectives and policies in time for the August 2019 deadline, as well as undergoing pricing reviews.  This work shows no sign of slowing down and it is clear that the FCA do not view this a “one time deal” but a continuous obligation on firms to monitor, review and refresh their disclosures if required, to ensure that “costs are more transparent…fund objectives [are] clearer and [to] improve performance reporting” to meet their aim that investors will always receive “good value products”.

“The FCA have, as expected, also continued their focus on liquidity, particularly in the wake of the Woodford suspension combined with the majority of open-ended property funds suspending in March, due to material uncertainty as a result of the Coronavirus crisis.  The majority of firms applied the new illiquid asset rules (as set out in Policy Statement 19/24) to these suspensions, even though these rules did not come into force until September 30, 2020.  It is clear that these recent suspensions have only re-enforced the view that more needs to be done in this space to ensure that investors’ expectations are met and “aligned to the liquidity of fund assets”.  This work will no doubt continue, particularly with the release of their Consultation Paper on “Liquidity mis-match in authorised open-ended property funds” (CP 20/15), which closes for comment on 3 November 2020.”

See also our client briefing “Six month notice periods for property funds? A closer look at CP20/15”.

Retail banking and payments

Naomi Seward, in our Payments and Retail Financial Services team, comments,

“We have already seen unprecedented regulatory intervention with introduction of payment holidays in response to COVID pandemic and the FCA focus remains on supporting customers impacted by the crisis.

“As predicted, we have seen enforcement action being taken against firms, particularly in the high cost short term credit market, where the financial vulnerability of the customer base has meant this is key focus area for the FCA.

“The FCA, like all organisations, has had to adapt its working environment and practices as a consequence of the COVID pandemic.  We are encouraged by its proposal to invest in data analytics to really understand the dynamics of the markets that it is regulating and assist in quantifying the benefits of regulatory interventions.” 

General insurance and protection

From our Insurance team, Kerry Boyle and Henry Dean comment,

“The trend in pricing and value as a thematic focus of the FCA for general insurance continues and has accelerated throughout 2020.  The thematic reviews and research done by the FCA in 2018 and 2019 have resulted in the publication by the FCA in September 2020 of its final report on general insurance pricing practices and proposed handbook changes.  We expect that the general insurance market will need to move quickly to respond to the findings and this will lead to some changes in how insurance products are priced  and sold.

“On a related topic, the focus on distribution chains also continues, building on the implementation of the Insurance Distribution Directive and also in parallel with the general insurance pricing practices study.  We can expect to see even more focus on governance arrangements to ensure that value is passed down the chain from insurers all the way to end consumers.

“The report does not cover the other large focus of the FCA in recent months, with the business interruption test case going through the High Court and looking increasingly likely to progress to the Supreme Court if insurers and the FCA cannot reach an agreement on how best to settle claims.

“The other main focusses set out in the report for 2020 and beyond are claims inflation and ensuring access to insurance products.  It remains to be seen whether, given the changes of focus caused by the Coronavirus pandemic, the FCA will be able to maintain its focus on all of these areas throughout the coming year.”

Pensions and retirement income

Mark Latimour, in our Pensions practice says,

“The FCA’s key priorities are focused on helping consumers make better pensions choices and ensuring value for money by driving competitive pressure.  The FCA continues to be concerned about unsuitable transfer advice in connection with defined benefit pensions – an area where both the FCA and The Pensions Regulator are aligned in their drive to protect members.  The FCA’s ban on contingent charging for financial advice on DB transfers (except in certain limited situations) applies from 1 October 2020.  Whilst widely welcomed, this may affect the availability and cost of advice at a time when many DB members may be considering transfers in response to the coronavirus crisis.  This could prompt more trustees and employers to consider how they can support members in making significant financial decisions about their DB pensions.”

“The FCA is continuing its review and development of Independent Governance Committees (IGCs) and is looking to create a framework to assess value for money and to ensure a consistent approach between IGCs and trustees in the occupational pension space. 

“It is not surprising that the FCA’s priorities continue to be focused on ensuring consumers have access to better information through greater transparency and also through the advice system and on competitive pressure in the market.  These areas are all ultimately linked to consumer engagement (which has traditionally been low in connection with pensions) and better outcomes for consumers.  The FCA expects to issue a consultation later in the year on improving competition in the non-workplace pensions market – an area not currently covered by the remit of IGCs. 

“It is good to see the FCA continuing its push for better consumer engagement, transparency and comparability around products and oversight by IGCs.  Anything that drives better engagement with consumers around retirement income provision and better outcomes is welcomed.”  

Retail Investment

The FCA’s focus in this area is around consumer investment in high risk products, suitability of advice/ the conduct of individuals of failed advice firms and tackling scams.  A key aspect of this work is the FCA’s recent Call for Input: Consumer Investments which covers a wide range of topics and poses some challenging questions for firms to consider.  The FCA will use the responses from firms and other interest groups to consider its own rules and approach to reduce consumer harm while maintaining appropriate consumer choice.

Kari McCormick, in our financial services contentious practice, comments,

“We have seen some high profile cases of large numbers of consumers making high risk and unsuitable investments; in a number of cases losing retirement savings.  Consumers may be left without redress or the redress is funded by firms that have no responsibility for the consumer loss.  It is great to see the FCA tackling this growing problem and any solutions will help the general public and the firms that behave responsibly (the vast majority).”

FCA annual perimeter report

The FCA has published its second annual perimeter report (the “Perimeter Report”).  The FCA perimeter determines which activities require authorisation and what level of protection consumers can expect for the financial services and products they purchase.  The perimeter is decided by the Government and Parliament through legislation. 

The Perimeter Report updates the financial services industry and consumers on progress against the FCA’s key objectives, particularly as a consequence of the coronavirus pandemic.  The FCA acknowledges that it must keep pace with a fast-changing financial services landscape in order to protect consumers and the market but recognises that the ongoing pandemic has exacerbated existing challenges and delayed the delivery of some solutions and initiatives to better protect consumers.  The FCA continues its horizon scanning and market monitoring to ensure visibility of the pandemic’s impact, particularly on vulnerable consumers and businesses which are increasingly feeling the economic strain.

Key perimeter concerns for the FCA include: unprecedented levels of largely unregulated business borrowing, and the consequential recovery efforts; and education of consumers and firms, as fraudsters and unregulated introducers take advantage of online and social media platforms to defraud or engage in financial promotion.  The pandemic has, however, accelerated technological evolution and delivery of products.  While this improves customer service and brings greater efficiencies, it also necessitates changes to the regulatory framework to ensure that regulation is adequate and vulnerable customers are not disadvantaged.  The Perimeter Report highlights a number of initiatives and actions to address these concerns and will also be used to inform discussions between the FCA and the Treasury later in the year.

Saira Choonka, in our financial services contentious regulatory practice, comments,

“The FCA should be commended for acknowledging and taking action to address these perimeter issues, including through its ScamScart and digital campaigns, its ban on the mass marketing of speculative illiquid debt securities and preference shares to retail investors, and its business interruption insurance test case.  However, the FCA still faces an enormous challenge to address competing priorities if it is to succeed in providing better protections for customers and businesses through its regulatory regime, and even more so as the continuing coronavirus pandemic places increasing stresses on the wider economy.  While it is unrealistic to expect the FCA to achieve a perfect regulatory regime in the face of a constantly evolving financial services landscape, continued collaboration with parties such as industry bodies, law enforcement, the Government, the Financial Ombudsman Service, Financial Services Compensation Scheme and firms is central to addressing the key challenges.  Consequently, more regulatory guidance, intervention and action to address perimeter issues of concern is to be expected and welcomed as the economy attempts to wade through the coronavirus waves.”

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