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2020 The Year Ahead: FCA Areas of Concern
FCA 2020 Priorities by Sector
18 February 2020
The regulator has today published its assessment of risks and potential harms to consumers across the financial services markets in their annual Sectoral View. This publication looks at the impact of macroeconomic developments and common drivers of change emerging across financial markets and outlines those areas where there may be a negative impact upon consumers or the integrity of the financial system and where they, as regulator, are most concerned. The Sectoral View report sets out not only the factors that drive harm, but also how harm may develop over time.
Some examples of the types of harm the regulator is concerned about include:
The report is split into different sectors with sections that target Retail banking and payments, Retail lending, General insurance and protection, Pensions savings and retirement income, Retail Investments, Investment Management and Wholesale Financial Markets.
Below we take a closer look at two of these areas, the Investment Management Sector and Wholesale Financial Markets.
This particular sector covers:
Servicing both institutional and retail investors, the UK asset management industry is Europe’s largest for asset management, with the FCA advising it had £9.1 trillion in assets under management (AUM) at the end of 2018, thus it is a key contributor to the economy.
Geo-political tensions and uncertainty continue to challenge and drive change in the sector along with persistent low interest rates.
In addition, climate change is also having an impact on financial services markets as investors look for green products, along with increasing global attention on what the industry’s role should be in combatting it.
Technological developments also mean that firms are increasingly relying upon new technology and third-party providers for outsourced technology solutions.
However, these developments also offer opportunities, such examples include development of new products to meet new demands from customers and find more efficient ways of working.
The FCA summarise the harm in the Investment Management sector mainly coming from 6 areas:
The regulator has said it is most concerned about the first two areas on the above list.
The Wholesale Financial Markets sector covers a wide range of wholesale activities which include:
And, the sector spans multiple asset classes including equity, debt, derivatives, foreign exchange and commodities.
It is well known that these markets are currently undergoing substantial change.
Exit from Europe and the uncertainty associated with it, remains a key driver due to the potential implications for cross-border activity.
As with those in the Investment Management Sector, the firms within this sector are also using more technology across their activities and outsourcing certain functions to third-party technology providers.
The Wholesale Financial Markets sector is also adapting to reflect regulatory developments, including significant changes brought about by MiFID II and the transition from LIBOR.
Furthermore, the global economic and political environment continues to provide a challenging backdrop, with ongoing geopolitical tensions and macroeconomic uncertainty, and prolonged low interest rates.
The FCA’s key areas of concern for this sector are grouped into the following 8 areas:
The regulator has said it is most concerned about the first four areas on the above list.
As you can see, Operational Resilience, as we have previously written about, remains a key FCA concern, across sectors, for the year ahead.
“Technology failures from cyber or other IT failures are challenging all areas of the UK’s financial services sector”
Christopher Woolard, Executive Director of Strategy and Competition at the FCA and interim Chief Executive designate, said:
The FCA expects firms to be “focused on preventing harm and assisting us where they can”.
He went on to continue “What is clearly apparent from the Sector Views, is that many of the harms we are seeing are created by a significant number of smaller firms we regulate or firms beyond our remit.”
It is understood that the findings in the report will contribute to the FCA’s upcoming Business Plan for the year 2020/21 and the decisions the regulator will make affecting consumers, market integrity and competition.
To read the FCA’s Sectoral View report in full, click here.
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