The FCA's Business Plan 2015/16, an important document which sets out to parliament, to consumers and to regulated firms how they plan to pursue their objectives, what the priorities are and how they will measure success. It is, in conjunction with the FCA's Annual Report, critical for holding the FCA to account.
An assessment of risk forms the cornerstone of the FCA’s planning process, from this they create a business plan that focuses their resources on priorities, while retaining some flexibility to respond to emerging issues.
In the strategy of December 2014 the FCA made a commitment to take a more strategic approach to risk, as well as developing a common FCA view of markets and key sectors. In 2014/15 the FCA identified seven forward-looking areas of focus which they have now refined their understanding of the potential risks in these areas, and the steps which may be needed to take to mitigate them.
- Four of the forward-looking areas of focus from 2014/15 continue to be of significant interest, these are:
- Technology may outstrip firms’ investment, consumer capabilities and regulatory response
- Poor culture and control continues to threaten market integrity, including conflicts of interest
- Large back-books may lead firms to act against their existing customers’ best interests
- Pensions, retirement income products and distribution methods may deliver poor consumer outcomes
In 2014 the FCA highlighted 'consumer credit, complex terms and conditions' as forward-looking areas of focus, and now consider that these issues remain a theme. However, the FCA has expressed them slightly differently this year, as based on the experience gained over the past 12 months in consumer credit and the changing environment around terms and conditions, these better reflect key concerns in this area:
- Poor culture and practice in consumer credit affordability assessments could result in unaffordable debt. This risk may increasingly affect younger people
- The range of issues that need to be considered in unfair contract terms is given sharper focus by developments over the last year in legislation and legal precedents
One new area of forward-looking area of focus for 2015/2016 is:
- The importance of firms’ systems and controls in preventing financial crime
This has been elevated due to the increased potential for financial crime to have a negative impact on the FCA’s objectives.Last year’s focus on house price growth giving rise to conduct issues will continue to be an area that they will monitor closely.
The Need For Enterprise Risk Management
The focus by the FCA on the areas of Risk covered above should stimulate those firms that are subject to FCA regulation to review their exposure to these risks and the current measures they have in place to mitigate the risks. Adoption of Enterprise Risk Management (ERM) principles to manage this risk exposure would be essential and offer the opportunity for regulated firms to demonstrate to FCA Supervisors that these risk areas are being controlled. To aid in the development of a sound Risk Plan, Xactium Risk Manager application provides a cornerstone of all work in this area for ERM.
For more information on Xactium Risk Manager click here
For the full 2015/2016 FCA Business Plan click here