FCA Business Plan 2015 - 16 - Financial Conduct Authority

3/24/2015
FCA Business Plan 2015/16 - Financial Conduct Authority
Business Plan 2015/16

Chairman's foreword
WelcometoourBusinessPlan2015/16,animportant
document.Itsetsouttoparliament,toconsumersandtothe
firmsweregulatehowweplantopursueourobjectives,what
ourprioritiesareandhowwewillmeasureoursuccess.Itis,in
conjunctionwithourAnnualReport,criticalforholdingusto
account.
PreviouslywehavealsopublishedaRiskOutlookalongsideourBusinessPlan.
Thisyearwehavedecidedtobringthesetwodocumentstogether.Thiswill
moreclearlyshowhowouranalysisofriskisconnectedtoourregulatory
actionsandhowweseektoadvanceourobjectives.
Thisyearsplanisalsoveryrelevantbecauseitoutlinesanewstrategydevelopedinresponsetothechanging
scopeoftheFCAandthecontextinwhichweoperate,toenableustobetterdeliveronourobjectives.This
strategyisfirmlygroundedinanassessmentoftheriskswefacetoourobjectives.
InourlastRiskOutlookweidentifiedthesevenmostimportantforwardlookingareasoffocusinourview.Wedo
thesameagainthisyear.Unsurprisingly,giventhelongtermnatureoftheserisksandtheunderlyingdrivers,the
listislargelyunchanged.Poorcultureandcontrolscontinuetoconcernus,notwithstandingtheeffortsbeingmade
byfirmstoimproveboth.Pensionswerealreadyincluded,butthescaleofthechallengehasnowgreatly
increased.Financialcrimehasjoinedthetopsevenrisks,replacingrapidhousepricegrowthwhichnevertheless
remainsfirmlyonourradar.
Itisthenatureofpredictionsthatnotallofthesewillcrystalliseduringthenext12monthsandthatother
prioritieswillrapidlymoveuptheagenda.Weaim,bysharingthislist,toworktogetherwiththeindustryto
reducethelikelihoodofthemostharmfulthingsgoingwronginthefirstplace.
Itisonethingforustoidentifyareasofriskitisanotherforustodecidehowtouseourresourcestothebest
effecttoachieveouroverallobjectiveofensuringthatmarketsworkwell,andourthreesupportingobjectivesof
protectingtheconsumer,promotingcompetitionandenhancingtheintegrityofmarkets.Werecognisethe
responsibilitythatwehavetouseanappropriatemixofpolicymaking,marketandthematicreviews,supervision
andenforcementtoachievethedesiredoutcomes.Atthesametimeweseektoensurethatwedonotadversely
affectthesmoothworkingofthemarketsorimposeunnecessarycost.Itisabalancethatwealwaysrevisitaspart
ofourplanningprocess,andhavedonesoparticularlythisyearaswehavecarriedoutourstrategicreview.
Asanorganisationwearecontinuouslylookingatthewayweworktomakesurethatwearemeetingchallenges
headonandachievingthehighstandardsexpectedofus.Wehaveachievedahugeamountinthetwoyearssince
becomingoperational,andlikeanybusinesswecontinuetolearnandevolve.Lastyearsawthecompletionofthe
Davisinquiryintotheeventssurroundingthehandlingofour2014/15BusinessPlan.Wefullyacceptandhave
takenonboardthefindingsofthisinquiry,andhavemadethenecessarychangestoourprocesses.
Wherewefindthatimprovementscanbemadetoourapproachesandprocesses,weconsiderwhatchangesare
necessaryandtakeaction.Thisisattheheartofournewstrategy.
Wearealsocommittedtoworkingasefficientlyaspossiblewithfirmstodelivervalueformoney,aswellasthe
rightoutcomesforconsumersandthefinancialmarkets.Centraltothisiseffectivelymeasuringourperformance.
Ourprincipaltool,ouroutcomesbasedperformanceframework,isoutlinedinthisplanandIlookforwardto
reportingagainstthisframeworkwhenwepublishourAnnualReportinJuly.
ThankyoufortakingthetimetoconsiderourplanandIlookforwardtoworkingwithmanyofyoutodeliverour
objectivesoverthecomingmonths.
Chief Executive Officer's introduction

Thisyearsbusinessplanispublishedjustaheadofsomeofthemostfundamental
changestopensionpolicywehaveseeninoverageneration,andwhilstweimplement
theParliamentaryCommissiononBankingStandardsrecommendationsonaccountability.
http://www.fca.org.uk/static/channel-page/business-plan/business-plan-2015-16.html
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Inmanyways,adaptingtochangeofthismagnitudeisnowbusinessasusual
fortheindustryandregulators,withthelasttwoyearsseeingthemarket
undergoconsiderablechangeinhowandwhatisregulated.
Thistime12monthsago,wewerepreparingforourregulatoryremittoextend
toconsumercredit,andwithit,thenumberoffirmscomingunderour
responsibilityexpandingtoover70,000,threetimesthenumberoffirmswe
regulatedinourinauguralyear.
Sincethenwehavecarriedoutathematicreviewintotheannuitiesmarket,
exploredcompetitioninthewholesalemarket,aswellasreachingasettlement
onforeignexchangemanipulation.Ithasbeenabusyyearonthedomesticand
internationalfront,aswehavecontinuedtoestablishourselvesasakeyplayer
onbothagendas.
Thenext12monthswillbenolessdemandingasthisyearsBusinessPlan
makesclear.
Giventhechangesthatwilloccurinpensions,weintendtoreviewretirementsalespracticesandinparticularhow
firmsaresupportingconsumerstomaketherightchoicesgiventhenew,widerrangeofoptionsavailable.In
additionwewilllookathowthemarketisworkingafterthereformshavebeenbroughtin,andthebusiness
modelsthatareemerging.Continuingtoimplementandreviewourconsumercreditregimeandthefirmsand
practiceswithinthesectorwillremainapriority,particularlyasweseegrowingyouthindebtednessasafeatureof
themarket.Wewillcontinuetomonitordevelopmentsintechnologyandhowthataffectsfirmsandconsumers.
ThiswillincludeamarketstudyontheuseofBigDataintheinsurancemarket.
Wewilllookatthemortgagemarketandplantoexaminehowtheitisworkingfollowingtheintroductionofthe
MortgageMarketReviewandotherchanges.Inparticularwewanttolookatseveralofthekeyissuesthatare
causingdebateinthesector,frombarrierstocompetitionandconsumersabilitytoswitchprovideroraccess
credit.
Wewillcontinuetheworkwehavestartedinthewholesalemarkets,includingourrecentlyannouncedmarket
studyintocompetitionininvestmentandcorporatebankingservices,whilecontinuingtoworkalongsidetheBank
ofEnglandandtheTreasuryontheGovernmentsFairandEffectiveMarketsReview.
Morebroadly,wewillnowhavethepowertoactagainstanticompetitivebehaviourinthefinancialservices
industry,concurrentwiththeCompetitionandMarketsAuthority.
Butthisyearsplanismorethanjustlayingouttheworkweplantoundertakeorthekeyprioritiesfortheyear
ahead.Italsomarksanevolutionarypointinourdevelopment.
Overthelast12months,wehaveaskedourselvessomeseriousandsearchingquestionsabouthowwecanbest
carryoutourresponsibilities.Howwecanregulateeffectivelybothforfirmsandconsumers.Witharegulatory
scopethathasincreasedinsize,thechangingnatureoffinancialservicesandtheirimportancetotheUKeconomy
andtothelivesofpeopleupanddownthecountry,itwasrighttolookateveryaspectofhowwework.
Ourstrategicobjectivetoensurethatfinancialmarketsworkwellremainsunchanged.Butourapproachbetterfits
theworldweworkin,withmoreemphasisonsectorandmarketwideanalysis,allowingustolookacross
regulatedsectorsandtheirproductsandhaveatightersetofstudies.
Akeyelementofthisworkwillbethedevelopmentofacommonviewofmarketsandsectors,providingfirmsand
stakeholderswithmorecertaintyaboutwhatwethinkontheseissuesandwhattheycanexpectfromus.
Alongsidethiswewanttouseourresourceseffectivelysowedonotoverburdenthoseweregulate.Allowing
firmstoprovideconsumerswiththeservicestheywantandneed,butalsogivingustheflexibilitytoadjustour
focuswhenwethinkitisrequired.
Thissharpenedfocusonwhatwedoandhowwedoitrunsthroughourprioritiesfor2015/16.Fromthoseareas
thatarearisktoourstatutoryobjectives,tofocusonareasthatareimportanttofirmsandtoconsumers.
WewillseeanumberofexcitingandimportantchangestotheUKsfinancialsystemthatwillresonateformany
yearstocome.Wewillbeplayingakeyroleattheheartofthesechanges,whichIbelievewillcreatenew
opportunitiesforfirmsandconsumersalike,andIlookforwardtothechallengeofwhatisnow,businessasusual.
Risk outlook
Introduction
Anassessmentofriskformsthecornerstoneofourplanningprocess.FromthiswecreateaBusinessPlanthat
focusesourresourcesonpriorities,whileretainingsomeflexibilitytorespondtoemergingissues.
InOurStrategyofDecember2014wemadeacommitmenttotakeamorestrategicapproachtorisk,aswellas
developingacommonFCAviewofmarketsandkeysectors.Aspartofthisnewdirectionwewilltakeamore
marketfocusedapproach,whichwillallowustotacklerisksatacrosscuttinglevel,whilealsoaddressingspecific
issueswithinfirms.Webelievethatourmarketfocusedapproach,incombinationwithacommonFCAview,will
furtherimproveourabilitytoplanactivitiesaimedatmitigatingkeyrisks.
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Theidentificationandanalysisofriskisthestartingpointofourbusinessplanningeachyear.Inpreviousyears
wehavepublishedamoredetailedRiskOutlookseparatelyfromourBusinessPlan.Thisyearwearebringing
thesetwopiecesofworktogetherintoonedocument.Inthischapterwediscussourthinkingonmediumtolong
term,continuingandemergingrisks.Inadditiontothis,weareplanningtoholdanFCARiskConferencein2016.
Throughoutthischapterwearticulatewhatweconsidertobethehighlevelrisksthatthefinancialservicessector
needstoconsideroverthecomingyears.Thisisnotanexhaustivelist,andwhileitisoneofourrolestoidentify
keyareasofrisk,wealsoexpectfirmsandotherregulatedentitiestoensuretheyareobserving,identifyingand
actingonrisksthatariseovertime,andthatarerelevanttotheirbusinesses.
How we assess risk

Asweregulateadiverserangeofsectorsandmarketsweuseavarietyofsourcesofinformationanddatato
informourriskassessment.Theseincludetheintelligencewegatherfromtheregularreturnscompletedbyfirms,
aswellasotherinformationfromfirms,complaintsdata,marketresearchcommissionedbytheFCA,relevant
researchcommissionedbyothers,economicanalysis,andoutputsandinsightfromdiscussionswithawiderange
ofstakeholders,includingconsumersandtradebodies.IndependentPanelsfeedinrisksthattheyconsiderposea
challengetoourobjectivesandthesearealsoanalysedandassessed.
Fromaninitiallonglistofrisksofdifferingscaleandnature,weestablishwhichinourviewposethebiggestrisks
toconsumers,marketsandourobjectives.Wethenapplyanumberoftests,whichincludeassessing:
whichrisksarerelevanttoourobjectives,andthereforeshouldbeprioritised
thematerialityoftherisk,includingthescaleandthelikelihoodtocausedirectharmtothegreatestnumber
ofconsumers,andwhichrisksrequireimmediateactiontopreventthemcrystallisingortolimittheharm
caused
theextenttowhichweareabletoaddressthelevelofharmtoensureweoffervalueformoneytoconsumers
andfirms
Itisthroughthiscycleofresearch,assessmentandtestingthatweidentifyourkeyareasofrisk.
Forward-looking areas of focus

In2014/15weidentifiedsevenforwardlookingareasoffocus.Wehavenowrefinedourunderstandingofthe
potentialrisksintheseareas,andthestepswemayneedtotaketomitigatethem.
Fouroftheseforwardlookingareasoffocuscontinuetobeofsignificantinteresttous,theseare:
Technologymayoutstripfirmsinvestment,consumercapabilitiesandregulatoryresponse.
Poorcultureandcontrolcontinuestothreatenmarketintegrity,includingconflictsofinterest.
Largebackbooksmayleadfirmstoactagainsttheirexistingcustomersbestinterests.
Pensions,retirementincomeproductsanddistributionmethodsmaydeliverpoorconsumeroutcomes.
Lastyearwehighlightedconsumercreditandcomplextermsandconditionsasforwardlookingareasoffocus,
andweconsiderthattheseissuesremainatheme.However,wehaveexpressedthemslightlydifferentlythis
year,asbasedontheexperiencewehavegainedoverthepast12monthsinconsumercredit,andthechanging
environmentaroundtermsandconditions,thesebetterreflectourkeyconcernsinthisarea:
Poorcultureandpracticeinconsumercreditaffordabilityassessmentscouldresultinunaffordabledebt.This
riskmayincreasinglyaffectyoungerpeople.
Therangeofissuesthatneedtobeconsideredinunfaircontracttermsisgivensharperfocusbydevelopments
overthelastyearinlegislationandlegalprecedents
Onenewareaofforwardlookingareaoffocusthisyearis:
Theimportanceoffirmssystemsandcontrolsinpreventingfinancialcrime
Thishasbeenelevatedduetotheincreasedpotentialforfinancialcrimetohaveanegativeimpactonour
objectives.
Lastyearsfocusonhousepricegrowthgivingrisetoconductissuescontinuestobeanareathatwewillmonitor
closely.
Our approach
Alongsidethespecificworkwewillcarryouttomitigatetheriskswehaveidentified,ourbusinessasusualactivity
willalsocontinuetoaddressbothstrategicandoperationalrisks.Weassessrisktoinformourallocationof
resourceacrossallofourregulatoryactivities.
Ourworkregulatingfirmsissharpenedbyourassessmentofrisk,asweaimtoconcentrateourresourcesonthe
marketsandfirmsthataremostexposedtorisksthatmaygiverisetopooroutcomesforconsumers,impact
marketintegrity,andwherecompetitionisnotworkingforthebenefitofconsumers.Thisdaytodayworkisvital
inensuringsuchinherentorcontinuingrisksarekeptwithinacceptabletolerancelevelssothatwecanadvance
ourobjectives.
Categories and key areas of risk

Therearesomekeysocialandenvironmentalfactorsthatdriveriskstoourobjectives.Wehavegroupedourkey
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areasofriskintocategoriestoreflectthisandhighlighthowourthinkinghasprogressedsince2014/15.Wehave
alsohighlightedsomelinksthatexistbetweenthem.
Weconsidermostoftheseriskstobemediumterm,whilewehaveidentifiedothersasbeinglongertermand
requiringfurtherassessmentbeforetheycanbefullyunderstood(forexample,indebtedyoungerconsumers).
Whenconsideringrisks,ourfocusisonthosefirmlywithinourremit.Insomeinstanceswewillneedtoworkwith
thePrudentialRegulationAuthority,BankofEnglandorthePaymentSystemsRegulatortomitigatetheserisks.
Wemayalsoneedtoworkwithotherbodieswithresponsibilityfor,oraninterestin,thefinancialservicessector
toaddresstheserisks.
Business conduct
Lastyearwenotedthatimprovementsinthecultureoffirms,aswellasstructures,processesandincentives,
continuedtobeneededtoensurethatmarketsworkwell.Wemaintainastrongfocusonthisareaandtheserisks
willcontinuetoinfluenceourbusinessplanning.
Therisksaroundcontrolsandbehavioursgototheheartofourworkasaconductregulator.Inthisareawe
considerthatthereisaroleforbothfrontlineandseniorstafftoprovethatlessonshavebeenlearnedfromthe
experiencesofthepast.OurfindingsontheattemptedmanipulationofFOREXmirroredsomeofthoseinrelation
toLIBOR.Itisvitalthatfirms,inwholesaleandretailmarkets,ensurethatculturalchangeshavebeenmadeto
preventpoorconductinfuture.
Thefocusonbenchmarksinrecentyearshasgonesomewaytomitigatingtheriskofthetypeofpoorconduct
thatleadstoalackoftrustinthefinancialsector.However,weconsidertheriskofmanipulationstillexists,and
thisyearwewillcontinueourregulationofLIBOR,andanadditionalsevenbenchmarksthatcomeintoregulation
inApril2015.
Culture in firms
OurRiskOutlook2014/15notedhowimportantembeddingculturalchangewouldbetoregainingthetrustof
consumers,aswellasachievingourobjectives.Thisremainstrueforthecomingyearandtheforeseeablefuture.
Wecontinuetobelievethataculturalshiftwithinfirmstocelebratinggoodconductthatplacesconsumerinterests
andmarketintegrityattheheartofthefinancialsectorwillbenefitallstakeholders.Wecontinuetoaddress
conductissuesarisingfromfailuresinfirmcultureandarecommittedtoensuringthismomentumisnotlost.
Changeinculturewillonlycomewhenthetoneatthetopisright.However,italsorequiresstaffthroughouta
businesstounderstandandacceptthevaluesandpracticesthefirmespouses.Thismeansthatfirmsmustensure
thatalloftheirprocessessupportandreinforcetheculturetheywanttopromote.Someexamplesincludefirms
remuneration,hiring,performancemanagementandpromotiondecisions,aswellashowtheytreatinternal
reportingofconcerns,thelevelofresponsibilitythefirstlinetakesfortherightoutcomesandtheautonomyand
empowermentofkeycontrolfunctions.Wehavearangeoftoolsatourdisposaltoactivelycombatanypoor
conductbyfirmsandindividuals.
Weconsidercomplexityinbusinessmodelstobeanissuethatfirmsshouldbeaddressing.Questionsshouldbe
posedbyfirmsthemselvesastowhethertheyareabletosimplifytheirstructurestodeliverbetterconsumer
outcomesandreducetherisksassociatedwithcomplexity.
Itisparticularlyimportantthatincentivesarestructuredinawaythatrewardsbehavioursthatactinthelong
terminterestsofconsumers,ratherthancreatingconflictsofintereststhat,forexample,mayencouragestaffto
sellunsuitableorunwantedproductstoconsumers.Whilerecognisingtheprogressretailfirmshavemadein
financialincentivesofsalesstaff,thedesignofincentivesisanareaofriskthatweidentifiedinlastyearsRisk
Outlookandweconsiderthatthereisacontinuedneedforfirmstoconsidertheimpacttheirincentivestructures
andotherperformancemanagementtoolsmayhaveonbehavioursandthestepstheyneedtotaketoadjust
these.
Culturalchangewillalsobeanimportantaspectinmitigatingtherisksassociatedwithlargebackbooks.A
proactivemovebyfirmstoactintheinterestsofbothexistingandneworpotentialcustomers,wouldleadtoa
reductionintherisksassociatedwithlargebackbooksandshowacommitmenttoofferingsuitable,accessibleand
goodvalueproductstoalltheircustomers.However,wherefirmsorsectorsfallbelowthelevelsexpected,wewill
takeaction.
Consumer behaviours
Firmsneedtoensurethattheytakestepstopositivelyaddresstheknownbehavioursandtraitsconsumersmay
exhibit,ratherthanseekingtocapitaliseonthem.Thiscouldbeinanumberofways,includingshorteningtheir
termsandconditionsandmakingthemmoreaccessibleaspartofcommunicatingmoresmartlyoverall.
Wecarryoutresearchanduseavarietyofsourcestogainadeeperinsightintotheexperiencesandbehaviourof
theconsumersoffinancialservices.Harmcanmanifestitselfinmanyways.Forexample,peopleandbusinesses
canfacelimitedchoice,beunabletogettherightproductfortheirneeds,orbetreatedunfairlybytheirchosen
providerthroughthelifeoftheproduct.
Informationasymmetrieswhenonepartyinatransactionhasmoreorbetterinformationthantheotherparty
arecommonbothinretailandwholesalefinancialmarkets.Theycanaffectoutcomesforconsumers,potentially
leadingtomissellingandreducedtrust,whichcanunderminemarketintegrityiffirmsbenefitattheexpenseof
clients.
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Consumerinertia,characterisedbyalackofconfidenceordesiretoswitchprovidersorproducts,canleadfirms
toofferpoorvaluetothoseontheirbackbooks,whencomparedwiththeofferingmadetonewcustomers.A
changeincultureisasignificantfactorinminimisingtherisksassociatedwithlargebackbooks,andactive
consumerscanplayaroleindrivingbettervalueforexistingcustomers.Thereisaneedtosupportconsumersto
becomemoreactiveandincreaseconfidence,toenablethemtoshoparound.
Manyconsumersstruggletomatchtheirneedswiththeproductsandservicesonoffer.Thisispartlyduetolow
levelsofunderstandingoffinancialproductsandservices,andpartlytothedifficultyofknowingwhattheirfuture
financialneedswillbe,giventhatcircumstancesandtheexternalenvironmentcouldchangesignificantly.Formore
vulnerablegroupsofconsumersthechallengescanbeconsiderable.
Vulnerabilityischaracterisedbyarangeofemotionalandpracticalconsequences,includingheightenedstress
levels,timepressures,alackofperspective,poordecisionmaking,aninabilitytoplanaheadandforesee
problems,andchangingattitudestowardsrisktaking.Alloftheseshapethefinancialexperiencesofconsumersin
vulnerablecircumstances.Forexample,anolderpersonwholosestheirlifepartnerwhoalwaysmadetheir
financialdecisionsisatriskofmakingpoorchoices,beingmisledorconfused.
Vulnerabilitycanplayaroleinconsumersexperiencesatmanydifferentstagesoflife.Allconsumersmay,at
differenttimes,bevulnerablefordifferentreasons.Wewillworktoimproveprovidersawarenessoftheneedsof
vulnerableconsumers,includingaccesstoproductsandservices,sotheyputpoliciesinplacetoservetheir
interestsbetter.
Ourconsumersegmentationmodelisintegraltounderstandingwhichcustomergroupsmaybemoreatriskin
relationtoparticularproducts,servicesandpractices.Eachofthesegroupshasspecificcharacteristicsandneeds,
andmuchofourworkusestheknowledgegainedfromthisresearch.Forexample,weknowthattheretiredwith
resourcessegmentmaybeathigherriskofbeingvictimsoffinancialcrimethanothergroups,soourScamSmart
campaigntargetsthisgroup.
Conflicts of interest, with a focus on wholesale markets

Conflictsofinterestareattherootofmanyconductrisksacrossmarkets,andwhencombinedwithinformation
asymmetriesconsumersmayfinditdifficulttocheckifthefirmisactingintheirbestinterest.Theriskcanbe
mitigatedbyadequateseparationoffunctionsinonefirmorgroup.
Conflictsofinterestarecurrentlyparticularlypertinentinwholesalemarkets.Onmanagingconflictsofinterest
associatedwithbusinessmodelsandactivities,webelievethereismoreworkstilltobedoneinwholesale
markets,forexampletoimproveconductwherethefirmactsasbothanagentandprincipal.Wewillworkto
ensurethatrobustriskmanagementstrategiesareinplace,includingthatstepsaretakentoprotectsensitiveand
confidentialclientinformation.
Financial crime
Financialcrimeposesasignificantthreattotherealisationofourobjectivetopromoteandenhancetheintegrityof
theUKfinancialsystem.Asistrueofeachareaofrisk,whenplanningtheworkwewillundertakeonfinancial
crimeincomingyears,weassesswherewecanhavethemostimpact,whileusingtheresourceswehave
availablemosteffectively.
Firmsthatfailtoplaceadequateemphasisonimplementingnecessarysystemsandcontrolsaremorevulnerable
tobeingusedtofurtherfinancialcrime.
Risksarisefromstepsnotbeingtakentopreventmoneylaunderingandbriberyandcorruption.During2015/16
wewillcontinuetofocusonbothantimoneylaundering(includingterroristfinancingandsanctions)andanti
briberyandcorruptionmeasures,asthesearetheareasinwhichweconsiderwecandeliverthemostvalue.
Wewillmaintainourfocusonfraudthataffectsconsumers.Firmsappeartohavestrongermechanismstoidentify
consumerfraud,thereforeweconsiderthatmoreregulatoryresourceswillbeneededtoimprovemoney
laundering,briberyandcorruption.
Concernhasbeenexpressedinternationallythatbanksareusingissuesaroundfinancialcrime,aswellasother
factorssuchasprofitability,tomoveawayfromprovidingservicestocertaingroupsofcustomersorbusiness
sectors.WewillworkwiththePrudentialRegulationAuthority,theFinancialStabilityBoardandregulatorsinother
countriestoanalyseand,whereappropriate,takeactiontoaddresstheseconcerns.Weareworkingwiththe
Treasuryandtheindustrytoemphasisethatariskbasedapproachmeanstheeffectivemanagementofriskrather
thansimplyriskavoidance.Atthesametime,wewillcontinuetochallengetheoftenpoorantimoneylaundering
systemsandcontrolsweseeinfirmsofallsizes.
Unfair contract terms

Lastyear,wenotedhowtermsandconditionscanbelongandcomplex,meaningthatconsumersoftendonot
readthematthetimeofpurchase,leadingtounsuitableproductsbeingboughtorproblemscomingtolightata
laterpointforexample,whenseekingtoexitthecontract.
ThisyearunfaircontracttermswillcomeintosharperfocusastheConsumerRightsActisduetocomeintoforce.
Part2oftheActdealswithunfaircontracttermsinawiderangeofsectors,includingfinancialservices,andwill
widenthescopefortheassessmentoffairness.ThisfollowscasesfromtheEuropeanCourts,whichhaveclarified
thebasisforassessingthefairnessofcontractsforconsumers(includingfinancialservicescontracts).
Therisksarisingfromunfaircontracttermsincludeconsumersgettingapoordealiffirmschangethenatureor
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costsoftheirproducts,oriffirmshavetoomuchdiscretionaroundwhatbenefitsmayderivefromaproductand
when,whichmaynegativelyimpactconfidenceinfinancialservicesintheUK.
Policy, legislation and regulation

EU and international
WeplayakeyroleintheUK,alongwiththeTreasury,BankofEnglandandPrudentialRegulationAuthority,in
implementingdomesticandEuropeanlegislation,aswellasinternationalpolicy.Muchofourdomesticregulation
originatesintheEU.ActiveengagementwithEuropeisessential,andthisisakeypartofournewstrategic
approach.Wethereforehaveastronginternationalfocusinmuchoftheworkthatwedo.
Market infrastructure
ThereisariskthattheintegrityandreputationoftheUKsmarketsbecomesdiminishedifconsumersandother
investorslackconfidencethatthosemarketsoperatefairlyandtransparently.Ifrealised,thisriskmaylead
investorsandparticipantstomovecapitalawayfromtheUKmarkets,whichwouldhaveanegativeimpactonthe
UKeconomyandcouldhavebroadconsequences.Thisneedforincreasedtransparencyacrossawiderrangeof
assetclassesandgreaterregulationoftradingvenueshasbeenrecognisedintherevisionsbeingmadetothe
MarketsinFinancialInstrumentsDirective(MiFID)andtheintroductionofdirectlyapplicableimplementingEU
regulations.
Inaddition,werecognisethevalueoftheworkgoingonataEuropeanleveltofacilitatefurthercompetition
betweentradingvenues.Whilethetransitiontonewmarketmodelsrepresentssomedisruptionandadditional
resourcerequirementsforfirms,webelievethepotentialforgreatercompetitionshouldbenefitUKconsumersof
financialservicesthroughthemhavingaccesstomoreliquidandtransparentservicesandultimatelylowercosts.
Asaresult,wewillremainheavilyengagedintheworktoinfluence,shapeandimplementtheregulatorychanges
inthisarea.
Prudential
WeprudentiallyregulatemorefirmsthananyotherregulatorybodyinEuropeandactivelymaintainaprogramme
ofprudentialassessmentforsignificantfirms.WewillcontinuetorollouttwokeyEUinitiativesthisyear:the
CapitalRequirementsDirective(CRDIV),whichweimplementedbyJanuary2014andwhichaffectsapproximately
960FCAsoloregulatedfirms,andtheRecoveryandResolutionDirective(RRD),whichaffectsapproximately200
firms.
AlthoughCRDIVprimarilyaddressescapitalandliquidityconcerns,italsocoversfirmssystemsandcontrols,good
governancearrangementsandeffectiveriskmanagementcapabilities(includingtheriskofmisconduct).
RRDrequiresfirmstoplanrecoveryandresolutionstrategiesintheeventoffinancialdistress,andforcesthemto
envisagethepossibilityoftheirwindingdown,contributingtominimisingthepotentialnegativeimpactsofthe
failureofthesefirmsonmarketsandontheircustomers.
Bothdirectivessupportourwiderconductagendawhilemitigatingarangeofprudentialrisks,resultinginchanges
tosomeofourprocessesandinteractionswithaffectedfirms.
Shadow banking
Shadowbankingisahighlydynamicandconstantlyevolvingpartoffinancialmarkets,respondingtothechanging
natureofbankregulationbutalsobroadermacroeconomicconditionssuchasalowinterestrateenvironmentand
abundantliquidity.
TheUS,theEuroarea,andtheUKhavethelargestshadowbankingsectorsintheworld.AccordingtotheIMF,in
theUK,forexample,shadowbankingassetsasashareofGDParemorethantwicethoseinanyotherarea.
Similarly,theshareofshadowbankingactivitiesintotalfinancialsystemassetsisgrowing.Bycontrast,theshare
ofbankassetsoftotalfinancialsystemassetsisdeclining.Thisdemonstrates,amongotherthings,theclose
connectionthatexistsbetweentheregulationofbanksandthegrowthofshadowbanking.
InternationalbodiessuchastheFinancialStabilityBoard(FSB)andtheInternationalMonetaryFund(IMF)
recognisetherearestillsubstantialgapsintheempiricaldatatodeterminesizeanddirectionoffinancial
transactions,includingissuesofinterconnectednesswiththebroaderfinancialsystem.
Muchofthecurrentinternationaldebateonshadowbankingisdrivenbysystemicriskconcerns.In2015/16we
willexplorefurtherbroadermarketdevelopmentsandissuesthataffectourconcernsmoregenerally,inparticular,
marketintegrity,competition,andretailfinance.
Domestic policy
Pension reforms
Lastyearweoutlinedarangeofrisksassociatedwithretirementincomeproducts,whichcouldleadtoproductsin
thisareadeliveringpoorvaluetoconsumers.Weconsiderthattheserisksremain,butourfocusisslightlyaltered
duetothedetailontheliberalisationofthepensionsmarketcomingtotheforeoverthepastyear.InApril2015
therewillbesignificantchangesmadetothepensionsmarket,withmorechoicebeingavailabletothoseagedover
55aboutthefinancialoptionstheyhaveavailabletothem.Wearemindfuloftherisksthatmayflowfrom
innovationandamarketplacethathasyettoreachmaturityintermsoftherangeofproductsandservices
available.Wewillmonitorthiscloselyoverthecomingyearandbeyond.
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Theimplementationofthepensionreformsprovidesanopportunityforinnovationfromfirmstomeetthechanging
needsofthisgroupandoptionsavailabletothem.Thismayleadtomorecompetitioninthismarket,delivering
benefitsforconsumers.Wearekeentosupportandpromotesuchdevelopments,andourInnovationHubwillbe
oneofthemechanismsweusetobetterunderstandtheproductsindevelopment.
ThePensionWiseguidanceservicethatistobeintroducedwiththepensionreformswillassistconsumersintheir
decisionmakingatretirement.However,weareawarethatthisisjustonerouteconsumersmayusetoaccess
information.Itwillnotgiveadviceonproductsorproviders,sotherewillbeaneedforhighqualityfinancial
adviceandguidancetobeavailablefromarangeofsources,includingfacetofaceandonlinesources,which
consumersmayturntoasmoreoptionsbecomeavailabletothem.
Thereisafurtherriskthat,withoutappropriateinformationandguidancetoempowerconsumers,greaterchoice
andtheofferingofmorecomplexproductsinthepensionsmarketwillreduceconsumersconfidenceandappetite
toshoparoundandsoweakencompetitivepressureonproviderstooffergoodvalueinthismarket,ashighlighted
inourmarketstudyonretirementincome.
Wealsobelievetheremaybeanincreasedriskofscamsatthepointofliberalisationandonwardsandmuchofour
workinthisareaintheshorttermwillfocusonthosevulnerableconsumergroupsofpensionableage,duetothe
particularrisksthisgroupmayfaceincomingyears.OurConsumerSpotlightsegmentationresearch,whichwe
launchedinJanuary2015,helpsustobetterunderstandtheconsumerswhomaybeparticularlyvulnerableduring
theearlystagesofthechangetothepensionsmarket.
Consumer credit
Lastyearwenotedthatthegrowthinconsumercreditcouldleadtounaffordabledebt.Thisriskremains,andwe
consideritwillcontinuetodosoforsometimeyet.Consumercreditremainsasignificantissueonthedomestic
policyagenda,asratesofborrowingincreaseandthefocusonconsumercreditremainsamongcommentatorsand
politiciansofallparties,asevidencedbytheworkoftheAllPartyParliamentaryGrouponDebtandPersonal
Finance.
WebecameresponsiblefortheregulationofconsumercreditinApril2014.Incomingyearswewillcontinueto
increaseourknowledgeandunderstandingofthisdiversesectorandtheparticularconductrisksthatitposes.
AllconsumercreditfirmswillneedtoapplytobecomefullyauthorisedbetweennowandApril2016.Asfirmsgo
throughtheauthorisationprocesswearegaininggreaterinsightintobusinessmodels,cultureandprocesses.
Authorisedfirmswillalsoreportdataaspartoftheirregulatoryresponsibilities,andthisinformationwillfeedinto
ourassessmentofrisk.
Wehaveidentifiedwhichrisksarecommonacrosstheconsumercreditsector.Inparticular,weconsiderthereto
beariskofpotentialharmtoconsumersarisingfrompoorpracticewhenassessingaffordabilitybeforeacredit
agreementisenteredinto,aswellasreassessmentsduringthelifetimeoftheagreement.Wewillbeundertaking
worktogainadeeperunderstandingofawiderangeofissues,includinghowfirmsassessaffordability,whichwill
helpustotakestepstomitigatetheriskswefind.
Inthisrelativelynewareaofregulatoryresponsibility,weareparticularlymindfulofthepotentialunintended
consequencesthatmayflowfromourinterventions.Levelsofconsumerborrowingarerisingrapidlyandany
regulatoryactionthatmayreduceaccesstoaparticularformofcreditcouldcauseconsumerstoseeksourcesof
creditthatmaybeunsuitablefortheirneeds,potentiallyintheunregulatedsector.Wewillcontinuetomonitor
theimpactofourinterventionsandconsiderthepotentialconsequences.Wemayalsoneedtobeflexibleandto
adjustourapproachifthereisanunforeseenimpact.
Economic and market trends

Developmentsintheeconomyandfinancialmarketsplayaroleininfluencingconsumerbehavioursanddecisions,
aswellasfirmsbusinessmodels,strategiesandfinancialsoundness.Soweneedtobealerttohowlikely
developmentsmayaffectthefinancialmarketsandactivitiesweregulate.
Whiletherearesignsofgrowthinmanyoftheworldsmajoreconomies,issuesthatmaygiverisetoriskremainin
evidenceandweprovideabriefoverviewofsomeoftheseissuesbelow.
Growthhasbeenboostedinanumberofeconomiesbylowoilpricesandmonetaryeasinghowever,lowinflation
andinterestratescouldgiverisetofinancialinstability.WhiletheUSeconomyoutperformedmanydeveloped
marketeconomiesin2014,therearequestionsastowhethergrowthinsomeemergingmarketswillslow,stopor
declinein2015andtheglobalimpactofthis.Aprolongedperiodofloweconomicgrowthacrossdeveloped
countriescouldplacepressureonfinancialfirmprofitabilityreturnsandincomeaffectingfinancialsoundnessand
risktaking.
IntheUStherecentfallinoilprices,lowinflation,dollarappreciationandpotentialsparecapacity,meanthe
timingofananticipatedinterestrateincreaseinresponsetoimprovingconditionsremainsdifficulttopredict,
leadingtouncertainty,whichhasthepotentialtonegativelyaffecteconomiesworldwide.
Chinasgrowthhasslowed,butisviewedbytheOECDasbecomingmoresustainableasitaddressesmacro
imbalancesandrisksinthefinancialsector].Therestoftheworldishavingtoadjusttoslower,thoughhigher
quality,growthfromChina.
TheoverallpictureinEuropeisfarfromclear,andiscomplicatedbyagooddealofuncertainty,linkedinpartto
developmentsinGreeceandanumberofotherMemberStateshavingelectionsin2015.TheOECDrecently
forecastgrowthof1.4%in2015and2%in2016,thoughperformancewillcontinuetovarywidelyacross
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countries.
ThestartofsovereignQuantitativeEasingintheEurozoneandtherecentdepreciationoftheEuroarebothfactors
thatmaysupportrecoveryandwewillmonitorcloselywhethertheearlypositivesignscontinuetobeevident.
IntheUKGDPgrewatabovetrendlevelsin2014andthisisexpectedtocontinuein2015.Therehavebeen
improvementsinemployment,althoughthishasbeenreflectedslowlyinrealwagegrowth,andconsumption
spendinghasbeenaccompaniedbyafallinthesavingsratio,whichsuggeststhateitherborrowingorafallin
savingshasbeenthecauseoftheincrease.
Modestwagegrowthtogetherwithexcesscapacityandfallingcommoditypriceshascreatedanenvironmentof
subduedinflation.Thishassupportedaprolongedperiodoflowinterestrates,whichhascontinuedtosupport
indebtedhouseholdsandenabledthemtomaintainhighlevelsofdebt.Householdleverage(debttoincomeratio)
hasfallentolessthan145%fromapeakof170%.
Inthesecuredsector,creditconditionshaveeasedforborrowerswhomeetlenders(stricter)criteria,buthave
tightenedforthoseunabletomeetthesecriteria.Easingcreditconditionsinunsecuredcredithaveenabled
householddebtstogrowoverthelastyear,particularlyborrowingfromfirmsoutsidethemonetaryandfinancial
sector.Wewillcontinuetomonitorwhethergrowthinconsumercreditborrowingcouldbecomeunsustainableover
timeforsomehouseholds.
Thelowinterestrateenvironmenthassupportedassetpriceinflation,housepricesandstocksand,ifitwereto
continue,pressureontheprofitabilityofsomeregulatedfirms.Wecouldexpectthispressureonprofitabilityto
leadtomoreactivemanagementofbackbookstoextractvaluethatmaynotbeintheinterestofconsumers.
FallingoilandfoodpriceshavepushedUKinflationdown,providingaboosttoconsumerspendingpowerthatin
theshortrunwillboostGDP.Interestratesareexpectedtoincreasegraduallyoverthenexttwoyears,andwhen
oilpricesrecoveritcouldplaceupwardpressureoninflation.Wewillbemindfulthatagrowingeconomycouldlead
tointerestratesrisingmorequicklythanexpected,potentiallyplacingpressureonoverindebtedhouseholds.
Asratesstarttorise,assetpricescouldseesomeadjustment.Theresponseoffirmsandconsumerstothisperiod
ofadjustmentcouldalsoleadtoariskofpooroutcomes.Lastyearwenotedthathousepricesremainedelevated
andwebelievethiscontinuestohold.IntheyeartoDecember2014housepriceswereup10%ontheprevious
year,althoughthereremainsconcernthatpricegrowthmaynotbesustainableoverthelongterm.Whilehouse
pricesremainelevatedagainstearnings,therateofgrowthhasslowed.IndicationsfromtheBankofEnglandthat
anyincreaseinrateswillbegradualmaymitigatesomeoftheriskshere.Inaddition,policychangeshavebeen
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madetoaddresstheissueofunaffordability:underwritingstandardsarehigherthantheyusedtobeandnew
affordabilitymeasuresmeanthataffordabilityofmortgageforconsumersiscloselyassessed,includinginthe
eventofinterestraterises.
Witheconomicgrowthexpectedtocontinueintothemediumterm,therearealsopotentialriskstoconsider,which
areassociatedwithaperiodofsustainedrecovery.Themoveintoamoreoptimisticmindsetoffutureprospects
andreturnsmayplaytobehaviouralbiasesandleadtopoordecisionsbeingmadethatunderplaydownsiderisks.
Inaddition,therearechallengescreatedbytheperiodofadjustmentitself,asimprovementsintheeconomywill
affectfirmsandconsumersatdifferenttimesandindifferentwaysandthereforeaffecthowconsumersinteract
withfinancialservicesfirms.Finally,firmsandconsumerswillhavetoadjusttotherecoveredeconomy,which
evenafterrecoverymaynotlookthewayitdidbeforethecrisis.
Firmsoptimismcouldleadthemtopursueunrealisticstrategies,whileothersmayfindthatoldbusinessmodels
nolongerservethem.Forexample,theymaynotallowthemtocompetewithnewentrantsinsomeareasor
underwritingstandardsmaybecomemorerelaxedovertime,raisingtheriskprofileofborrowers.
Increasesininterestratescouldcreatemarketvolatility,asmarketsreassessrisksassociatedwiththeirpositions
inlessliquidmarkets.Thiscouldresultinvolatilityinbondpricesandexchangeratemovements.
Social factors
The ageing populating and older consumers
TheUKspopulationofover65yearoldsisgrowingandthistrendisexpectedtocontinueoverthelongtermas
lifeexpectancyincreases,duelargelytomedicaladvancesandpositivechangestolifestyle.Projectionsindicate
that24%oftheUKspopulationwillbe65andoverby2035,thefigurein2010was17%.Theincreaseinthose
aged85oroverispronounced,upfrom2%in2010,to5%ofthepopulationin2035.
Thepensionreformsaimtoincreaseconsumerchoiceandencouragesavingforretirement.Themajorityof
customershavehistoricallyhadminimalexperienceofmakingproactivedecisionsregardingretirementincome
andwhenfacedwithuncertaintyontheirlifeexpectancyandbehaviouralbiases,theymaynotmakedecisionsthat
areintheirbestlongterminterests.April2015willalsoseethecontinuedrolloutofautoenrolmenttoinclude
businesseswithfewerthan50employees,somorepeoplewillstartsavingforretirement.
Thepaceofmedicaladvancesandlifestylechangesmakesitincreasinglydifficultforconsumerstodeterminethe
mostappropriatelifeandpensionproductstomeettheirneeds,includingpotentiallyfundinglongtermcare.This
isevidencedbyourrecentmarketstudyintotheretirementincomemarket,whichfoundthatconsumerstendto
consistentlyunderestimatelongevity,aswellasinflationandinvestmentrisks.
Firmsmaydevelopdecumulationproductsorservicesthatcouldhighlightcertainproductfeaturesorthepriceat
theexpenseofotherimportantinformation,orbedifficulttocompareduetohiddencostsandfeesandinclude
barrierstoexiting.Thereisalsoariskthatthesecouldresultinincreasinglycomplexproductsoramixofproducts
thatrequireongoingservicingandpotentiallyhighercosts,whichsomefinancialadvisersmayrecommendinabid
togeneratehigherfees.Itmaybechallengingforpeoplewithdifferentdegreesofwealthatretirementtofind
productsthatsuittheirneeds.Thosewithsmallerfundswilllikelyhavefeweroptionsanditisimportantthat
consumersarenotdisadvantagedbythislackofchoice.
Weknowthattheannuitiesmarketisnotworkingwellformanyconsumers,andthattheproportionandnumber
ofpeoplewithdefinedcontributionschemesisrising,dueinparttothewithdrawalofdefinedbenefitschemesand
therolloutofautoenrolment.Thesefactorsincreasethepotentialtoamplifytherisksinthisareaasmorepeople
seektopurchaseannuitiesorotherfixedincomeproductsandrelyontheincometheyprovidefortheir
retirement.
RecentresearchindicatesthataroundtwoinfivepeopleintheUKarenotconfidentintheirabilitytomaintaina
comfortablelivingstandardinretirement,withasimilarproportionnotcurrentlysavingforretirement,orhaving
nointentiontodoso.Weconsideroneofthebiggestrisksinthisareatobepeoplenotbeingableto,orchoosing
notto,saveenoughtoprovidethemwiththelifestyletheyhopetohaveinretirement.
Consumersmayalsobeillpreparedforthecostoflongtermcareduetoalackinsavingscombinedwitha
contextoflowreturnsonsavings,ordecisionsmadeabouttheearlywithdrawaloftheirfunds.Financialfirmsmay
seektofillthisgapwithinnovativeproductsthatprovidefinanceforlongtermcareinoldage.However,long
termcareisusuallyadistresspurchaseandunsuitableadviceorunfairpricingcouldleadtosignificantdetriment
forthecustomer.
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TheCareAct2014introducedalimittotheamountpeoplewillberequiredtocontributetothecostsoftheirsocial
carefromApril2016theCareCap.AsofApril2015itwillbepossibleforthoserequiringsocialcaretodeferthe
sellingoftheirpropertytopayforcare,untilaftertheydie.
Thechangestothearrangementsforpayingforcareprovisionwilllimittheamountapersonpaysfortheircareto
72,000.Thiscouldcreateconditionsthatweconsidermaypromptinsurerstodevelopproductstocoverthecost
ofsocialcare.Intheearlyyearsofthispolicychange,thekeyroleforusistosupportinnovationinproductsand
servicestohelpacompetitivemarketdevelopandtoprovideguidanceasnecessary.
Wearealsoawarethatolderconsumerscanfindobtainingmedical,criticalillness,carandtravelinsurance
difficult.Whentheyareabletofindsuitablepolicies,thecostofthepolicyisoftenveryhighorcontainsmany
exclusions,makingitprohibitivetosomepeople.
Firmsthatadopttechnologytoimproveefficiencyandengagewithconsumersinfinancialservicesmay
increasinglyfailtomeettheneedsofcertainconsumergroups(e.g.withincertainagegroupsorregions)whodo
nothaveaccesstocomputersorwhoarenotcomputerliterate.Suchcustomersmayconsequentlymissouton
betterproductsorservicesavailableonline.
Itwillalsomeanconsideringtheotherproductsandservicesonthehorizonaimedatthisagegroup,forexample
lendingintoretirementandequityrelease.Firmswillneedtoconsiderwhethertherangeandspecificationofthe
productstheyofferismeetingtheneedsofconsumers,andwhetheradjustmentswillberequiredtomeetthe
differingneedsthatwillariseinyearstocome.
Younger consumers
Attheotherendoftheagerange,thoseunder30arealsofacingincreasingfinancialpressuresandsignsofstress,
andmaybecomemorevulnerableincomingyears.
Astheseyoungerconsumersgetolder,theeffectsoftheirfinancialpositionintheirlateteensandtwentiesislikely
toaffecttheiruseoffinancialproductsandservices,sofirmswillneedtobereadytoadjusttheirofferings.For
example,ifthisagegrouptakestheirfirststepsonthepropertyladderatalateragethanthegenerationsabove
them,theirneedanduseoffinancialproductsuptothatpointandbeyondislikelytobeverydifferentfromthose
olderthanthem.Equally,ifyoungerconsumerscanaffordtobuyaproperty,theyarefacedwithlargemortgages
(potentiallyoveralongtermtoaidaffordability)andthismaymeantheyhandletheirfinancesdifferently.
Trendsinemploymentfortheyoungergenerationandexternalconditionsinthehousingmarketcombinedwith
someincreasingindicationofeconomicstresslevelsinthoseunder30mayhavecontributedtoyoungpeople
makingmoreuseofcreditanddebtproductstoservicetheirdaytodayliving.
Thereisariskthathighlevelsofdebtforyoungerconsumersareleadingtoknockonproblemslaterinlife,with
researchsuggestingasignificantnumberhadexperiencedarangeofdifficultiesincluding:obtainingcredit,
problemsgettingaphonecontract,troublegettingamortgage,anddifficultiesobtainingemployment.Asthe
financialconductauthoritywemustbemindfulofanyemergingpatternsofeconomicstressforyounger
consumersandestablishthefacts.
Althoughunemploymentamongyoungpeoplefell3.6%intheyeartoJanuary2015,itremainsatarelatively
higherlevelthanforothergroups.Realincomesforyoungadultsinemploymenthavealsofallensincethe
recessionduetoincreasedunderemploymentcombinedwithafallinhourlywages.Forexample,accordingtoone
study,medianhourlywagesfellby11%inrealtermsforemployeesaged2230between2007/8and2012/13,
andbyjust3%forthoseaged3159.In2012theOfficeforNationalStatisticsreportedthat36%ofrecent
graduateswereemployedinlowerskilledjobs,upfrom27%in2001,representingariseincyclicaldowngrading.
Thesefactorswillnotonlyaffectthefinancialsituationofyoungpeople,butmayalsoaffecttheirparentsfinancial
decisionmaking,andputpotentialincreasedstrainonhouseholdincomes.
Overthecomingyearmoreworkwillneedtobedonetoestablishthescaleofthetrendswehaveidentifiedamong
youngerconsumers,whethertheyarelongtermorcyclicalandthechallengestheyposeforourregulatory
objectives.Inparticularwewillexplorewhethertherangeofproductsandservicesonofferareappropriateto
meettheirneedsandwhetherthemarketisrespondingtoanytrendsthatappeartobeofamoremediumterm
nature.
Technological challenges
Weplacedasignificantfocusonthechallengesfacedbythefinancialservicessectoraroundtechnologylastyear,
andweconsiderthatthiswillremainforanumberofyearstocome.Whiletherisksarelikelytochangeinnature,
theoverarchingareaofriskwillcontinuetoneedtobeaddressed.Weworkwithfirmstostrengthenconsumer
protectionregardingtechnologicalrisks,anditisafactorweoftenhighlightinourmarketstudies.
Wefacethechallengeofbalancingthestepswetaketoreduceconductrisksrelatedtotechnology,whileensuring
thattheregulatoryregimesupportsthedevelopmentofinnovationsthatcanbringbenefitstoconsumers.Weare
committedtoensuringthatourruleskeeppacewithtechnology,whileacknowledgingthatthiswillbeachallenge.
Innovation in online and web-based channels

Thegrowthofdigitalchannelsiscommonlylinkedtotheemergenceandadoptionoftechnologiesthatsupport
innovativeproducts,suchasmobilebanking,digitalwallets,chequeimagingandpricecomparisonwebsites.
Whiledigitaladvancementscanmakefinancialservicesfasterandmoreconvenient,fostercompetitioninthe
marketplaceandreducecosts,theycanalsoincreasesecurityandresiliencerisksthatmayarisefromcyber
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attacksorweaknessesintheunderlyingITinfrastructureiftheyarenotimplementedwithduediligence.Thiscan
causecertaingroupsofcustomerstobecomeexcludedorpotentiallymisusetheplatforms.Itcanalsoleadother
groups,suchasyoungerconsumers,tobecomeoverreliantoneasyaccess(oftenhighinterest)creditwhena
moreaffordablesourcecouldbeavailabletothem.
Inaddition,suchadvancescanencourageconsumerstoadoptpoorbehavioursorallowfirmstopresent
informationinsuchawayastoencouragepoorchoices,possiblyresultinginmisselling.Widespreadadoptionof
innovativetechnologiesacrossarangeoffirmsfromlargeretailbanksandinsurerstochallengerbanksandnew
startupsmaypresentbenefitstoconsumers,butcanalsoincreasetheriskofharmtocustomersandmarket
integrityifthepaceandcomplexityofdigitaltransformationisnoteffectivelymanaged.
Thisgrowthisalsoincreasingtheuseofpersonalmobiledevicestoaccessfinancialservicesandtherisks
associatedwithredirectiontocounterfeitwebsitesarelikelytorise.Thiscouldleadtoanindividualsaffairsbeing
managedbyathirdpartywhoisnotauthorisedtodoso,suchasarelativehelpingoutanolderpersonwithout
powerofattorney,whichmaycreaterisksneitherpartyhadforeseen.
Cyber-crime
CybercrimerisksareincreasedbythecomplexityandageofITsystemsoperatedbysomefirms.Thesefactors
canmakeitmoredifficultforfirmstoembedeffectivesecuritymeasuresacrosstheirITsystems.
Marketexchangesandtradingvenuesarehighprofileexamples,butarenottheonlytargetsthatifexploited
couldsignificantlydisruptfinancialmarkets.Cyberexposure,includingcardfraudandfinancialcrime,is
exacerbatedbytheincreasedrelianceonwebbasedfrontendchannelsthatincreasetheriskofpersonaldataand
consumerfundsbeingcompromised.Thegrowinginterconnectednessoffirmsincreasestheriskofanimpacton
onehavingaknockoneffectonothers.
Separately,insurancefirmsarealreadyofferingcoverforcyberrisksandarecollectinglargevolumesofdata
abouttheircustomersthat,ifcompromised,couldprovideavaluablesourceofinformationtocyberattackers.It
isalsovitalthatthereisabsoluteclarityaboutwhatsuchpoliciesdoanddonotcover,andunderwhat
circumstancesitwillbepossibletoclaim.Theperpetratorsofcybercrimevaryfromnationstateswithapolitical
agenda,tohacktivists,tothosewishingtoexploitdataforprofit,andthisbreadthchallengesthetraditional
securitycontrolsthatareoftenused.
Complex systems with intermediaries and/or gatekeepers

Theincreasingprevalenceoffirmsactingasgatekeepersorintermediariescanleadtoacompetitionrisk,andalso
giverisetosinglepointoffailurerisks.Thisariseswheretherearesignificanteconomiesofscaleandswitchingis
difficultorcostly,and/orusingmorethanoneserviceconcurrentlyisnotpossible.Thiscouldmakeitmoredifficult
fornewplayerstoenterthemarketandforthemarkettoworkwell.
Theissueisincreasinglyrelevanttousbecauseofcomplexsystemsbecomingmoreprevalentandfastmovingas
aresultof,amongotherfactors,onlinemarketsanddigitisation.Forusthechallengeisintermsofwhetherand,if
so,howtointervene.Inassessingthemeritsofpotentialinterventionswewilldrawonourunderstandingofthe
sectorsandconsumers,includinghorizonscanninganalysis,andengagewithotherregulatorsand/oragencies
(bothnationallyandinternationally)withaninterestandexperienceintheseissues.
Failure to invest and maintain

Asignificantamountofongoingtechnologicalinvestmentisrequiredtoenterorcontinuebeingpresentina
market.Thecomplexityandcostofsuchsystemsencouragesfirmstomodifyexistingsystemstodelivernew
functionalityratherthanreplacethem.Asaconsequence,systemsmaybecomeincreasinglycomplex,lessresilient
andpotentiallylesssecure.
Thisgivesrisetoanumberofrisks,forexample,afailureinafirmsITsystemscansignificantlyharm
consumers.Outagescanleadtoconsumersbeingunabletocompletetransactions,incurringfeesonlate
paymentsandhavingadominoeffectontransactioncounterparties.Theincreasedrelianceonthirdpartiesinan
outsourced,offshoremodelforthemaintenanceofkeysystemsmayalsoaffectthespeedofresponsetocritical
failures,leadingtoextendedperiodsinwhichconsumerssufferharm.Indeed,theperceivedfailureofafirmto
provideaneffective,secureandresilientsystemsenvironmentcanaffectthereputationofthefirmandlead
consumerstowithdrawtheirbusiness.Thiscouldcauseamarketintegrityissue.
Thisisoneareainwhichnewbusinesseshaveanadvantageoverexistingfirms,astheydonothavethelegacyof
oldandfragmentedITsystems,buthavetheopportunitytodesignsystemsthatcloselyalignwiththeirbusiness
modelandusenewerandoftencheapertechnology.However,thereisariskthatnewentrantsmaynotbeableto
competewithexistingfirmsequally,duetoexistingfirmshavingbettercontracttermsandmoreestablished
relationships.
Market resilience
Therisksoninfrastructureresiliencearecloselylinkedtotheotherkeysareasofrisk.Poorconductmayarisefrom
inadequateinvestmentinthesystemsthatfirmsusetoundertake,monitorandcontrolbusinessinthewholesale
markets,orintheirfailuretohaverobustbusinesscontinuityplansinplace.Suchfailurescouldleadtoharmto
customers,andwewilltakeactiontominimisetheriskofthisoccurring.
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Our strategy
Introduction
InDecemberweannouncedanewstrategyfortheFCA.Thisisanevolutionofourregulatoryapproach,inlightof
newdevelopmentsinfinancialservicesandthecontinuedexpansionofourremit.Wewillbuildonthosethingswe
believeareeffectiveandintroduceimprovementswherethesewillhelpushaveagreaterimpactandachieve
bettervalueformoney.
Thelasttwoyearshaveseensignificantchangesinthescopeofourregulatoryresponsibilities(forexample,
regulatingconsumercredit),thenumberoffirmsweregulate(fromaround26,000toover70,000),andthe
economicandsocialcontextinwhichweoperate(forexample,thepensionslandscape).Torespondtothese
changesandensurewearetacklingtheriskswehaveidentified,wehavereviewedourprioritiesandwaysof
workingtoensurethatweareinthebestshapetodealwiththechallengeswefacethisyearandinfuture.
Ourcorestrategicobjectivehasremainedthesame:ensuringthattherelevantfinancialmarketsfunctionwell
butwerecognisedthatweneededadifferentapproachtoregulatesuchalargeanddiverseindustry.Whileour
scopehaschanged,ourresourcinghasremainedlargelyfixed,soweneedtousetheintelligencewehavetofocus
onkeypriorities,whileremainingflexibleenoughtorespondtoemergingissues.
Ourstrategynowplacesmoreemphasisonsectorandmarketwideanalysis.Thiswillputusinastrongerposition
toidentifyandaddresstherisksoutlinedintheRiskOutlookchapter.Wewillchangeourintelligenceanddata
analysisprocessestoformamoreconsistent,collectiveviewonkeymarketsandsectors,andaddresstheissues
theyidentifyinamorestrategicwaywithgreaterprioritisation.Thisprioritisationwillinformtheprogrammeof
workwesetoutinourbusinessplanseachyear.
Whenconsideringintervention,weaimtousethemostappropriatetoolinpursuitofourobjectives.Thiswillbe
proportionatetotheissueandcouldrangefromchangestoourHandbooktoenforcementaction.Wewill
intervenewherethemostsignificantissuesandriskstoourobjectiveshavearisenanduseourresourceswhere
wecanhavethegreatestimpact.Wewillbuildingreaterabilitytoadaptandreprioritisewherenecessaryandwill
clearlyexplainourrationaleforthesedecisions.
Our strategic themes

1.Sustainablemodelofregulation
Aswenowregulatearound73,000firmsthreetimesmorethanin2013/14weintendtotakeamoremarket
focusedapproach,lookingbroadlyacrossregulatedsectorsandproducts.Todoso,wearebringingtogetherour
crossmarketthematicandmarketstudywork,undertakingfewer,morefocusedstudies,andwearetakingsteps
tocreategreaterflexibilityintheresourcingofourpriorities.Ourprogrammeofworkfor2015/16canbefoundin
Annex1.
2.Commonviewofmarketsandsectors
Wewillbuildourstrategyandcompetitionfunctionduringtheyear,withagreaterfocusonmarketintelligence
andanalysis.Wewillbringtogethertheintelligencethatwecollectfromawiderangeofsourcestoforma
commonviewofeachofthemarketsandsectorsweregulate.Thiswillincludetheintelligencewehavefrom
firms.Thiscombinedwithourworkengagingwithconsumerbodies,findingsfrommarketresearchand
interactionswithconsumers,willformarichpictureofthemarketsweregulateandtheissuesacrossthedifferent
financialsectors.
Weremaincommittedtobeingpreemptive,seekingtoidentifyandtakeactionbeforeriskscrystalliseorgrowin
scale.Wedothisbymakingjudgementsonthebigissuesandwherewebelievetherearelikelytobepoor
outcomesforconsumers,poorcultures,businessmodelsorincentiveswithinfinancialservices.
3.Prioritysetting
Wewillestablishanewwayofprioritisingandstreamliningourworksothatwealignourresourcesinthemost
effectiveway.OurBusinessPlanswillcontinuetosetoutourintentandstateourpriorities,butwewillretainthe
abilitytoadjustoradaptourprioritieswherenecessary.Wewill,ofcourse,dothisopenlyandbeabletoclearly
explainchangestoourplans.Thisapproachalsohelpsustobemoretransparentandpredictable.Wewillbeclear
withthoseweregulatewhatourprioritiesareandtheissuesthatarethemostimportanttous.
4.Strategicapproachtorisk
Aspartofourchangestostructureandstrategywewillbringtogetherallofoursecondlineriskfunctionstoform
asingleriskandcompliancedivision.Ourriskandcompliancedivisionwillprovideastrong,independentoversight
ofouractivitiesandapproach.
5.Engagingandinfluencing
Wewillseektoengageandinfluencemorestrategicallyonregulatoryandpolicydevelopments,particularly
internationally.Weknowfromexperiencethatitisvitaltohaveeffectiveengagementinternationally,particularly
inEuropetoachievegoodpolicyoutcomesformarketsandconsumers.Wehavebroughttogetherour
internationalandmarketspolicyworktoensurewearecoordinatedinourinternationalactivityandcaninfluence
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theEuropeanandinternationalagendaatanearlierstage.
6.Increaseinternalabilitytobeflexible
Whilefocusingourresourcesonourkeypriorities,wewillalsoensurethatwehavegreaterflexibilitytouse
resourcesonemergingissueswhennecessary.Wewillseektoworkinanagileway,bybringingpeopletogether
tofocusonspecificissuesandtackleemergingrisksquicklyusingthefullrangeofourexpertise.Itisvitalforus
toactquicklywherethemostsignificantriskstoourobjectiveshavearisenandwewillensureweuseour
resourceswherewecanhavethegreatestimpact.
7.Makingthemostofourresources
Weremainfocusedontheprinciplesofgoodregulationandadvancingourobjectivesinthemostefficientand
effectiveway.Wewillcontinuetomeasureandevaluateourimpactandreportpublicallyonthis.Ouraimwillbe
tobeaseffectiveaspossibleandfocusourresourcesonthefrontlineofregulation.
In2015wewilllaunchanEfficiencyandEffectivenessReview,whichwilllookatthevalueformoneyofareasof
higherexpenditure.Aspartofthiswewillreviewourgovernanceanddecisionmakingprocesses.
Toembedthiswewillhaveanewstructure,whichwesetoutinAnnex3.
Key priorities
Introduction
Ourstrategicobjectiveistoensurethattherelevantmarketsfunctionwell.Tosupportthis,wedeliverourwork
throughthreeoperationalobjectives:
Tosecureanappropriatedegreeofprotectionforconsumers
ToprotectandenhancetheintegrityoftheUKfinancialsystem
Topromoteeffectivecompetitionintheinterestsofconsumers
Wedecideouractivitiesfortheyearaheadbasedontherisksweseetoourobjectives.OurannualBusinessPlan
setsoutwhattheseareandhowwewillintegratenewresponsibilities,improveoursystems,developourpeople
andensurethatourprioritiesarefocusedonachievingourobjectives.
During2015/16ourprioritieswillcoverthefollowingkeyareas,alongsideourbusinessasusualactivities.Inline
withourstrategy,wewillalsoensureweareabletorespondflexiblytoemergingissues.
Astrategicmarketsledapproachtoregulation
Marketfocusedworkprogramme
Wholesalemarketintegrity
Competition
Protectingconsumers
Pensionsandanageingpopulation
Consumercredit
Individualaccountability
Changingculture
Seniormanagersandcertifiedpersonsregimes
Remunerationcodes
Enforcementactionagainstindividuals
Whistleblowing
Internationalissues
Internationalengagement
ImplementingEUpolicy
Financialcrime
Ourpeople
Diversityandinclusion
Investinginourstaff
A strategic markets-led approach to regulation

AspartofthenewFCAstrategy,wehaveshiftedtheemphasisofsomeofourworktobemoremarketsfocused,
lookingbroadlyacrossthesectorsweregulate.Wewillconductcompetitionmarketstudies,lookingatthe
operationofthemarketsweregulate,anddecidingwhetherinterventionsareneededifthosemarketsarenot
workingintheinterestsofconsumers.
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Wewillcontinuetoundertakethematicsupervisionwork,lookingacrosssectorsorproductstoassesswhether
firmsaremeetingourexpectationsandcomplyingwithourrules.Thisapproachenablesustolookbroadlyacross
sectorsandproductstoidentifyissuesthatarecommontomorethanonefirm,andinsomecasesacrossmore
thanonesector.
Interventionsatthemarketlevelmeanwecanrespondcomprehensivelytoissuesandpromotecompetitioninthe
interestofconsumers,whilealsoaddressingthepotentialeffectsofpoorconductonconsumersandotherfirmsin
asector.Itisaneffectiveandpowerfulwayofidentifyingandmitigatingproblemsandaddressingtheseacrossa
largenumberoffirms,whichinturnbenefitsalargenumberofconsumers.
Todothis,wewilldrawontheforensicsupervisoryskillswehavedevelopedandusedinourthematicwork,with
theinvestigativeandanalyticalskillsweuseincompetitionmarketstudies.Overallweexpecttoconductfewer
individualpiecesofthematicandmarketstudyworkthanin2013and2014,buttoundertakedeeperandmore
impactfulinvestigations.
Market-focused work programme

Wehaveongoingworkfrom2014/15thatwillcontinueorreportbackonlaterthisyear.Wealsohavea
programmeofnewmarketstudyandthematicworkfor2015/16.Inlinewithournewstrategyandpriorities,we
willfocusondeliveringfewer,moreindepthpiecesofwork.Wewillprovideupdatesonourprogrammeduring
thecourseoftheyear,aswecompletepreliminaryworkandprioritiseinterventions.
Inlinewithourkeyprioritiesfor2015/16,someofthesignificantworkweplanincludesourmarketstudyon
investmentbankingandathematicreviewofconflictsofinterestindarkpools.Wewillalsoexplorestaff
remunerationandincentivesaswellasdebtcollectionpractices,weplanareviewofsalespracticesandhowfirms
supportconsumerstomaketherightchoices.
WesetoutourcurrentandplannedworkbelowandinAnnex1.
Cross sector topics

OurongoingprogrammeofworkincludesworkingwiththePRAandBankofEnglandonvisibilityofITresilience
andrisksatboardlevel,andwithTreasuryandregulatorypartnersonaddressingcyberrisk.Weareconsulting
withaviewtoissuingfinalguidancelaterthisyeartohelpfirmsmanagetheriskofmissellingarisingfrompoor
performancemanagement.
CulturereviewIn2015/16wewillconductanewthematicreviewonwhetherculturechangeprogrammesin
retailandwholesalebanksaredrivingtherightbehaviour,inparticularfocusingonremuneration,appraisaland
promotiondecisionsofmiddlemanagement,aswellashowconcernsarereportedandactedon.
Retail investments
Wewillcontinueourreviewofduediligenceoffinancialadvisersandwillcompleteourworktoidentifyrisksinthe
wayfirmsoffercontractsfordifferenceproductsandmitigateanyrisksfound.
InducementsandconflictsofinterestFollowingourpublishedguidanceoninducementsandconflictsof
interestrelatingtoretailinvestmentadvice(January2014),wewillassessfirmspracticesinthisarea.Our
assessmentwillinformourconsultationonHandbookchangesneededtoimplementMiFIDIIIncludingchanges
tostrengthentheinducementsrules.
Emergingdistributionmodels(nonadvisedsales)Wewillundertakeamarketstudyintononadvisedsales
ofinvestmentandprotectionproducts.Wewanttoseehowconsumersbehavewhentheyaremakingtheirown
investmentdecisionsandhowfirmssupportconsumersinchoosingproductsthataresuitablefortheir
circumstances.
General insurance and protection

Followingour2014marketstudyintogeneralinsuranceaddons,wewillconsultonremediestotackletheissues
wefound.Theseincludebanningoptoutsellingacrossallproductssoldbyanauthorisedfirm(orits
representative)andissuingguidancetoimprovethewayaddonsaresoldonpricecomparisonwebsites.Wewill
alsomakefinalrulestoaddresscompetitionissuesintheGuaranteedAssetProtectioninsurancemarketin2015.
Wewillconsultin2015onourproposalsforintroducingameasureofmonetaryvalueforgeneralinsurance
products,inparticulartheoptionofrequiringthepublicationofclaimsratiosforsuchproducts.
WewillcontinueourreviewofcommercialclaimsforSMEcustomersandreportonourreviewofcontrolsand
effectivenessofdistributionchainswhereauthorityisdelegated.
RoleofAppointedRepresentativesWewillreviewtheroleofAppointedRepresentativesinthedistributionof
generalinsuranceproducts.Wewillconsidertheroleandworkoftheprincipalfirminensuringthatithas
adequateandrobustsystems,controlsandresourcestoeffectivelyselectandoverseeitsAppointed
Representatives,includinginrelationtotheirsalespracticesandprovisionofpostsaleservices.
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TechnologyanduseofBigDataWewillconductamarketstudytoinvestigatehowinsurancefirmsuseBig
Data,suchaswebanalyticsandbehaviouraldatatools(includingtheincreasinguseofsocialmedia)aswellas
otherunconventionaldatasources.Wewillidentifypotentialrisksandbenefitsforconsumers,includingwhether
theuseofBigDatacreatesbarrierstoaccessproductsorservices.Wewillalsoexaminetheregulatoryregimeto
ensurethatitdoesnotundulyconstrainbeneficialinnovationinthisarea.
Wholesale banking
Ourreviewofcontrolsoverflowsofinformationininvestmentbankswillbecompletedthisyear,aswillour
assessmentofwhetherfirmshaveembeddedappropriateprocessesandcontrolsaroundbenchmarks.Wehave
beenconsideringtherisksarounddarkpoolsandwillalsocontinuetoincreaseourknowledgeoftheconflictsof
interestthatmaybeinherentintheoperationofdarkpoolsandexplorehowfirmsaremanagingthem.
InvestmentandcorporatebankingInFebruary2015,weannouncedthatwewillundertakeamarketstudy
toinvestigatecompetitionintheinvestmentandcorporatebankingsector.Wewilllaunchthisstudyinspring2015
andthetermsofreferencewillsetoutthescopeinmoredetail.
Pensions and retirement income

Wewillcompleteourretirementincomemarketstudyandengagefirmsinourongoingreviewofsalespractices
forannuities.Wewillalsocompleteourassessmentofthefairtreatmentoflongstandingcustomersinlife
insurance.
FromApril,wearerequiredtomonitorthestandardswehavesetfordeliverypartnersappointedbytheTreasury
togivepensionsguidance,underthePensionWisebrand(knownasdesignatedguidanceproviders).Bysetting
andmonitoringstandardsfortheseproviders,weaimtohelpprotectconsumers.Wewillalsomake
recommendationstoprovidersandtheTreasuryifweidentifyanystandardshavebeenbreached.
RetirementsalespracticesThePensionslandscapehasseensubstantialchangesin2014and2015andthis
willbeasignificantareaoffocusforusinvolvingpolicy,supervision,marketstudiesandthematicwork.Wewill
reviewhowretirementsalespracticesofpensionproviders,inrelationtotheirvestingcustomers,havechanged.
Inparticulartoassesshowfirmsaresupportingcustomerstomaketherightchoicesgiventhewiderrangeof
optionsavailable.Ourkeyobjectivesaretoensurethatfirmshavesteppedupandimprovedtheirpracticessince
thepublicationofourthematicreportinDecember2014andtoensurethatfirmsdonotseektoundermineor
circumventthePensionWiseserviceforthepurposesofretention.
RetirementoutcomesFromApril2015wewillscopeandplanafollowuptothemarketstudyintothe
outcomesconsumersreceivefromtheproductsandservicestheybuyatretirement.Thiswillreviewhowwellthe
marketisworkingafterthereformsandtheguidanceguaranteehavebeenintroduced,inparticularafterthefull
pensionsflexibilitiesareintroducedinApril2015.Wewilllookatbothadvisedpurchases(reviewingthesuitability
ofadvicegiven)andnonadvisedpurchases(reviewingtheinformationprovided).Wewouldexpecttolaunchthis
workinearly2016oncewehaveagreaterevidencebaseofactualoutcomes.
Investment management
Weareassessingimprovementsinsuitabilitystandardsacrosswealthmanagement.
AssetmanagementWewilllaunchamarketstudyonassetmanagementin2015/16.Wewilldevelopthefull
scopeduring2015/16,buttheissueswewillexaminewillincludethechargespaidbyinvestors,andthefactors
thatdrivethosecharges.Thesewillbesetoutinatermsofreferencedocumentthatwillbepublishedwhenthe
studyisformallylaunched.
PostauthorisationreviewoffundsWewillreviewwhethernewUKauthorisedinvestmentfundsand
segregatedmandatesareoperatedinlinewithourrulesincludingalldocumentation,marketingmaterial,
disclosurematerialorinvestmentmandates.Wewillalsoconsidercompliancewithotherresponsibilitiesto
investorssuchasadherencetoriskmanagementparameters.
Retail banking
Inthissector,weplantocompleteourreviewofunauthorisedtransactions,toensurethatfirmsarenotplacing
unreasonableobstaclesorresponsibilitiesontheircustomers,orunfairlyrejectingclaimsandourreviewof
packagedbankaccountstoassesshowbankshaveimplementedourrules.
WewillcontinuetoworkwiththeCompetitionandMarketsAuthorityasitprogressesitsinquiryintoretailbanking.
Retail lending
ThisyearwewillimplementtheMortgageCreditDirective,particularlyaffectingprovidersofsecondchargeand
consumerbuytoletmortgageproducts.Wewillcompleteourcreditcardsmarketstudyandconcludeourreview
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assessingthequalityandappropriatenessofdebtmanagementadvice.
MortgagemarketWewillcontinueourassessmentofhowfirmsareimplementingourpostMMRrules,
includingcompletingouradviceanddistributionreviewinthesummer,andcommencingourreviewinto
responsiblelendingfromApril2015.Buildingonthis,fromautumn2015wewillbeginawiderassessmentof
barrierstocompetition(suchasfactorsaffectingconsumersabilitytoaccesscreditandabilitytoswitchproviders,
andbarrierstoentryand/orexpansion)withaviewtolaunchingamarketstudyinearly2016onthoseaspectsof
themortgagemarketthatarenotworkingtothebenefitofconsumers.
CollectionofunsecureddebtsWewillexaminethewaysinwhichconsumercreditdebtsarecollectedandthe
extenttowhichfirmsinvolvedintherecoveryandcollectionprocessarefollowingourrules,treatingcustomers
fairlyandshowingappropriateforbearance.
StaffremunerationandincentivesinconsumercreditfirmsWewillreviewremunerationandincentive
structuresincreditanddebtservicesfirmsandassesshowthesefirmsaremanagingtheriskthattheirreward
arrangementscouldencouragepotentiallyundesirablebehavioursthatmightleadtopooroutcomesfor
consumers.
Wholesale market integrity

Makingsurethatwholesalemarketsareworkingwellisavitalpartofwhatwedo.Iftheyarenotfunctioningina
fairandefficientwayitwillnotonlyhaveaharmfulimpactonfirms,butthiswilloftenfilterthroughthesystemto
eventuallyresultinharmfuloutcomesforconsumers.
Wewillincreaseourfocusonwholesalemarketstoensuretheyareefficient,stable,fair,cleanandresilient,that
theirinfrastructureismademorerobust,andthatconductstandardsareimproved.Ourplannedworkintervenes
atthemarketleveltoachievebetteroutcomesmoreefficiently.
Fair and effective markets review

TheGovernmentsFairandEffectiveMarketsReviewwillmakeacomprehensiveandforwardlookingassessment
ofthewaywholesalefinancialmarketsoperateregardingfixedincome,currenciesandcommodities.
Theaimofthereviewistoidentifywaystoreinforceconfidenceinthefairnessandeffectivenessofwholesale
financialmarketactivityconductedintheUK,andtoinfluencetheinternationaldebateontradingpractices.Its
finalrecommendationswillfocuson:
structuremarketsmicrostructurecompetitionandmarketdisciplineandbenchmarks
conductstandardsofmarketpracticesresponsibilities,governanceandincentivesandsurveillanceand
penalties
WewillcontinuetoworkcloselywiththeBankofEnglandandtheTreasury,andcontributeideasandresearchto
supportthisworkandimplementtherecommendations.Wewillfocusonhowtheserecommendationsfitwith
otherproposedreformsandreformsalreadybeingimplemented.
TheReviewisbeingledbyBankofEnglandDeputyGovernorforMarketsandBanking,MinoucheShafik,andco
chairedbyMartinWheatleytheFCAsCEOandCharlesRoxburgh,DirectorGeneral,FinancialServices,HM
Treasury.
Benchmarks
InApril2013,webecameresponsiblefortheregulationandsupervisionoftheLondonInterbankOfferedRate
(LIBOR),followinganumberoffinesforseriousmisconductrelatingtoLIBOR.
TheFairandEffectiveMarketsReviewrecommendsalistofadditionalmajorbenchmarksacrosstheFixedIncome,
CurrencyandCommodity(FICC)marketstobebroughtintheregulatoryframework.
InDecember2014,theGovernmentconfirmedthesevenadditionalbenchmarkswouldbe:
SterlingOvernightIndexAverage(SONIA)
RepurchaseOvernightIndexAverage(RONIA)
ISDAFIX(soontoberenamedICESwapRate)
WM/Reuters(WMR)London4pmClosingSpotRate
LondonGoldFixing(soontobereplacedbytheLBMAGoldPrice)
LBMASilverPrice
ICEBrentIndex
InMarch2015,wepublishedourframeworkforregulatingandsupervisingtheseadditionalsevenbenchmarks,
whichwillbebroughtintoscopeonApril2015.Wehaveadaptedtheexistingregulatoryregime(MAR8)tobe
applicabletothesedifferentbenchmarks,souserscanbeconfidenttheyarerobust.
Weareworkingcloselywiththesefirmstoundertakesignificantevolutionintheirmethodologies.Someofourkey
requirementsoffirmsincludeidentifyingpotentiallymanipulativebehaviour,managingconflictsofinterest,and
implementingrobustgovernanceandoversightarrangements.
Wewillalsocontinuetocontributetointernationalbenchmarkreform,focusingontheFinancialStabilityBoards
(FSB)reviewsofinterbankinterestratebenchmarksandFXbenchmarks.IntheEU,wewillcontinuetoprovide
supporttotheTreasury,whichrepresentstheUKintheEuropeanbenchmarkregulationnegotiations.
AsperFSBrecommendations,weareencouragingtheLIBORadministratortocontinueevolvingLIBORinlinewith
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itsunderlyingmarket,andtoencouragemarketchoiceforinterestratebenchmarks.
OurintensiveworkonthefailingsofcontrolsinForeignExchange(FX)tradingoperations,resultedinfinesofover
1bnin2014.Wewillcontinuetodeliversignificantenforcementoutcomesintheareaofbenchmarkswhere
appropriate.
MIFID II and the market abuse regulation (MAR)

WewillensurethatwecontinuetobeattheheartofsettingthewholesalemarketspolicyregimeinEuropeand
internationally,andwillspecificallyfocusonMiFIDIIandMAR.
TheMarketsinFinancialInstrumentsDirective(MiFID)wasimplementedintheUKin2007,andhasrecentlybeen
revisedinlightofthefinancialcrisisandtostrengtheninvestorprotection.Thenewregime,knownasMiFIDII,is
acomprehensivesetofreformsthatwillreshapethesecondarytradingoffinancialinstruments,particularly
derivatives,andseekstoensurefirmsputthebestinterestsofclientsattheheartoftheirbusiness.
TheMarketAbuseRegulation(MAR)updatesandstrengthenstheexistingmarketabuseframeworkprovidedby
theEUMarketAbuseDirectiveanddomesticmeasures.TheMARensuresthatregulation:
keepspacewithmarketdevelopments,suchasthegrowthofnewtradingplatforms,overthecountertrading
andnewtechnology,suchashighfrequencytrading
strengthensthefightagainstmarketabuseacrosscommodityandrelatedderivativemarkets
prohibitsasaregulatoryoffencethemanipulationofbenchmarks(suchasLIBOR)
reinforcestheinvestigativeandadministrativesanctioningpowersofregulators
ensuresasinglerulebookwhilereducing,wherepossible,theadministrativeburdensonSMEissuers
MiFIDII,whichalsoaffectsretailmarkets,comesintoeffectacrossEuropeon3January2017,andtheMarket
AbuseRegulationtakeseffecton3July2016.Wewillfocusonfeedingintothetechnicalstandardsforbothatthe
EuropeanSecuritiesandMarketsAuthority(ESMA)level,andwillconsultontransposingtherulesintoour
Handbook.Wealsoeducateandpreparefirmsfortheimplementationofthenewrules.
Competition
Effectivecompetitionisapowerfulwaytoachievebenefitsforconsumers,whichincludebettervalue,genuine
choice,qualityproductsandservices,andusefulinnovationinfinancialservices.Withoutit,newfirmsmayfindit
difficulttoentercertainmarkets,incumbentshavefewerincentivestoofferbetterdealsandservices,and
consumersmightnotbeabletocompareoptionsandchoosetheproductsandservicesthatarerightforthem.
Wewillconsiderpotentialcompetitionissuesaswedesignandimplementourpoliciesandregulatoryapproach,
andwewillengagewitharangeofstakeholderstoraisetheirawarenessandunderstandingofourcompetition
mandate,whileatthesametimeimprovingtheintelligenceweholdoncompetitioninthemarket.
Concurrency powers
On1April2015ourcurrentregulatorytoolkitwillextendtoincludepowerstoenforceagainstunlawfulanti
competitivebehaviourinthefinancialservicesindustry.Thesecompetitionfunctionswillbedischargedin
concurrencywiththeCompetitionandMarketsAuthority(CMA).
Unlawfulanticompetitivebehaviourscoveragreementsbetweenfirmstoprevent,restrictordistortcompetition
(suchasdirectlyorindirectlyfixingpricesorothersellingconditions,oragreementstolimitorcontrolproduction),
andabusesofadominantpositioninthemarket(suchasexploitingcustomersorsuppliers,orconductexcluding
existingorpotentialcompetitors).
Wewillenforcetheserulesincoordinationwithotherregulators,particularlytheCMA,andwilljointlydecidewhich
organisationisbestsuitedtodealwiththeproblemidentified.Tothisend,wehavesignedaMemorandumof
UnderstandingwiththeCMAthatoutlinestheareasofcoordinationandprovidesaframeworkforcooperation.In
2015/16wewillbeimplementingtheseproposedchanges
ThesecompetitionpowersmayalsobeexercisedbytheCMAwithregardtofinancialservicesandothersectorsof
theeconomy.Thismeansthat,inrespectofenforcingagainstunlawfulanticompetitivebehaviourinfinancial
services,theCMAandtheFCAwillhaveconcurrentpowersandtheFCAwillbeaconcurrentregulator
Supporting innovation
Innovationsoftendriveeffectivecompetitioninmarkets.In2014,welaunchedProjectInnovatetoensurethatour
regulatoryregimesupportsthedevelopmentofpositive,innovativeproductsandservicesthatcanimprovethe
livesofconsumers.
OverthenextyearwewilluseourInnovationHubtocontinuetooffersupporttoinnovatorsacrossarangeof
sectors.Wewillalsocontinuetoidentifyregulatorybarrierstoinnovationandworktoresolvethese,either
throughpolicyorprocesschanges.
Smarter consumer communication

Wewillcontinuetoworkondrivingimprovementsintheeffectivenessoftheinformationconsumersreceiveabout
thefinancialproductsorservicestheyareconsideringbuyingoralreadyhold.Aspartofthis,wewilldrawon
behaviouralinsightsandinnovativepracticesfromwithinandoutsidetheUKfinancialservicessector,toworkwith
firmstoidentifyimprovementsintheindustrysconsumercommunications.
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Protecting consumers
Itispartofourjobtoprotectconsumersfromtheharmthatcanbecausedbybadconductinthefinancial
servicesindustry.ThisaffectsmostpeopleintheUK,butoverthecomingyearwewillfocusparticularlyon
examiningyouthindebtedness,andtheolderpopulation,whowillbeaffectedbythechangeshappeningin
pensionslegislation.
Pensions and an ageing population

Thepensionssectorisundergoingsignificantchanges.TheageingpopulationintheUKislikelytodrivemore
demandforcertaintypesoffinancialproducts,andthe2014and2015Budgetreformstopensionsincreasedthe
numberofoptionsconsumershavetogeneratearetirementincomefromtheirpensionsavings.
By2018,automaticenrolmentwillhavebeenrolledouttoallemployers,anditisestimatedthatbetweeneight
andninemillionpeoplewillbenewlysaving,orsavingmore,intoaworkplacepensionscheme.Therefore,many
morepeopleenteringthemarketwillnothavemadeactivechoicesabouttheirpensionsavings.
Giventhesechangesandtheassociatedrisks,thepensionsmarketwillremainapriorityareaforus.Wewill
continuetoworkcloselywiththePensionsRegulator(TPR),theTreasuryandtheDepartmentforWorkand
Pensions(DWP)inourpolicy,competitionandsupervisionwork.
Saving for a pension

Wehavebroughtinarangeofnewprotectionstohelpprotectconsumerssavinginworkplacepensions,
particularlythosewhoaresavingforthefirsttimeasaresultofautomaticenrolment.
WewillintroducerulesrequiringtransactioncostinformationtobedisclosedtoIndependentGovernance
Committees(IGCs)andtrusteesinastandardisedformatand,ifnecessary,wewillprovidefurtherguidanceon
ourexpectationsoftheassessmentofvalueformoney.WeexpectIGCstonotifyusofanyconcernsbefore
decidingtoalertrelevantemployersandschememembers,andbeforemakingconcernspublic.Wewillthen
considerwhetherthefirmisinbreachourrulesorprinciples.
InApril2015,wewillplaceachargecaponsavingindefaultfunds,extendthebanonconsultancychargingand
banactivememberdiscountstoprotectthosewhoaresavinginworkplacepensions.Wewillalsocontinueto
engagewithfirmsinvolvedinprovidingadviceintheEnhancedTransferValuemarket,andwithSelfInvested
PersonalPensions(SIPPs)operators.
OurworkontheEnhancedTransferValuemarketuncoveredahighlevelofunsuitableadviceinthismarketand
weareworkingwithfirmstoidentifywherecustomersmayhavesufferedharmasaresult.Whereremediationis
requiredwewilltakeaproportionateandfirmspecificapproachtoensurethatdisadvantagedcustomersreceive
appropriateredress.
GivenourrecentworkwithSIPPoperatorsonduediligenceonnonstandardinvestmentsandthedevelopmentsin
thismarket,particularlythenewcapitalrequirements,wewillcontinuetomonitorthesituationwiththesefirms
andactifissuesarise.
Taking income in retirement

InFebruary2014welaunchedamarketstudyintotheretirementincomemarket.InDecember2014wepublished
theinterimreport,whichsetoutprovisionalfindingsandproposedremediesforconsultation.Thatconsultation
closedin30January2015weexpecttopublishourfinalreportinMarch2015.
Tosupportthenewincreasedflexibilityforconsumerslookingtousetheirpensionfund,theGovernment
announcedanewservicePensionWise,whichentitleseveryonewithaDefinedContributionpensionfundto
accessfree(atthepointofdelivery)impartialguidance,includingafacetofaceconversationabouttheiroptions
whenaccessingtheirpensionsavings.TheTreasuryholdresponsibilityfortheoverallservicedesignandgettingit
upandrunningforApril2015.
Ourroleistosetstandardsfortheserviceofferedandmonitordesignatedguidanceproviderscompliancewith
thosestandards.Wewillintegratethisnewroleintoourwork.Whereweidentifythatadesignatedguidance
providerhasfailedtocomplywithourstandards,wewillbeabletorecommendthattheguidancepartnertake
remedialsteps.Iftheprovidercontinuestofailtocomplywithourstandards,wecanrecommendthatthe
Treasurygivesadirectiontothedesignatedguidanceproviderifnecessary.
Thescaleofchangeinworkplacepensionswillrequireustoworkonanumberoffrontsoverthecomingyear.We
willundertakeathoroughreviewofourrulesinthepensionandretirementarea,includingthenewretirementrisk
warnings.Followingonfromourretirementincomemarketstudy,wewillreviewthewakeuppacksandintroduce
furthermeasurestoimprovecommunicationwithpensionsavers,supportingchoiceandcompetitioninthe
retirementincomemarket.
Wewillreviewourrulesarounddisclosureforconsumersusingdrawdownproductsandhowtheserelatetothe
newfreedomstotakelumpsumwithdrawalsdirectlyfrompensions.Wearealsoconsultingonnewrulestoensure
thatallpensiontransfersadvicewillneedtobecarriedout,orchecked,byaPensionsTransferSpecialist,
regardlessofwhenthetransferredbenefitsarebeingcrystallised.
Wewillreviewhowfirmshaveimplementedthepensionreformstoensuretheretirementincomemarketfunctions
effectivelyandworksinconsumersinterests.Wewillcontinuetoaddresstheissuesfromour2014reviewof
firmsannuitiessalespractices,whichfoundthatsalesandcustomerretentionpracticesarecontributingto
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consumersnotshoppingaroundandswitching,andattimestoconsumersnotbuyinganenhancedannuitywhen
theymaybeeligibleforone.Wearenowaskingfirmsinvolvedtodetermineifourresultsareindicativeofamore
widespreadproblemand/orhaveledtopoorconsumeroutcomes.Wewillthenconsiderwhatfurtheractionto
take.
InadditionwewillworkwiththeTreasuryinlightoftheirconsultationonthecreationofasecondarymarketin
annuities.
Pensions fraud
Thereisariskthatfraudstersmightattempttocapitaliseonthepensionreforms.Wewillcontinuetoactively
monitorthisareaandworkcloselywithotherorganisations.OurScamSmartcampaign,whichwaslaunchedin
October2014,withasecondphasefromMarch2015,willcontinuetohelpconsumerstospotthewarningsigns
andavoidinvestmentscams,includingthoserelatedtopensions.
Consumer credit
WetookontheregulationofconsumercreditfromtheOfficeofFairTrading(OFT)on1April2014.Successfully
integratingthesefirmsintoourregimeandhelpingthemtomeettheirregulatoryresponsibilitiesremainsakey
priorityforustoincreasestandards,restorepublicfaith,andultimatelycontributetoandupholdarobustUK
financialmarket.
Wewanttoensurethatthereisasustainablecreditmarketwhereconsumerscontinuetohaveaccesstothe
productsandservicestheyneed,whileprotectingthemfromharmfulpracticesthatcouldleadtoproblemssuchas
spirallingdebtthattheystruggletorepay,orinappropriatedebtmanagementplans.
Authorising consumer credit firms

Allconsumercreditfirmswithinterimpermissionwhowanttoapplyforauthorisationneedtohaveappliedbythe
endofMarch2016.Eachfirmhasbeenallocatedaspecificapplicationperiodinwhichtoapply.Thisstaggered
approachallowsustoefficientlyprocessthelargenumberofapplications.Webeganassessingauthorisation
applicationsinOctober2014andweexpectthisprocesstobecompleteinMarch2017.
Ithasbeenasignificantefforttobuildourcapabilitytodeterminetheseapplications.Thenumberoffirmswe
regulatehasgrownfromaround26,000toaround73,000twothirdsofourtotalregulatedpopulationisnow
conductingconsumercreditactivities,andthemajorityofthesefirmswillbeassessedoverthecomingyear.We
havehadtodevelopsignificantandtailoredcommunicationstoalertsuchawidevarietyoffirmstowhatthey
needtodotoapplyforauthorisation.
ToimprovestandardsourapproachismoredetailedthanthepreviouslicensingregimeundertheOfficeofFair
Trading.Wewillscrutinisefirmsastheyapplybyensuringthattheymeetourthresholdconditions,whicharethe
minimumstandardsthatweexpectfirmstomeettobeauthorisedandcontinuetodobusiness.
Weexpect:
customerstobetreatedwithfairness
firmstohaveagoodunderstandingoftherules,regulationsandobjectivesofregulation
firmstohavebusinessmodelsthatdonotrelyonexploitingconsumers
Wewanttohelpfirmsthatputcustomersattheheartoftheirbusinesstogetauthorisedquicklyandefficiently,
butiffirmshavepoorpracticeswemayrefusetheirapplications.
Changes to rules
WewillreviewwhetherweneedtomakefurtherchangestoourConsumerCreditsourcebook(CONC),toaddress
existingandemergingissues.Wewillengagewithfirms,tradebodiesandotherregulatorybodiestoensurewe
understandthewaythemarketandtheregulatoryregimeareworkingforbothfirmsandconsumers.
WepublishedaconsultationpaperinFebruaryoncreditbrokerremuneration,includingissuessuchasguarantor
loans,buildingonchangesintroducedearlierthisyeartoimprovetransparency.Wearealsolookingintohowfirms
assesscreditworthinessandaffordability,includinghowconsumersmaybeprotectedfromtakingon
unmanageabledebt.Thisincludeslookinginparticularatissuesaroundmultipleandrepeatborrowing.Subjectto
thefindings,weintendtoconsultlaterin2015onchangestoourrulesoncreditworthiness,toclarifyour
expectationsoffirms.Weseethisasakeyelementofresponsiblelending.
Weareplanningtoconsultonproposalsinrelationtocoldcalling,asunsolicitedmarketingmaybecausing
significantdistresstoconsumers.Wealsowanttolookattheuseofquotationsearches,whichwillenable
consumerstoshoparoundforcreditwithouttheircreditrecordbecomingundulyimpaired.
Ourrulesonhighcostshorttermcreditwillalsobestrengthenedtopromotegreatercompetitioninlightofthe
remediesproposedbytheCompetitionandMarketAuthorityspaydaylendingmarketinvestigation.
Credit card market study

Wearecarryingoutamarketstudyintocreditcards,lookingatpotentialareasofconcernforthe30millionpeople
thatusethem.
Wewanttoseetheextenttowhichconsumersdriveeffectivecompetitionbyshoppingaroundandswitching,as
wellashowfirmsrecovertheircostsacrossdifferentcardholdergroupsandwhatimpactthishasonthemarket.
Wewillalsoassesstheextentofunaffordablecreditcarddebt,andinparticularwhethersomeconsumersare
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overborrowingorunderrepayingontheirbalancesandwhetherfirmshaveincentivestoprovideunaffordable
lendingthatcouldleadtoconsumersbeingharmed.
Individual accountability
Todriveaculturalchangeintheindustrythatputsconsumersandmarketintegrityattheheartofthewayfirms
dobusiness,wemustensurethatseniorindividualsinpositionsofresponsibilityareheldpersonallyaccountable
forhowtheirfirmoperates,andfortheconsequencesofmisconduct.
Overthecomingyearwewillcontinuetofocusonthis,aswellasremunerationpracticesandincentivesin
financialservicesfirms.Ourworkinthisareawillalsoseeuscontinuetoimplementrecommendationsmadeby
theParliamentaryCommissiononBankingStandards(PCBS).
Changing culture
Afirmscultureisakeydriverbehindthebehaviourofthoseinit.Inmanycases,wherethingshavegonewrong
inafirm,aculturalissueisattheheartoftheproblem.
Aneffectivecultureisonethatsupportsabusinessmodelandbusinesspracticesthathavethefairtreatmentof
customersandclientsattheircore,aswellasbehavioursthataresupportiveofmarketintegrity.Creatingsucha
culturebeginsatthetop,andwewillcontinuetoworkwithfirmstoensurethatconductissuesareapriorityfor
themandakeyissueontheirboardsagendas.
Wewilllookathowaboardengagesinconductissues,includingforexample,whetheritprobeshighreturn
productsorbusinesslines,whetheritunderstandsstrategiesforcrosssellingproducts,howgrowthisobtained,
andwhetherproductsarebeingsoldtothecustomersegmentstheyaredesignedfor.
Wewillalsoensurethatfirmsaretranslatingthiscustomerfocusintopracticesthatdrivehowbusinessdecisions
aremade,howthefirmrespondstoconsumerrelatedissuesandproblemsastheyarise,howindividualsshould
behave,howissuesareescalatedinanopenway,andhowremunerationandincentivesareawarded.
Senior managers and certified persons regimes

Theaccountabilityofindividualsinpositionsofresponsibilityneedstobeimprovedandoverallstandardsof
governanceraised.InJuly2014,togetherwiththePRA,weconsultedonanewregimetostrengthen
accountabilityinbanking.
OurproposedrulesaddressrecommendationsmadeinthefinalParliamentaryCommissiononBankingStandards
(PCBS)reportandcreateanewframeworkforUKbanks,buildingsocieties,creditunionsandPRAdesignated
investmentfirms.Theywillmakeiteasierforbothfirmsandregulatorstoholdindividualstoaccount.Increased
individualaccountabilitywillimprovebehaviour,benefitconsumersandmarkets,andcanhelprestorepublictrust
inbanking.
Wewillmakefinalrulesbythesummer,andworkwithfirmsaheadofthechangescomingtoeffectbyMarch
2016.Wewillalsoputinplaceanewaccountabilityregimeforincomingbranchesofforeignbanks.Finally,we
willalsoreformtheexistingaccountabilityregimeforinsurancefirms.
Remuneration codes
Performancemanagement,andrewardschemesareapowerfullevertoinfluencethecultureofanyorganisation.
Wehaveseeninfinancialserviceshowthemisalignmentbetweenincentivesstructuresandcorporatevaluescan
leadtoexcessiverisktakingthatisnotintheinterestsofcustomersormarketintegrity.
Inappropriateremunerationpolicieswerewidelyidentifiedasacontributoryfactorbehindthefinancialcrisis,and
arealsohighlightedinthePCBSrecommendationsandtheGovernmentsFairandEffectiveMarketsReview.We
introducedcodesthatmakefundamentalchangesinfirmsapproachestoremunerationtohelpavoidfuturecrises.
Thereisalsobroadinternationalagreementontheneedforsupervisoryaction.
Ourremitonremunerationistomakesurethatpaypracticesinthefirmsweregulatedonotencourage
inappropriaterisktakingandthatvariableremunerationisonlypaidorallowedtovestwherejustifiedby
performance.
Thesecodesapplytoover3,000firmsincludingallbanks,buildingsocieties,largealternativeinvestmentfund
managers,brokerdealers,assetmanagers,plussomefirmsthatengageinportfoliomanagement,corporate
finance,privateequity,venturecapital,andtheprovisionoffinancialadvice,brokers,multilateraltradingfacilities
andothers.
Theregulationofvariableremunerationremainsarapidlyevolvingarea,andwewillcontinuetoplayakeyrolein
drivingthis,includingbymakingfinalrulesondeferralandclawbacktofollowourconsultationlastyear.
Enforcement action against individuals

During2014/15wesuccessfullyprosecuted,bannedandfinedindividualsformisconductandforbreachingour
rules.Wewillcontinuetofocusoureffortsonindividualaccountabilityinourenforcementwork,andwillcontinue
topursueappropriatecasesagainstindividuals.
Whistleblowing
Whistleblowerscanplayanimportantroleinidentifyingwrongdoingbuttheymaybefearfulofpersonal
repercussions.Weconsultedonanewregimedesignedtohelpfirmsfosteraculturethatgivestheiremployees
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theconfidencetospeakout,whichwewillfollowwithfinalrulesthisyear..
International issues
ManyoftherulesthatweimplementintheUKoriginatefromEUandinternationalagendas.Thefinancialindustry
isagloballyconnectedsystemwesawinthefinancialcrisishowissuesinoneareacanhaveahugeimpact
elsewheresoitisvitalthatweworktogethertoensurethatthemarkets,andultimatelyconsumers,aresafe.
International engagement
Alargenumberoftherulesweimplementoriginatefrombroaderinternationaldebate.Itisthereforeofgreat
importancethatwemaintainconsistentandeffectiverelationshipsinternationallybeyondtheEUtoinfluencethese
decisionsastheyaremade.
Assuchwewillengageininternationaldebatesandrulemaking,toensurethatstandardsset(onconsumer
protection,marketintegrityandprudentialmatterswithinourscope)areconsistentwithourobjectives.Indoing
so,wewillcoordinatewiththePrudentialRegulationAuthority,theBankofEngland,theTreasuryandother
Governmentdepartments.InparticularwewillremainanactivememberoftheInternationalOrganisationof
SecuritiesCommissions(IOSCO)andtheFinancialStabilityBoard(FSB).
Wherepossible,wewilluseourrelationshipswithkeystakeholdersaroundtheglobetoshareinformation,ideas
andgoodpracticetofindthebestsolutions.Wewillcooperateonsupervisoryandenforcementmattersandthe
developmentofinternationalstandards.InJune2015wewillhostsecuritiesregulatorsfromacrosstheworldat
the40thIOSCOAnnualConferenceinLondon.
Wewillalsocontinuetoengageearlyindebates,takingtheleadinnegotiatingwhereappropriateanddrafting
standards,andrecommendingareaswhereEUorinternationallevelruleswouldbemostappropriate.
OursecondmentprogrammetoEUandglobalinstitutionswillcontinuetohelpourstafftodeveloptheirskills,
sharetheirknowledgeandexperience,andbringthisexperiencebacktotheFCA.
Implementing EU policy
TherearealargenumberofpiecesofEuropeanlegislationthatwillaffectouractivities.Inmanycasesweare
underalegalobligationtoimplementthislegislation.Wealsopropose,consultandimplementdomesticchanges
torules.
ForEuropeanlegislation,toensuretheintentofthelegislationisachieved,isconsistentwithourobjectivesandis
fitfortheUKmarket,wewillbeworkingcloselywithourEuropeancounterpartsandtheESAsthemselveson
draftingandnegotiatingthesebindingrules.Ofparticularimportancewillbethetechnicalstandardsdevelopedin
MiFIR/MiFID,MarketAbuseRegulation(MAR/MAD),CapitalRequirementsRegulationandDirective(CRDIV/CRR)
andPackagedRetailandInsuranceBasedInvestmentProducts(PRIIPs).
Anumberofexistingproposalsremaintobenegotiated.OfthesetheBenchmarkRegulation,PaymentServices
Directive2(PSD2),InsuranceMediationDirective2(IMD2)andFourthAntiMoneyLaunderingDirective(AMLD)
arethemostsignificantforus.OurprincipalrolehereistoprovidetechnicalassistancetotheTreasurywhoare
theUKsleadnegotiatorsinEurope.
TheBenchmarkRegulationwillcreateacommonregulatoryframeworkfortheoperation,organisationand
oversightofthosewhoadministerandsubmittobenchmarksandindicesacrossEurope.PSD2willsetthe
frameworkandrequirementsforpaymentservicesandpaymentservicesprovidersandwillincludenewconsumer
protectionrulesandincreasedsecurityrequirements.IMD2willupdatetheEUconductstandardsandfirms
registrationregimeforsaleofinsuranceandreinsuranceproducts.AMLDwillstrengthentheEUantimoney
launderingregimeincludingrulesonremunerationpolicyandsanctions.
Financial crime
FightingfinancialcrimeisanissueofgreatinternationalsignificanceandhasbeenatoppoliticalpriorityoftheUK
andtheEUforanumberofyears.Thishasanimpactonthefightagainstorganisedcrimegenerally,asby
removingorganisedcriminalsaccesstomoneywecansignificantlyreducethepowerofcriminalgroups.
FirmsplayakeyroleintheUKsfightagainstfinancialcrime,andweexpectthemtohaveeffective,proportionate
andriskbasedsystemsandcontrolsinplacetoensuretheirbusinesscannotbeusedforfinancialcrime.
Atthesametime,weexpectthemtoavoidbroaddecisionstoderisktheirbooksofentirecategoriesofcustomers
bydenyingorwithdrawingtheirservicestoparticularsectorsand/orcategoriesofcustomer,inwaysthatmaybe
anticompetitiveorimpedelegitimateconsumersaccesstofinancialservices.Wewillcontinuetoworkonthis
issue,emphasisingthatariskbasedapproachtosectorsandconsumersisnotsimplyriskavoidance,butrequires
riskjudgements.Wewillanalyseand,whereappropriate,takeactiontoaddressanyconcerns.
Wewillcontinuetofocusparticularlyonantimoneylaundering(AML)andantibriberyandcorruption(ABC).We
areimplementinganenhancedantimoneylaunderingsupervisionstrategy,whichincludescontinuingour
SystematicAntiMoneyLaunderingProgrammetoassessAML(includingcounterterroristfinancingandsanctions)
andABCcontrolsatmajorfirms.Wewillalsocontinueourvisitstosmallerfirmsthatmaybeexposedtoahigh
riskofbeingexposedtofinancialcrime.Inaddition,ourthematicworkwillhelpustoassesshowtheindustryis
dealingwithparticularrisksrelatingtofinancialcrimeandtogiveadvicetotheindustryabouthowcontrolscanbe
mademoreeffective.
WewillworkcloselywithinternationalanddomesticpartnersinGovernment,lawenforcement,regulationandthe
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bankingindustrytocombatcurrentandemergingfinancialcrimethreats.TheFinancialActionTaskForce(FATF)
willcontinueitsfourthroundofmutualevaluationsandtheEUwilladopttheFourthMoneyLaunderingDirective,
whichwewillhelptransposeintoUKlaw.WewillalsocontributetotheEUlevelguidanceandbindingtechnical
standardsthatarerequiredbyandwillsupporttheDirective.Wewillcontinuewiththeworkassociatedwiththe
competitionreviewofwholesalemarkets,followingthecallforinputs.
Whistleblowingwillcontinuetobeapriority.Afterseeinganincreaseinthenumberofwhistleblowerswho
contactedusin2014/15,andinthequalityofinformationtheygaveus,wewillcontinueourworkon
whistleblowingandwillembedbetterarrangementsandsupportforwhistleblowersinthecomingyear.
Our people
Demandfortheknowledgeandskillsrequiredtomanagegoodconductisgrowinginthefinancialservicessector,
andasaresultourpeopleareinhighdemand.Weareactivelybuildingourabilitytoattractandretaintalentand
haveachieveda97%offeracceptancerateand43,000followersonLinkedIn.
WewillalsocontinuetowidenoursecondmentandgraduateprogrammesbothintheUKandinternationally.Last
yearwesupported171secondments,106graduatesandweestablished87exchangeswithconsumeragencies,
regulatedandprofessionalservicefirms.Thisisanimportantwayofprovidingourpeoplewithcurrentconsumer
andcommercialinsightsandgivingfirmsanopportunitytoembedourperspectiveofgoodconductintotheir
organisation.
Diversity and inclusion

WehavestronggenderdiversityatseniorlevelsandhavehiredanumberofopenlyLGBTcolleaguesintoour
seniorleadershipteam.WealsoachievedaplaceinStonewall'sTop100EmployersIndex.
Acontinuingpriorityforusin2015/16willbetostrengthenseniorrepresentationfromourBlack,Asianand
MinorityEthnictalentpools.
Investing in our staff

AkeyelementofourstrategyisourFCAAcademy.Thisisourcorecurriculumandtrainingineachareaof
regulatorypracticefromauthorisationstosupervisionandenforcement.TheFCAAcademyplaysacentralroleby
ensuringthatourpeoplehavethedevelopmentopportunitiesandsupporttodeliveronourcommitmentsand
helpsusattractandretaintalent.
Wehavecreatedtheworld'sfirstMScinFinancialServicesRegulationinpartnershipwithHenleyBusinessSchool
andhaveprovidedanumberofplacesforstafffromtheFCA,BankofEnglandandFinancialOmbudsmanService
in2015.
Theacademyalsoinvestsintheeducationofourfutureandseniorleaders.Wehaveestablishedanextgeneration
leadershipdevelopmentprogrammewithCranfieldBusinessSchool,andagroundbreakingseniorleadership
equivalentwithSaidBusinessSchoolatOxfordUniversityforthoseinourmostcriticalroles.Thesepartnerships
provideaccesstothemostcurrentthinkingincomplexsystems,scenarioplanning,neuroscienceandbehavioural
economics.
AstheFCAAcademygrowswewillincreasinglylookforopportunitiestoshareideasandresourceswithother
regulatoryorganisationsintheUKandoverseas.Wewillalsowidenaccessforthoseinregulatedfirms,extending
oureducationprogrammetobecomepartofourwiderregulatorytoolkit.
Ongoing activities and deliverables

Introduction
Whenfirmsapplytoustocarryoutregulatedbusiness,weassessthemtomakesuretheymeetourstandards.If
theybecomeauthorisedwethensupervisethewaytheyworkandwhereweseeriskstoconsumersandmarkets,
orwherecompetitionisntworkingwellforthebenefitofconsumers,wedecideontheappropriateresponse,
includinginterveningearlyandtakingactiontopreventharm.
Thiscouldincludealteringorcreatingrules,removingauthorisation,takingsupervisionorenforcementaction,or
securingredressforconsumerswherenecessary.Wetakeaproportionate,judgementbasedapproach,assessing
theriskafirmposestoourobjectivesandfocusingourresourcesonthehigherriskfirms.Whereweconsiderit
necessarytomakeoramendourrules,weconsultwiththeindustrybeforedoingso.
Byperformingrigorousanalysisandbyregularlyengagingwithvariousstakeholders,includingregulatedfirms
andindividuals,statutorypanels,tradeandprofessionalassociations,consumerbodies,andconsumers
themselveswecanunderstandwhatisatthecoreoffirmsbusinessmodelsandcultures.Wherewefindpoor
practiceweuseoursupervisoryandenforcementtoolstomitigaterisksandsecureredressforconsumerswhere
appropriate.
Weconsidertheprinciplesofgoodregulationwhencarryingoutourworkandwearecommittedtousingour
resourcesinthemostefficientandeconomicalway.Thisincludesensuringthatourprocessesarenotunduly
burdensomeforfirms.
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Inadditiontoourkeyprioritiesfor2015/16,wewillcontinuetoperformourcorefunctions,embedournew
strategy,andcarryoutthefollowingongoingactivities.
Assessing and supervising firms and individuals

Examining firms as they apply to do business
Weexaminefirmsastheyapplytoustobeauthorised,usingalltherelevantinformationavailabletoustogaina
thoroughunderstandingoftheirinternalculture,theirbusinessmodelsandthewaytheytreattheircustomers.We
useariskbasedapproachacrossallauthorisationprocesses,accordingtothenature,scaleandcomplexityofthe
proposedbusiness.
Weaimto:
assessfirmsandindividualsrobustlytoachievegoodoutcomesforconsumersandthewiderfinancialservices
market
ensurefirmsbusinessmodelsaresustainableandapprovedindividualshavesufficientcompetenceand
integrity,withastrongconsumerfocuspresentinalldecisions
allowgoodfirmstoenterthefinancialservicessectorquickly
Webelievethat2015/16willseesimilarvolumesofactivityasinpreviousyears,andareexpectingtoreceiveover
150,000casesofdifferentkinds,inadditiontoconsumercreditcases.
Wepreventfirmsfromenteringthemarketthatwebelievemayposeasignificantrisktoconsumersortothe
marketthroughpoorbehaviour.Beforeweallowthemtodobusiness,theymustaddressourconcernsandwe
mustbeconfidenttheyhavetherightleadershipandgoodpracticesinplacetoprovidevalueandgoodoutcomes
fortheircustomers.
Over2015/16wewillfocuson:
helpingfirmssubmitbetterqualityapplications
increasingengagementwithinnovativefirms
improvingourassessmentsofthefitnessofseniorindividualsindeposittakingfirms
developingournewITsystemanddeliveringaneffectiveandrobustplatformtocollectfirmandconsumer
intelligence
developingourprocessestoimprovetheefficiency,qualityandeffectivenessofourwork
Supervising firms
Wesupervisetheconductofabout73,000financialservicesfirmsoperatingintheUK,andweprudentially
supervisethosethatarenotcoveredbythePrudentialRegulationAuthority(PRA).
Welookcloselyatfirmsbusinessmodelsandcultureanduseourjudgementtoassesswhethertheyaresound
androbust.Wefocusonthebigissuesandthecausesofproblems,aswellasensuringthatthereareaccountable
individualsinthefirmifthingsgowrong.Wehavetobeconfidentthatifproblemsdoarise,firmswillbeabletodo
therightthingfortheircustomersandmarkets.Wherewefindpoorpracticeweuseoursupervisoryand
enforcementtoolstodeterothers,mitigaterisksandsecureredressforconsumerswherenecessary.
Oursupervisoryapproachisbasedonanumberofconsumerandmarketfocusedprinciples.Asaregulatorwe
wanttobeforwardlookingandpreemptive,usingourjudgementsratherthanrelyingwhollyonprocesstoseek
outproblems.
Wedonotdothisinisolation.Weengageopenlywiththefirmsandindividualsweregulate,beingastransparent
aswecanbeandlisteningthroughourconsultations,firmvisitsandevents.Wearealsojoinedupinourwork
whereitaffectsotherregulators,suchasthePrudentialRegulationAuthorityandtheBankofEngland.
Followingourstrategicreview,oursupervisionmodelmaybesubjecttosomechanges,especiallyforsmaller
firms.Wewillfurthershiftourapproachtosupervisionforthesefirms,byremovingthedistinctionbetweenC3and
C4,supervisingindividualfirmsonamoreriskbasedmodel,andremovingsomeofourstandardPillar1activity.
Supervising client assests - CASS

TherehavebeensignificantpolicydevelopmentsforCASSfirmsthatwillaffecthowweengagewithandsupervise
themthisyear.
TheTreasuryhaspublishedanindependentreviewoftheSpecialAdministrationRegime(SAR),whichmakes
numerousrecommendations.Wewillreviewourclientmoneydistributionrulesinlinewiththisandconsultonany
newproposalsin2015.Wewillalsopublishfinalclientmoneyrulesforinsuranceintermediariesin2015andwe
willengagewiththemarkettoassistinimplementation.
WewillconsidertheimpactofinternationalclientassetsinitiativesandEUlegislationontheCASSsourcebookand
implementanynecessarychanges.
Supervising consumer credit

Allregulatedfirms,includingtheprovidersofconsumercreditoraffiliatedservices,shouldhavesustainableand
wellcontrolledbusinessmodels,underpinnedbyaculturebasedondoingtherightthingfortheircustomers.
Toensurethiswewillfocusonthefollowingfivekeyobjectives,whicharealignedwithdifferentstagesofthe
customerjourney:
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Transparentcommunicationinformationinadvertisementsandotherpromotionsareclear,fairandnot
misleading.
Responsiblelendinglendersaretakingappropriatestepstoassesswhetherprovidingcreditisaffordableand
sustainable,andlendersandbrokersarenotpromotingproductsthatareunsuitablefortheindividual
borrower.
Treatmentofcustomersindifficultyfirmsandindividualsseekingtorecoverdebtsaretreatingcustomersfairly
andexercisingappropriateforbearance.
Suitabledebtadviceandsolutionsdebtadviceprovisionanddebtsolutionsareaccessibletothosewhoneed
them,aresuitableandareinthecustomersbestinterests.
Consumersbestinterestsareattheheartofhowthefirmoperatesbusinessmodelsareappropriate,
sustainableandincorporateadequatesystemsandcontrols,supportedbyaculturethatisbasedondoingthe
rightthingforcustomers.
InourBusinessPlan2014/15,weidentifiedanumberofkeyprioritiesforsupervisoryintervention.Theseincluded
aproactivefocusonthehighcost,shorttermcreditanddebtmanagementsectors,wheretherewasevidenceof
significantconsumerharm.Overthelastyear,weidentifiedcreditbrokingasanewpriority,inlightofemerging
evidenceofunfairtreatmentofcustomersinthissector.Wewillcontinuetofocusonthesehighprioritysectors
by:
publishingthefinalreportofourongoingthematicreviewofthesuitabilityofadviceprovidedtotheir
customersbydebtmanagementfirms
ensuringthatthefindingsofthethematicreviewonarrearsandforbearancebyhighcostshorttermcredit
lenders,publishedearlierinMarch2015,arewidelyunderstoodacrossthesector
continuingtointervenetoputthingsrightwherewefindevidencethatfirmsarenotactingintheinterestsof
theircustomers
Wewillwidenthefocusofoursupervisionactivity,withaparticularinterestinaffordabilityandforbearanceacross
allsectors.Wewilllaunchtwofurtherthematicreviewsintodebtcollection,andtheroleofstaffremunerationand
incentivesindrivingthewayfirmstreattheircustomers.Wewillfocusonensuringthatdebtmanagementfirms
andpeertopeerlendersfollowclientassetrulesandadequatelyprotectandsegregateclientmoney.Aswellas
thiswewillcontinuetoreviewfinancialpromotionsacrossallconsumercreditsectorstoensurethattheyarefair,
clearandnotmisleading,andtotacklecasesofpoorpracticeacrossallsectorsinresponsetospecificintelligence.
Wewilltaketoughandmeaningfulactionagainstthefirmsandindividualsthatbreakourrules,andwillreinforce
properstandardsofmarketconduct.Firmsthatdonotmeetthestandardsweexpectwilleitherhavetoadjust
theirbusinessmodelsandimprovetheirconducttomeetthestandards,orexitthemarket.Newrulesthatapply
tocertainsectorsoftheconsumercreditmarketsarelikelytohaveagreaterimpactonfirmsandconsumersfor
exampleourpricecapandconductrulesonhighcostshorttermcredit,andconductrulesfordebtmanagement
andcreditbrokers.
Weareawarethatsomefirmsmightexitthesemarketsasaresultofourraisedstandards.Webelieve,however,
thattherewillstillbeaviablemarketgivingaffordableloans,andwithsomepresenceonthehighstreet.Early
indicationsfromthemarketsuggestthatthisisindeedthecase.
Someconsumersmightnolongerbeabletoaccesscreditmarketswherebettercompliancewithaffordabilityrules
meanslendersarenolongerwillingtolend.Webelievethatwhereconsumerscannotaffordtoborrow,itisintheir
bestinterestsnottoborrowmore,asthiswillonlyworsentheirfinancialsituationinthelongrun.Ingeneral,
consumerswillbenefitfromfirmsimprovingtheirstandards,andfrommarketexitsoffirmsthatcausedharm.
Enforcement
Wewillcontinuetopursueastrategyofcredibledeterrence,takingtoughandmeaningfulactionagainstthefirms
andindividualswhobreakourrules,reinforcingproperstandardsofmarketconductandensuringthatfirmsput
consumersattheheartoftheirbusinesses.Wedothisbypromotinghighstandardsofconductbyindividualsin
firmsandtakingactionagainstthosewhodonotmeetthembyusingthefullrangeofourcriminal,civil,and
regulatorypowers.Wherewefindsignificantissuesweinterveneearlyandseekeffectiveredressforconsumers
whereappropriate.
Over2015/16wewillcontinuetoinformandeducatemembersofthepublicaboutthedangersofdealingwith
unauthorisedfirmsandtakeactionagainstfirmsandindividualsoperatingoutsidetheperimeterinordertoprotect
consumers.Wewillalsoreinforceourexpectationsofwholesalemarketsbytakingactionwherefirmsfailto
manageriskseffectivelyorobserveproperstandardsofmarketconductandcontinuetodeliversignificant
outcomesfollowingintensiveworkontheattemptedmanipulationofthebenchmarkrates.Wewillcontinueto
workverycloselywithourdomesticandinternationalregulatorycolleaguesandlawenforcementagencies.
On18December2014,theTreasurypublisheditsreviewofenforcementdecisionmakingattheFCAand
PrudentialRegulationAuthorityandmade39recommendationsacrosstheentireenforcementprocess.In2015/16
wewillalsoconsiderhowbesttoimplementtheFCArelatedrecommendations.
FromApril2015wewillhaveconcurrentpowerswiththeCompetitionandMarketsAuthority(CMA)toenforce
certaincontraventionsofcompetitionlawinthefinancialservicessector.Wewillconsiderhowtousethesenew
powersinconjunctionwithourexistingtoolkittohelpusachieveourobjectivestopromotecompetitioninthe
interestsofconsumersandensurerelevantmarketsfunctionwell.
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Overseeing the financial markets

TheUKisaglobalcentrefortheissuanceandtradingofsecuritiestradablefinancialinstrumentslikesharesand
bondswithissuersfromalmosteveryindustrysectorandfromcountriesallovertheworld,andwithabroad
rangeofinvestors.
Weoverseeprimaryandsecondarymarketactivity,andaimtodosoinawaythatisproportionate,riskfocused
andforwardlooking,througheducatingthemarket,andusingarangeoftoolsandtechniques.Ourruleshelpto
protectconsumersanddelivermarketintegritybyensuringhighstandardsofmarketpracticeandappropriate
disclosure.
Ourroleinprimarymarkets,astheUKListingAuthority,istoensurethatthosemarketsworkwellinperforming
theircentralroleinbringingtogetherinvestorsandissuers,matchingtheneedforcapitalwiththeneedfor
investmentopportunities.Linkedtothisisourongoingworktocombatmarketabusetoensuremarketsremain
cleanandfair,andthatinvestorsinthemhavetheabilitytoinvestwithconfidence.
Ouraiminprimarymarketsistoensurethatweappropriatelybalanceinvestorprotectionwiththeneedtoensure
thatthosemarketsworkwellwhenprovidingcapitalforbusinessesandenterprises.Wewillmaintainafocuson
ourkeyoperationalactivities,toensuretheyaredischargedwithtimeliness,consistently,andinamannerwhich
respondsappropriatelytomarketdevelopments.Wewillensureweparticipateconstructivelyinimportant
debatesontheshapeofmarkets,andproactivelyseekopportunitiesformarketeducationandmarket
engagement.
Wewillundertakeareviewofourlistingfeestoensuretheyremainfairandappropriate,andtoidentify
opportunitiesforgreatersimplification.Wewillrefreshthetechnologythatmarketparticipantsusetosubmit
documentstoustohelpimprovetheefficiencyoftheprospectusvettingprocess.
Wewillcontinueourreviewofconflictsofinterestofsponsorsinlightofourconsultation,andwillensurethatthe
newsponsorcompetencerequirementsareembeddedinsponsorfirmsinaproportionateandeffectiveway.More
broadlywewillcontinuetotrytobroadentherangeofmarketviewsandvoicesweseekoutandtakeaccountof
whenaddressingimportantmarketissues,whilecontinuingtoworkconstructivelywiththeListingAuthority
AdvisoryPanel.
Oureffortstocombatmarketabusewillhaveacontinuedemphasisoneducationandengagementwithindustryto
driveculturalchangeinfirms.Wewillcontinuewithouropenandconstructivesupervisionofthesuspicious
transactionreportingregimeusedacrosstheindustryandreachouttoparticipantstodiscusscurrentand
emergingsurveillanceissues.Wewillalsocontinuetoperformsurveillanceofthemarkets,usingavarietyof
techniquesandtechnology.Thisworksinconjunctionwithotherintelligencesourcesintacklingmarketabuse.
WewilldeliveranindustryeducationprogrammeonMiFIDtransactionreportingtoprovidemarketparticipants
withtheknowledgeandskillstoimprovetransactionreportingintheirfirms,leadingtoimprovedoveralldata
qualitytoenablemoreeffectivemonitoring.
Developing policy
Whenwemakepolicywesetoutwhatweexpectfromauthorisedpersonsandothermarketparticipants,focusing
inparticularonchangingbehaviourinfinancialmarkets.Weconsultpubliclywiththeindustry,consumersand
otherinterestedpartiesonourrulesandguidancebeforetheyarepublished.
Theevidenceandanalysisbehindourproposalslooksattheexpectedcostsandbenefits,andhowtheproposals
arecompatiblewithourstatutoryobjectives,generaldutiesandregulatoryprinciples.Wealsoconsidertheeffects
ofrulechangesonthedifferentcategoriesoftheorganisationsandactivitiesweregulate.
Wemakeourpoliciesbyfollowingtheseprinciples:
Prioritisingourpolicyactivitiessothattheyaretargetedwheretheycanmakethemostdifference.
Makingnewrulesandguidanceonlyifwethinktheywillbeeffectiveatdealingwithandproportionatetothe
problemwehaveidentified.
PlanningourinitiativessotheyalignwiththeEuropeanandinternationaltimetable.Forexample,thismay
meandelayingpolicyuntilthereisaEuropeaninitiative.Wemaywanttocarryoutapostimplementation
revieworpolicyresearchintimetoinfluenceinternationalinitiatives,includingplannedreviewsofEuropean
Directives.
How we operate
Working with stakeholders and other UK bodies
WeworkincollaborationwiththeUKGovernment,anumberofotherUKregulatorybodiesandawiderangeof
stakeholders.
WehaveastatutoryMemorandumofUnderstandingwiththePrudentialRegulationAuthority(PRA)thatsetsout
clearresponsibilitiesforeachregulatoragainstwhichweregularlymonitorperformance,includingquarterlyjoint
reviewsbytheCEOs.WewillcontinuetocoordinateandcooperatewiththePRAacrossallrelevantactivities,
whichweactivelyandjointlyoversee.
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WewillcontinuetoworkwiththeBankofEngland,theFinancialOmbudsmanService,theFinancialServices
CompensationScheme,theCompetitionandMarketsAuthorityandtheMoneyAdviceService.Asamemberof
boththeUKRegulatorsNetworkandtheUKCompetitionNetwork,wewillalsocontinuetobeengagedwith
broaderregulatoryissuesandpriorities.
WeengagewiththeSeriousFraudOffice,theNationalCrimeAgency,theCityofLondonPoliceandother
enforcementagencieswhentakingactionagainstfirmsandindividualsthatmayhavecommittedfinancialcrime.
WewillalsoworkcloselywiththePaymentSystemsRegulator(PSR)asubsidiaryoftheFCAwhichwas
incorporatedinApril2014andwillbecomefullyoperationalinApril2015.
Wewillcontinuetocreateanddeveloprelationshipswithconsumergroups,whichtogetherwithourownresearch,
helpusgettheinsightsweneedtounderstandtheconsumerexperienceandidentifyemergingissues.
Measuring our performance

Accountabilityandtransparencyarefundamentaltohowwework,andtherearemanywaysinwhichweareheld
toaccount,includingscrutinyandchallengefromourboard,independentPanels,ourcomplaintsscheme,anda
requirementtoreporttotheTreasuryintheeventofaregulatoryfailure.
Reporting on our achievements

Akeypartofthisishowwemeasureperformanceandsuccessandreportonourachievements.Themainwaywe
dothisisthroughourAnnualReport.InthiswereportonarangeofperformancefactorsprescribedbyFSMA,and
selfimposedones,suchasthedeliveryofourbusinessplancommitments,outcomemeasurement,operational
effectivenessandefficiency,valueformoneyandkeyworkdelivered.Thisshowshowweareadvancingour
statutoryobjectives.
InourAnnualReportweincludeseveralmeasuresthatanalysetheefficiencyandeffectivenessofouractivities,
processesandservices.Measuresforourauthorisationsfunctionincludehowwedetermineapplicationswithinthe
statutoryservicestandards,theaveragetimetomakeadecisionondifferenttypesofcases,feedbackfrom
stakeholdersonourprocess,qualityassuranceresults,andthelevelofcomplianceovertimedemonstratedby
newlyauthorisedfirms.
Examplesfromotherareasincludethedeliveryofoursupervisionmodel,theredressobtainedforconsumers,how
weuseourenforcementpowers,theoutcomesofourenforcementactivity,thenumberoffinancialpenalties
levied,thenumberoffinesandprohibitions,thedeliveryofmarketinterventions(thematicworkandcompetition
marketstudies)toschedule,andtheimpactofspecificinterventions.
Wealsoreporttheresultsofouroutcomesbasedperformanceframework.Thisanalysisexaminestheexternal
marketsweregulateandassessestheimpactofourworkonourstatutoryobjectivesindifferentfinancialsectors.
Ourframeworkbreaksdownourstatutoryobjectivesintooutcomesthatwewouldliketoseeintheindustry,
indicatorsoftheseoutcomesandperformancemeasures.Ouroutcomesareaspirationalandachievingthemwill
taketimehowever,theytellusifweareheadingintherightdirection.
Tomakeourworkmoretransparentthroughouttheyearwealsopublishaquarterlydatabulletin,whichprovides
informationaboutwhatwedoandthemarketsweregulate.
Measuring performance against the statutory objectives

Ensuring that financial services markets function well
Statutory Securing an appropriate degree
objectives of protection for consumers
Outcomes
Consumershave
accesstofair
Consumerscan
beconfident
productsand
services,which
thatfirmstreat
themfairlyand
deliverwhatthey fixproblems
promise
promptly
Fairproducts
Outcomes
indicators
andservices
Improved
consumer
experience
Buildingtrust
and
engagement
Effective
remedies
Promoting effective
competition in the
interests of consumers
Protecting and enhancing the

integrity of the UK financial
system
Firmscompete
Consumerscan
Competition onclearcosts
trustfirmstobe
contributes and
fitandproper
toimproved consumers
andforfinancial
consumer
havethe
marketstobe
outcomes
information
clean
theyneed
Valuefor
money
products
and
services
Arespected
regulatory
systemthat
letsgood
firmsknow
wherethey
stand
Competitive
Cleanregulated
Attractiveness
markets
markets
ofmarket
Getting
Clearand
better
service
useful
information
Lowfinancial
crime
Respected,
joinedup
regulation
Analysing our performance

26/30
3/24/2015

Weanalyseourperformanceagainstbroadindustrysectorsbasedonconsumerneedratherthanhowthefinancial
servicessectorisstructured.Thesectorsweanalyseare:
Retailbanking
Retaillending
Generalinsurance&protection
Pensions&retirementincome
Retailinvestments
Investmentmanagement
Wholesalebanking
Capitalmarkets
Weapproachthispragmaticallyandtakeintoaccounttheappropriateuseofourresources.Thismeansweuseall
availableresearchandanalysis,ratherthanrelyingonlargeresearchprogrammesspecificallydesignedbyus.We
usemanysourcesofdataandinformationforthisanalysis,whichincludes:
Complaintsdatafromwhichwelearnaboutconsumerissues,theirexperiencewithandtreatmentbyfirms,
andofpotentialemergingissues.WeuseFinancialOmbudsmanServicedataandourowncomplaintsdatafor
this.
Consumertrustinfinancialfirmsindifferentsectors,andhowfirmshaveliveduptoconsumersexpectations.
HereweusesurveysconductedbytheEuropeanCommission,marketresearchcompaniesaswellasourown
marketresearch.
Marketsharedatatogaugelevelsofconcentrationindifferentmarkets.Weusefinancialreturnsfromfirms
andmarketresearchforthis.
Satisfactionofcustomerswithfirmsandofproblemsexperiencedindealingwithfirms.Heretooweuse
existingmarketresearch,aswellasourown.
Switchingbetweendifferentproviders.WeuseinformationfromthePaymentsCouncil,ABIandmarket
research.
Levelofreportedfinancialcrime.WeuseinformationfromFinancialFraudActionUK.
Firms'viewoffinancialregulation,attractivenessofdifferentmarketsandthecompetitivenessoftheUKasa
financialcentre.Weuseexistingreportsandmarketresearch,aswellasthePractitionerPanelssurveyto
firms,andoursurveytofirms.
Measuringoutcomesischallengingandregulatorysuccessishardtojudge,especiallyasoursuccessoftenexists
inwhatwepreventfromhappeningorworsening,whichmaynotbeasvisible.Somedifficultiesinclude
establishingcauseeffectrelationships,thetimelagbetweenouractionsandtheirimpact,andourlimitedcontrol
overoutcomesthatareheavilyaffectedbyexternalfactorsandtheactionsofothers,suchasmarketconditions,
generaleconomicstate,otherregulators,andthepoliticalagenda.
Theframeworkasawhole,theoutcomes,indicatorsandcertainlytheperformancemeasuresarelikelytoevolve
overtimeaswecontinuetodevelopourperformanceframeworkandidentifybettermeasures.
Value for money

Valueformoney(VFM)encompassesourculture,behaviour,decisionsandoutcomes.OuroverarchingVFM
strategyistomaximiseourimpactonourstatutoryobjectivesanddesiredoutcomes,whileminimisingcosts.
Wewillachievethisbydeliveringyearonyearimprovementsineffectiveness,efficiencyandeconomy.Oneofthe
keydriversofourstrategyistoincreaseourefficiencyandeffectiveness.Theshifttoamoremarketsfocused
approachwillbroadenourunderstandingofissuesinthemarket,improveourprioritisationandincreaseour
impact.Theemphasisweputonbeingflexibleandagile,alongsideourplannedEfficiencyandEffectiveness
Review,willalsocontributegreatlytoVFM.
Inaddition,wewillbeimplementinganumberofVFMinitiativesthroughouttheyear,andwillmonitor,measure
andreportonthem.WewillbefocusingonembeddingVFMintoourculture,sothatVFMimplicationsare
consideredineverythingwedo.WewillalsoworktogetherwiththeNationalAuditOffice(NAO)andaddress
recommendationscomingfromitsreviewoftheFCA.
How we organise ourselves

Tohelpembedournewstrategywehavemadechangestoourstructureasanorganisationtoenableustobetter
identifyandaddressrisksandtakeamoremarketsfocusedapproach,usingintelligenceandanalysistoforma
commonFCAviewofmarketsandkeysectors.
WesetoutournewstructureinAnnex3.
Our budget for 2015/16

Ourannualbudgetreflectsthecostoftheresourcesweneedtocarryoutourworkin2015/16,andissetinthe
contextoftheenvironmentthatweoperatein:
thepolicyandregulatoryenvironment,includingtheincreasingamountofEUlegislationandtheimpactofUK
Governmentpolicies
27/30
3/24/2015

changingeconomicconditionsandmarketdevelopments
thecontinuingneedtoinvestinourpeople
theneedtoadapttothechangingtechnologicalenvironmentwhilemaintainingourexistingsystems
Thekeyelementsofourbudgetare:
thecostofourcoreoperatingactivities(ourOngoingRegulatoryActivity)thelargestelementofwhichisour
people
thetotalamountwechargetheindustrytofundourplans(ourAnnualFundingRequirement)
capitalexpenditureforthedevelopmentofourinformationsystemstodelivernewregulatoryandoperational
requirements
thecostsofdeliveringtheconsumercreditregimeandthePaymentSystemsRegulator.
Operating costs
OurbudgetforourOngoingRegulatoryActivity(ORA)fortheyearis479m,anincreaseof27m(6%)drivenby
investmentinourpeopleandinourinformationsystems.
WewillincreaseourORAfundedheadcounttoabout3,060FTEtohelpusdeliverourcompetitionobjective,
undertakemoreenforcementactivitytocombatmarketabuseandunauthorisedbusiness,andenhanceour
supervisorymodelforbenchmarks.WewillalsoinvestinProjectInnovate,ournewinitiativetoensurethe
regulatoryenvironmentissupportinginnovationinthemarket.
Itisvitalthatweattractandretaintherightpeopletoachieveourobjectives.Inparticular,wewillcontinueto
investintheFCAAcademytooffercontinuous,relevanttraininganddevelopmenttoourpeople.
Thiswillbesupportedbyourongoingworktoupgradeandimproveourinformationsystems(IS)andtechnology
platformtoensurethatoursystemsefficientlysupportourkeyregulatoryfunctions.
Ongoing regulatory activity (ORA) expenditure

Operating costs
2014/15 m
2015/16 m
Staffcosts
263.8
279.9
IScosts
88.2
95.2
Depreciation
42.5
47.3
Accommodationandofficeservices
30.6
30.5
Enforcementcasecosts
11.0
10.7
Professionalfees
18.1
17.6
Training,recruitment,travel
12.8
16.2
Printingandpublications
3.6
3.9
Othercosts
4.6
3.1
Sundryincome
(23.2)
(25.6)
Total
452.0
479.0
Capital expenditure
OurcapitalexpenditurebudgetreflectstheongoingdeliveryoftheInformationSystemsInvestmentProgramme
(ISIP)andINTACTsystemforinteractingwithfirms(INTelligentApplicationofCasemanagementTechnology)as
wellasimplementingthenewMarketsinFinancialInstrumentsDirective(MiFID)andRegulation(MiFIR).
Capital expenditure
2014/15 m
2015/16 m
ITsystemsdevelopment
21.7
19.6
ITinfrastructure
22.6
21.0
Property,plant,equipment
2.2
3.9
Totalcapital
46.5
44.5
Annual funding requirement (AFR)

OurAFRfor2015/16,whichexcludesthecostofsettingupourconsumercreditregime,is481.6m,anincrease
of7.9%.ThisincludesouroperatingcostsandtheadditionalscopechangesweneedtoembedtheAlternative
InvestmentFundManagersDirective.Tighterbudgetinghasresultedinnounderspendthisyeartobereturnedto
feepayers(2014/1510m).
Movement
28/30
3/24/2015
Annual Funding Requirement (AFR)
2014/15 m
2015/16 m
ORAbudget
452.0
479.0
27.0
6.0%
Recoveryofscopechangeactivities
4.4
2.6
(1.8)
(40.9%)
Underspend
(10.0)
(0.0)
10.0
(100.0%)
TotalAFR
446.4
481.6
35.2
7.9%
FinancialPenaltyRebate
(39.1)
(40.3)
(1.2)
3.2%
Feespayable
407.3
441.3
33.9
8.3%
Less:
Consumer credit
In2015/16weplantoincreaseconsumercreditheadcountto500FTEandincur43mcostsdrivenbyauthorising
firmsundertheconsumercreditregime(16massociatedprojectcostsincurredin2013/14).Consumercredit
firmswillnotbebilledinfullfortheannualcostsofregulatingconsumercredituntil2016/17.Thesecostsarenot
includedinourORAbudgetorAFRin2015/16.Thecostsareinsteadringfencedsothattheydonotflowthrough
tofeepayersuntiltheconsumercreditregimeisfullyoperationalin2016/17.
Payment systems regulator

ThePaymentSystemsRegulator(PSR)becomesfullyoperationalfromApril2015.
ThePSRisaseparatelegalentity,basedattheFCA,withitsownboardandobjectives.Theestimatedsetupcost
forthePSRis12m,whichweareconsultingonrecoveringoveraonetothreeyearperiod.Inadditiontherewill
beongoingcostsrecoveredannually.
YoucanfindmoredetailsinthePSRsAnnualPlan.
Applying financial penalties

WemustpaytotheTreasuryallfinancialpenaltiesthatwereceive,lesscertainenforcementcosts.
Theseretainedpenaltiesareusedtoreduceourfeesforfirms,apartfromthefeesofthepenaltypayer
themselves.Weestimatethefinancialpenaltyrebatetobe40.3min2015/16.
Impact on our fee payers

EveryyearweconsultwithourfeepayersonhowweallocateourAnnualFundingRequirement(AFR)betweenfee
blocksandhowwesetourfeeratesfortheforthcomingfinancialyear.Wedothisviaourfeesconsultationpaper,
whichwepublishinMarcheveryyear.
OurconsultationpapersummarisesthemainelementsofourORAbudgetandexplainshowthishasbeenallocated
acrossfeeblocks,aswellasanychangesbeingmadetothefeeblocks.Amongotherthingsitalsoexplainsany
proposedchangetotheminimumfeeandprovidesdetailsofthefinancialpenaltyscheme,ourestimatedfinancial
penaltyrebatesfor2015/16,andourcurrentandfutureproposalsforconsumercreditfees.
ThechartbelowreflectshowwewillbefundedbyindustrysectorasproposedinourMarch2015consultation
paper.
Community engagement and sustainability

Throughcreatingvolunteeringandcommunityengagementopportunities,weencourageourstafftogainan
understandingofthediversityandbreadthofdifferentconsumers,theirfinancialbehavioursandtheimpactour
regulatorydecisionscouldhaveonthem,whilepositivelycontributingtothewidercommunity.Wewillcontinueto
allowpeopletouse28hourspercalendaryearforthis.
Weconstantlystrivetomanageandreduceourimpactontheenvironment.Welooktoreduceourcostsand
safeguardresourcesthroughfindingefficienciesthathelptheenvironment.Theseincludesmarteruseofenergy,
paperandwater,andweencourageourpeopletoreduce,reuseandrecycle.
Currentlyapproximately75%ofallourwasteisrecycledorcomposted.Allotherwasteisprocessedatanenergy
recoverysite,inlinewithourzerowastetolandfillpolicy.Wewillcontinuetolookatourpracticesandpolicies
suchasprocurementandtraveltoensurewearebeingasefficientandenvironmentallyfriendlyaspossible.
29/30
3/24/2015
Annexes
Annex 1 - Current and planned market studies and thematic work
Annex 2 - Current EU initiatives
Annex 3 - FCA organisation chart
Footnotes
1PractitionerPanel,MarketsPractitionerPanel,SmallerBusinessPractitionerPanel,andConsumerPanel
2BankofEngland,TableA5.6,March2015
http://www.bankofengland.co.uk/statistics/pages/bankstats/current/default.aspx
3OECDMarch2015http://www.oecd.org/economy/outlook/economicoutlook.htm
4OfficeforBudgetResponsibilityMarch2015
http://cdn.budgetresponsibility.independent.gov.uk/March2015EFO_1803webv1.pdf
5ONSNovember2014http://www.ons.gov.uk/ons/rel/ashe/annualsurveyofhoursandearnings/2014
provisionalresults/stbashestatisticalbulletin2014.html
6DepartmentforCommunitiesandLocalGovernmentFebruary2015
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/404996/House_Building_Release_
_Dec_Qtr_2014.pdf
7ONS2012http://www.ons.gov.uk/ons/dcp171776_258607.pdf
8FCA2014http://www.fca.org.uk/news/marketstudies/retirementincomemarketstudy
9ThePensionsRegulator2015http://www.thepensionsregulator.gov.uk/press/pn1507.aspx
10HSBCTheFutureorRetirement,AbalancingactUKReportJanuary2015
11TheMoneyAdviceService(2013)SegmentingtheoverindebtedpopulationoftheUK
12HouseofCommonsLibraryMarch2015http://www.parliament.uk/business/publications/research/briefing
papers/SN05871/youthunemploymentstatistics
13ONS2015http://www.ons.gov.uk/ons/taxonomy/index.html?nscl=Unemployment+by+Age#tabdatatables
14IFS(2014)LivingStandards,PovertyandInequalityintheUK
15TheReviewisbeingledbyBankofEnglandDeputyGovernorforMarketsandBanking,MinoucheShafik,and
cochairedbyMartinWheatleytheFCAsCEOandCharlesRoxburgh,DirectorGeneral,FinancialServices,HM
Treasury.
16ThesecompetitionpowersmayalsobeexercisedbytheCMAwithregardtofinancialservicesandothersectors
oftheeconomy.Thismeansthat,inrespectofenforcingagainstunlawfulanticompetitivebehaviourinfinancial
services,theCMAandtheFCAwillhaveconcurrentpowersandtheFCAwillbeaconcurrentregulator
17Thethresholdconditions,whicharethestandardsagainstwhichweassessfirms,aresetoutinFSMA,Financial
ServicesandMarketsAct2000
18https://www.fca.org.uk/about/operate/principles
Copyright2015FCA.AllRightsReserved.
19StrengtheningpersonalaccountabilitywasoneofthemainrecommendationsmadebytheParliamentary
CommissiononBankingStandards(PCBS)
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3/24/2015

FCA Business Plan 2015/16 - Financial Conduct Authority

Business Plan 2015/16

Chief Executive Officer's introduction

FCA Business Plan 2015/16 - Financial Conduct Authority

FCA Business Plan 2015/16 - Financial Conduct Authority

How we assess risk

Forward-looking areas of focus

Categories and key areas of risk

FCA Business Plan 2015/16 - Financial Conduct Authority

FCA Business Plan 2015/16 - Financial Conduct Authority

Conflicts of interest, with a focus on wholesale markets

Unfair contract terms

FCA Business Plan 2015/16 - Financial Conduct Authority

Policy, legislation and regulation

FCA Business Plan 2015/16 - Financial Conduct Authority

Economic and market trends

FCA Business Plan 2015/16 - Financial Conduct Authority

FCA Business Plan 2015/16 - Financial Conduct Authority

FCA Business Plan 2015/16 - Financial Conduct Authority

Innovation in online and web-based channels

FCA Business Plan 2015/16 - Financial Conduct Authority

Complex systems with intermediaries and/or gatekeepers

Failure to invest and maintain

FCA Business Plan 2015/16 - Financial Conduct Authority

Our strategic themes

FCA Business Plan 2015/16 - Financial Conduct Authority

A strategic markets-led approach to regulation

FCA Business Plan 2015/16 - Financial Conduct Authority

Market-focused work programme

Cross sector topics

General insurance and protection

FCA Business Plan 2015/16 - Financial Conduct Authority

Pensions and retirement income

FCA Business Plan 2015/16 - Financial Conduct Authority

Wholesale market integrity

Fair and effective markets review

FCA Business Plan 2015/16 - Financial Conduct Authority

MIFID II and the market abuse regulation (MAR)

Smarter consumer communication

FCA Business Plan 2015/16 - Financial Conduct Authority

Pensions and an ageing population

Saving for a pension

Taking income in retirement

FCA Business Plan 2015/16 - Financial Conduct Authority

Authorising consumer credit firms

Credit card market study

FCA Business Plan 2015/16 - Financial Conduct Authority

Senior managers and certified persons regimes

Enforcement action against individuals

FCA Business Plan 2015/16 - Financial Conduct Authority

FCA Business Plan 2015/16 - Financial Conduct Authority

Diversity and inclusion

Investing in our staff

Ongoing activities and deliverables

FCA Business Plan 2015/16 - Financial Conduct Authority

Assessing and supervising firms and individuals

Supervising client assests - CASS

Supervising consumer credit

FCA Business Plan 2015/16 - Financial Conduct Authority

FCA Business Plan 2015/16 - Financial Conduct Authority

Overseeing the financial markets

FCA Business Plan 2015/16 - Financial Conduct Authority