The UK’s Financial Conduct Authority (the FCA) has published its Business Plan for 2022/23, setting out its business priorities for the year ahead, alongside its Strategy for 2022 to 2025. But what does it mean for fintechs? Here’s our five key takeaways.
- Financial crime remains a concern: The FCA wants to see a reduction in authorised push payment fraud, investment fraud and money laundering. The FCA in particular points to cryptoasset firms, highlighting that it will continue to supervise cryptoasset firms’ compliance with the Money Laundering Regulations and will rapidly intervene where such firms risk being used as conduits for illegal activity, or where firms pose harm to consumers or market integrity (for example, operating without registration, perpetrating fraud or high-risk activities). The focus on cryptoasset firms is perhaps no surprise since a recent Freedom of Information request showed that reports to the FCA of cryptoasset scams had doubled in 2021 from 2020 (2021: 6,372 reports; 2020: 3,143) and it was by far the most reported issue on the FCA’s ScamSmart website last year.
- Financial promotions are in focus: The FCA is mindful that increased digitalisation of financial services means that consumers can quickly and easily access such services without the need for intermediaries. Such ease of access renders it even more important that consumers are given good information to make good decisions; however, the FCA remains concerned about adverts that are illegal, unclear, unfair and misleading. This year, we can expect new rules (for example, in relation to high-risk investments and the approval of financial promotions) and more interventions from the FCA targeting unlawful promotions, associated websites and social media. And don’t forget, certain qualifying cryptoassets will be brought within the UK’s financial promotions regime (you can read more about that here).
- The FCA wants to encourage competition in digital markets: The FCA sees competition in digital markets as key to achieving good outcomes for consumers. This is so that the development of digital markets and use of new technologies leads to fair value for consumers. In addition, the use of these new technologies in respect of digital financial products and services should enable consumers to take decisions in their best interests (language we see throughout the FCA’s proposed new Consumer Duty). Among other things, the FCA indicates an intention to examine the competition risk and benefits from Big Tech entry into financial services.
- We will see more regulation over cryptoassets: The UK Treasury has confirmed that stablecoins used as a means of payment will be brought within the regulatory perimeter (you can read about that here), and so the FCA has confirmed that it will consult on its regime for such stablecoins later this year. The FCA also indicates that further cryptoasset regulation may be required as the industry evolves. In that regard, since the UK Treasury has also confirmed that it will consult on wider regulation of the cryptoasset sector, the FCA indicates that it will work with the UK Government and other parties through the Cryptoasset Taskforce to design a UK approach to cryptoasset regulation that balances innovation and competition alongside the need for orderly markets and consumer protection.
- Data is central to the FCA’s strategy: The FCA recognises that data is key to its own role – the FCA’s Data Strategy will be published in the coming months and will set out how the FCA intends to harness data to improve its real time understanding of what’s currently happening in the market and emerging risks. The FCA has explored the use of synthetic data sets to test financial crime controls and is actively exploring the use of advanced learning techniques, such as AI, for its own supervision and enforcement. Better use of data by the FCA (and other regulators) will inevitably lead to more scrutiny of market players. We can expect the FCA to use data when considering, for example: pricing (e.g. when assessing compliance with the price and value outcome in the proposed new Consumer Duty); new products and decision-making tools for consumers; and to identify potential financial crime and other misconduct. We can also expect the FCA to be focused on good data governance and protection, particularly given recent warnings of heightened risks of cyber-attacks.