FCA Board minutes offer a familiar tale

Gavin Stewart wonders if the FCA can achieve its latest action points or if they are excesses of ambition.

April’s minutes contain a familiar Financial Services Authority / Financial Conduct Authority tale, with the Board agreeing a series of actions for the executive that are likely to be unattainable.

Broadly, they are either: (i) mutually exclusive for a regulator that must balance the tension between its statutory objectives using finite resources; (ii) too dependent on external forces to be reliably delivered; or (iii) set too high a standard when the FCA’s job is more about getting to the right answer than reaching an answer quickly.

“I don’t want to caricature any of this because it’s very hard to get right, but it’s important to talk about it and explore the issues.”

As I say, this isn’t a new issue. I recall, c.2006, the FSA Board, on a cost reduction drive associated with the ill-fated the “Making a Real Difference” (MaRD) strategy, happily moving a swathe of firms from relationship management into Small Firms, involving a significant drop in resourcing levels – the modern equivalent would be a shift from fixed to flexible portfolio – without accepting the increased risk of firm failure (conduct or prudential) that followed.

I don’t want to caricature any of this because it’s very hard to get right, but it’s important to talk about it and explore the issues…

Excesses of ambition

An example of each of the excesses of ambition described above:

(i) Identifying “process efficiencies” in Enforcement [5.1.iv]

Shortening the duration of enforcement cases is important, but any material change would require some combination of: more resource; fewer and/or easier cases; deprioritising some areas of the FCA’s remit; accepting greater risk of losing cases.

(ii) Communication/evaluation of the New Consumer Duty (NCD) [6]

The cost-of-living crisis and the fact that, in 2023, the NCD applies only to new business, makes its communication and implementation impossible to control in the way the Board suggests. It’s also worth noting that the role of the Ombudsman (FOS), mentioned in the minutes, which the FCA doesn’t control, won’t kick in for a good while as it will take time for NCD-related consumer complaints to emerge.

(iii) Authorisation metrics [7.2.iv]

Aligning to the PRA threshold of 97.5% meeting statutory deadlines doesn’t recognise the reality that the FCA volumes are multiples higher and that the nature of cases are often wildly different. To take an obvious example, the PRA has no equivalent challenge of authorising crypto firms for anti-money laundering. The real Board question should revolve around how much risk of approving individuals/firms that don’t meet the minimum threshold is it reasonable for the FCA to accept.

Next milestone

Stepping back, this FCA Board, like several of its predecessors, has set much store on achieving the right “outcomes”. The next milestone on this journey will be the 2022/23 Annual Report and it will be interesting to see how realistic/qualified the regulator is in evaluating its performance.

Gavin Stewart is an independent commentator on financial regulation; former regulator; novelist; ex-international rower & sports administrator.

He has 27 years’ experience working for financial services’ regulators (Bank of England, FSA & FCA), holding a wide variety of roles including as a Bank of England Supervisor, FSA Head of Strategy, Planning & Performance, and FCA Chief Risk Officer. See LinkedIn profile.