At a whopping 170 pages, the Financial Conduct Authority’s (FCA) annual report 2023-24 is chock-full of interesting developments for the UK’s financial regulatory landscape. But it can feel daunting just to open the document!
So, what are the actual key takeaways?
A new dawn for UK financial regulation
In the biggest shift to the UK financial regulatory landscape: the Financial Services and Markets Act 2023 has ushered in a new era for the FCA. With fresh powers and responsibilities, the regulator is now tasked with replacing EU rules with a bespoke UK regulatory framework.
This should provide the UK more flexibility to shape its rules to fit domestic needs and encourage a more streamlined process tailored to compliance requirements.
The Financial Services and Markets Act 2023 includes a secondary objective to boost the UK’s international competitive and economic growth. With new processes and UK-cetric regulation, there’s the potential for more innovation friendly policies too.
Things are getting really interesting in the UK’s financial sector.
The consumer comes first
The Consumer Duty, which came into force on 31 July 2023, has been making waves ever since its implementation. According to the FCA annual report 2023-24, the requirement that financial businesses deliver fair outcomes for customers has already seen 37% of advice firms change their fee structures to ensure measurable value, a necessary step for the future of financial services firms. This shift indicates that firms are taking a more critical look at their pricing models to ensure they align with Consumer Duty requirements.
Beyond fee structures, firms are also reviewing their product offerings, communication strategies, and customer support processes. For example, some firms are reassessing their product ranges to ensure they meet customer needs and offer fair value. Others are simplifying their communications to improve customer understanding and enhancing their support services to better assist vulnerable customers.
The FCA expects these changes to boost competition, inspire customer loyalty, and ultimately increase trust in financial services by demonstrating true value. While it’s still early days, the initial response from the industry suggests that the Consumer Duty is indeed driving meaningful progress towards better consumer outcomes in the UK financial services sector.
The FCA crackdown
In the financial services business, being secure, transparent and trustworthy should be a top priority, and the FCA isn’t mucking about when it comes to market integrity.
According to the FCA annual report 2023-24, efforts have yielded tangible results in the courtroom, with 9 successful prosecutions made against fraudsters. These convictions not only serve as a deterrent to potential offenders but also demonstrate the regulator’s commitment to seeing cases through to conclusion.
And its reach goes beyond just prosecutions. The FCA has been active in preventing harm, removing over 10,000 potentially misleading adverts in 2023 and issuing 2,243 warnings about unauthorised firms and individuals. This preventative work is crucial in protecting consumers from scams and fraudulent activities before irreversible damage is done.
This is a dramatic increase, doubling the number of cancellations from the previous year. Such a sharp rise reaffirms the FCA’s heightened scrutiny of firms that fail to meet regulatory standards or pose potential risks to consumers and market stability.
On top of this, the FCA has been actively pursuing legal action against individuals involved in financial misconduct. Levying charges against 21 individuals for financial crime offences, marks the highest number of charges the regulator has made in a single year, suggesting a more proactive approach to identifying and pursuing those responsible for financial wrongdoing.
We’ve been witnessing it for a while now, but the FCA annual report 2023-24 highlights that the FCA is becoming increasingly assertive and effective in its role. Its multifaceted approach, which combines authorisation cancellations, criminal charges, successful prosecutions, and preventative measures, reflects a comprehensive strategy to uphold market integrity and protect consumers in the UK financial sector.
Promoting competition and innovation
The regulator’s July 2023 Cash Savings Market Review set out a 14-point action plan to ensure banks and building societies were passing on interest rate rises to savers appropriately, communicating more effectively with customers, and offering better savings rate deals.
Reflecting in its September 2024 update, the average easy access rates increased from 1.66% in July 2023 to 2.11% in June 2024. This rise has resulted in an estimated additional £4 billion per annum in interest payments to consumers. Savers are being presented with more competitive options, with an increase in instant access products offering more than 4% interest.
Between July 2023 and June 2024, savers moved £29 billion into higher-paying fixed-term and short notice accounts, bringing the total balance in these accounts to £274 billion. This shift indicates that consumers are becoming more proactive in seeking better returns on their savings.
But it’s not all carrot and no stick. Despite the progress, the FCA seems to recognise that there’s still room for improvement. In fact, the FCA annual report 2023-24 itself shows that many firms have struggled to balance the assessment of value, and “the largest firms are generally paying below market average for standard, easy-access products.”
The FCA’s approach demonstrates a strive for balance between encouraging competition and innovation while ensuring consumer protection. As the financial services landscape continues to evolve, the regulator’s role in shaping a fair and competitive market will remain crucial.
Diversity and inclusion in the FCA
When it comes to practising what you preach, the FCA is doing a pretty good job of championing diversity and inclusion practices.
In terms of gender diversity, the FCA has achieved a notable milestone by reaching gender parity in its senior leadership team ahead of its 2025 target, highlighting its commitment to promoting gender equality at the highest levels of the organisation.
The early attainment of this goal reflects a concerted effort to identify, develop, and promote talented women into senior positions.
The FCA has also made progress in other areas of diversity. According to the FCA annual report 2023-24, there have been improvements across all pay gaps. The median gender pay gap has decreased to 11.5%, while the median ethnicity pay gap has reduced to 13.0%, and the disability pay gap is now at 3.3%.
When it comes to geographical diversity, the FCA has been expanding its presence beyond London. Alongside its offices in Edinburgh, the establishment of an office in Leeds in 2022 was a significant step. Initially, the FCA committed to creating over 100 new roles in Leeds by the end of March 2023, but have surpassed this target, with almost 240 colleagues now based in this office.
It also announced plans to develop an additional 100 jobs in Leeds.
This expansion is part of a broader strategy to create a more geographically diverse workforce and tap into talent pools across the UK.
Global influence
Despite Brexit, the FCA continues to play a leading role when it comes to the world stage of financial regulation, shaping global standards on international hot topics including cryptocurrency regulation, sustainability benchmarks, non-bank finance, and international collaboration.
The FCA’s active role in these areas not only benefits the UK financial sector but also contributes to the development of more robust and harmonised global financial standards. This approach helps to address the inherently cross-border nature of many financial activities and challenges.
Protecting investors and preventing failure
We’d like to think that it goes without saying that the FCA is proactively working to prevent firm failures, but it always helps to see the evidence.
On the preventative side, the FCA has been diligent in reviewing the capital adequacy and risk assessment processes of large firms. From its efforts in the Woodford Equity Income Fund Redress, to its review of 195 large firms across 34 parent companies, thorough examination and implementation has led to significant improvements in the financial resilience including:
- An additional £1 billion in capital was required to be held by these firms.
- An extra £2.5 billion in liquidity was mandated.
These measures are designed to enhance the stability of large financial businesses and reduce the risk of disorderly failures that could harm consumers and market integrity.
The FCA continues to push a proactive stance in identifying potential risks and ensuring firms are adequately prepared to weather financial storms.
And the regulator’s efforts extend beyond large firms, with focus on reducing harm from firm failures across the board. This includes expecting firms to consider potential failure scenarios and plan accordingly, aiming for either rectification of issues, solvent wind-down, or insolvency processes that minimise harm to consumers and market participants.
We hope these actions continue alongside the FCA’s commitment to both remedying past harms and preventing future ones.
The final word
That’s a lot of words to say that it’s been a busy year for the FCA. From balancing consumer protection, market integrity, and the UK’s competitiveness in financial services and with new powers, a focus on innovation, and a commitment to diversity, the FCA believes itself to be well-positioned to navigate the challenges of the ever-evolving financial landscape.
Before we leave the FCA annual report 2023-24 behind, there are some key points that shouldn’t be overlooked:
- Continued improvement of authorisation processes: While the FCA has made significant progress, with 98% of cases now assessed within statutory deadlines, these can still be streamlined and updated for better efficiency.
- Enhancing data analytics capabilities: The FCA needs to continue developing its data-led approach to spot and stop harm faster. This includes further automation of analytics tools and working with firms on the safe deployment of AI (artificial intelligence).
- Strengthening consumer protection and refining regulatory framework: The FCA should focus on rigorously testing if firms are meeting the high standards set by the Consumer Duty in order to support the long-term financial wellbeing of consumers. The FCA should work on streamlining its rulebook to reduce complexity and burdens on businesses while maintaining strong consumer protections.
- Supporting UK competitiveness and growth: The regulator needs to continue improving the attractiveness of UK wholesale markets and supporting firms to innovate and expand through its innovation services.
- Enhancing diversity and inclusion: The FCA needs to implement and monitor the effectiveness of its proposed measures to improve diversity and inclusion in the financial sector.
- International collaboration and balancing innovation and risk: The regulator should continue to play a leading role in shaping global standards on issues like crypto, sustainability, and non-bank finance. It also needs to carefully navigate supporting innovation in the financial sector while ensuring adequate consumer protection and market integrity.
