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The FCA Business Plan 2019-20 and the Future of Financial Regulation in the UK

On 17 April, the FCA published its Business Plan for 2019/2020, setting out its key priorities and specific activities for the coming year. In an annual ritual comparable to the Chancellor’s Budget speech, FCA-watchers pore over this far from enthralling document looking for subtle changes of tone and emphasis.  

Close on the heels of the Business Plan itself, on 23 April, the Chief Executive of the FCA, Andrew Bailey, gave an important speech on the Future of Financial Conduct Regulation. In this he laid down some significant markers for the development of the UK regulatory regime in the immediate post-Brexit era.

Read on for a summary of the areas of priority we believe will be of interest to firms in the wholesale arena, and a dissection of Mr Bailey’s vision.


It will come as no surprise that Brexit remains an immediate priority, with the FCA seeking to support a smooth transition and assess the impact of EU withdrawal on the financial services industry. The FCA’s activity will focus on building bilateral relationships with key national and international bodies to ensure that it can continue to influence the global regulatory agenda. Post-exit, it will also need to re-engage with the EU as a major third country regulator.

Culture and Governance

The FCA continues to place emphasis on promoting healthy cultures in firms where the driving “purpose” (a new watch-word) leads individuals to take personal responsibility for client and market outcomes and to speak out when this is not happening. The FCA has also flagged a review of remuneration and recognition practices in firms as part of its supervisory work to ensure that these do not drive harmful behaviours.

A primary part of the FCA’s efforts on culture and governance is the extension of the SM&CR to all FCA-authorised firms, plus the introduction of the Directory for key roles in firms not covered by the Financial Services Register. Most firms should by now have their preparations underway for the implementation of SM&CR by 9 December 2019.

Technological and Cyber Security: Operational Resilience

In July 2018, the FCA published a Discussion Paper regarding operational resilience in the financial services sector. Having analysed the responses received, the FCA is working with the Prudential Regulatory Authority to develop policy proposals which will be put to consultation later this year.

The FCA plans to conduct thematic work to understand how third-party service providers are being used for critical services, as well as assessing the effectiveness of firms’ responses to cyber and technology incidents. This on-going work, featuring CBEST (the Bank of England’s “ethical hacking” framework), is likely to be rolled out to a larger number of priority firms in 2019/20. The FCA also plans to target information at smaller firms, summarising their findings and guidance in this area.

Financial Crime

Financial crime remains a top priority for the UK Government and the FCA alike, with the Office for Professional Anti-Money Laundering Supervision (“OPBAS”) now working to raise standards off the back of its first round of supervisory visits. As a result, the FCA is looking for ways to improve their anti-money laundering capabilities, including more intrusive assessments of the effectiveness of firms’ systems and controls.

Innovation, Data and Data Ethics

The FCA has identified this area as a strategic challenge where they want to anticipate and influence market development. To achieve this aim, they will be looking to build on existing initiatives, such as the Regulatory Sandbox. Additionally, the FCA intends to develop new guidance in relation to areas such as algorithmic trading and cryptocurrencies, likely to be important for firms that engage in the relevant activities. 

Investment Management Sector

Asset Management Market Reform

The FCA indicates that it will continue to focus on the implementation of the changes precipitated by the Asset Management Market Study (AMMS), including further remedies due to take effect in October 2019 (see Policy Statements PS18/8 and PS19/4). Of primary importance to those in the retail space, the AMMS is a key stream of work, impacting a broad range of actors (directly or vicariously) across the value chain; including retail product manufacturers, investment platforms, and the investment consultants’ market.


The FCA will also be finalising its rules on the EU’s Revised Shareholder Rights Directive (“SRD II”), which will come into effect in the UK in June 2019 (bar a no-deal exit by then). At this stage we do not anticipate any significant changes for the majority of firms, but will be updating you on the finalised rules and guidance in due course.


Following industry concerns raised about the PRIIPs Regulation, in particular the production of the key information document (KID), and the FCA’s subsequent Feedback Statement published in February 2019, the FCA will continue to work with the industry to resolve the issues identified. This will tie into the work the FCA will be undertaking regarding the implementation of MiFID II and the product governance obligations under it.

New Prudential Regime

Lastly, the FCA will be consulting on introducing a new prudential regime for MiFID investment firms, intended to introduce more appropriate requirements for firms’ business models as well as reducing unnecessary costs to firms and changing reporting requirements. While this is still a way off (expected in the second half of 2019), this will be of major interest to affected firms.

Wholesale Financial Markets

More broadly, the FCA will be looking at a number of areas within wholesale markets, including ongoing focus on firms’ market abuse risks and the controls to limit these; the replacement of LIBOR; the use of MiFID II transaction reporting data; and the implementation of the EU Securitisation Regulation which came into effect in January.  While the FCA’s work in these areas is unlikely to have any direct impact on asset management firms, we will continue to monitor and provide guidance for firms in these areas.

The Future of Financial Conduct Regulation in the UK

Although referred to in the Business Plan, Andrew Bailey’s Bloomberg speech on 23 April contained much more hard-hitting points on how the FCA intends to proceed in the years immediately following the UK’s departure from the EU.

Firstly, he talked about the FCA’s Feedback Statement on the Duty of Care concept which, while not yet fully formed in the regulators’ collective mind, seems likely to introduce a new focal point in its efforts to provide an appropriate level of protection for consumers.

Secondly, Mr Bailey embarked on an interesting discussion about the differences between the UK and EU legal systems (common and case law vs codification and greater use of statute). In recent years this has been emphasised by the shift in approach from using EU Directives, which create minimum and maximum standards, to directly applicable and thus enforceable Regulations. This apparently philosophical analysis points to a major divergence of approach for a stand-alone UK regulatory regime. It is no coincidence, in Mr Bailey’s eyes, that “wholesale financial markets are more commonly found in countries with common law systems.”

He cites the specific example of the MiFID II trading obligation – which requires participants to use EU trading venues in some situations even where superior liquidity is to be found elsewhere: “I simply fail to understand why we need such a rule when there is a well-established principle that firms must obtain best execution for their clients”.

What Mr Bailey is saying here is that, while equivalence with EU regulation will remain an important policy objective, this is likely to be “outcomes-based equivalence rather than a rules-based approach – in other words, the outputs of regulation, not the inputs”. He also emphasises the importance of reducing the burden of unnecessary regulation, even while recognising that this was inherent in the EU’s Call for Evidence framework. Summarising this in a pithy phrase that we are likely to hear a lot more of: “Same outcome, lower burden”.


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