In a recent response to COVID-19, the FCA have commented that firms in general have been able to respond well. There have been no significant erosions of client’s access to services and business continuity arrangements seem to be working as planned. Glitches have been worked through and it feels as though financial services firms are adapting to a new way of doing business.
The FCA’s business plan published in May 2020 outlines areas of prioritisation over the next 1-3 years and the 5 key drivers are as follows.:
- There is a good level of operational resilience.
- Firms are financially resilient, so if a failure occurs it can be dealt with in an orderly manner.
- Markets can function, enabling price formation and standard trading activity.
- Customers are treated fairly.
- Customers are aware of the risks and protected from scams.
Last year the FCA published an operational resilience consultation paper. The paper sets out their proposals for how firms can strengthen their resilience to be able to supply their most important services with minimal interruption even during severe operational events such as coronavirus.
The FCA are seeing a significant pressure on firms’ revenues as downwards market values means a significant downward pressure on investment management fee incomes. Financial viability concerns already present in some firms will become amplified and those firms that are financially viable and sound may become vulnerable.
The FCA have said that these pressures could give rise to harm if firms cut corners on governance or their systems and controls. This is where AutoRek can help, our financial and regulatory control platform can be used to track all client money and custody asset movements.
One key area of focus for the FCA will be on custody asset shortfalls and the FCA are expecting firms to be able to take action to prevent shortfalls ahead of time in what asset management firms should be holding on their clients behalf. FCA quote “preservation of client assets and money is central to our focus in the wealth management sector”.
Moreover, the FCA are aware that many firms are reporting an increase in client money due to redemptions, firms are required to report in a timely manner and to consider the best interests of their clients at all times. Pursuant to this, they expect firms to return balances which are unlikely to be reinvested in the short term.
To conclude, the future of regulation is changing as the financial services industry continues to evolve. There are new products and new mechanisms for delivering them alongside a change in consumer behaviours. The UK’s position in Europe has also changed, the macro-economic landscape has evolved and HM Government has initiated discussions around the regulatory landscape following departure from the European Union. At the core the FCA will be considering the needs and vulnerabilities of customers in-line with a well-functioning and fair market.