FCA scrutiny ramping up regulatory pressure

The Financial Conduct Authority’s (FCA’s) increased scrutiny of how firms evidence good customer outcomes, driven by Consumer Duty reforms, has resulted in a significant increase in regulatory pressure, according to research from KPMG UK.

The firm’s latest Regulatory Barometer – a biannual measure of the regulatory pressure faced by financial services firms in the UK and EU – shows the impact score in this area has risen from 6.8 to 7.4 (out of 10) since March 2024.

He added that the uptick in regulatory pressure “partly reflects the mammoth task firms faced as they raced towards the July deadline of compiling the first annual Consumer Duty board report and meeting obligations of their closed books.”

“However, it is the pace and intensity with which the FCA has challenged firms for evidence of the outcomes they are generating that have driven most of the increase,” he noted.

Deeks said the FCA has developed a keen appetite for data from firms, and has been proactive in sharing its initial findings on how firms have implemented the Duty. Consequently, firms are feeling the pressure in responding to supervisory demands while simultaneously re-calibrating and enhancing their approach to the Duty.

“Now that the Duty has been fully implemented, some firms may be breathing a momentary sigh of relief. However, we do not expect intense supervisory pressure around consumer protection to ease off as the Duty and regulatory expectations around it evolve,” he cautioned.

Regulatory pressure is also building in other areas which impact consumers. The regulatory impact score for payments has risen from 6.8 to 7.1 since the last Barometer, driven by continued attention from policymakers and regulators on improving payment infrastructures in a bid to drive competition and innovation, while the score for digital finance has risen from 6.9 to 7.3.

Despite these developments, KPMG says the most significant, and continuing, regulatory burden for financial services firms comes from requirements to maintain and strengthen financial and operational resilience, which both  score 8.1. Across both themes, major policy initiatives are being finalised, implementation deadlines are approaching and there will be correspondingly high levels of supervisory intensity.

While ESG and sustainable finance remain high on the regulatory agenda, KPMG sees a slight drop-off in regulatory intensity, with the regulatory impact score falling from 8.4 to 7.9. This reflects a slowing in publication of new policy, following several years of concentrated activity and while reviews of existing policy are progressed.

Mounting criticism

KPMG’s update comes as the FCA itself faces questions about how well it is protecting consumers and others from harm. Its chairman, Ashley Alder, has become embroiled in controversy after failing to keep confidential the names of two of its employees who blew the whistle, in contravention of the regulator’s own rules on the treatment of whistleblowers.

An FCA-led investigation, while finding that Alder had not followed policy “to the letter” did not censure the chair, in a move which the campaign group Transparency Task Force described as  “marking its own homework.”

And the FCA’s decision to hold its annual public meeting online only, with questions submitted online in advance and no opportunities for follow-up comments on the responses, has been heavily criticised, with a Times newspaper report describing the process as “a stage-managed sham”.

“At our conference in November, we will be considering how firms should evidence proportionate, fair value assessments. We will be discussing a case study kindly provided from a leading asset finance provider; an assessment of what is required by Wayne Gibbard from Shoosmiths; and will look at the broader requirement to establish data that can be used to evidence outcomes and identify likely areas of potential harm.”

Find out more about AFC’s November conference here.