Business Plan
2013/14
Financial Conduct Authority
Business Plan
2013/14
© Financial Conduct Authority 2013
25 The North Colonnade Canary Wharf London E14 5HS
Telephone: +44 (0)20 7066 1000
Website: www.fca.org.uk
All rights reserved
Business Plan / 2013/14
Financial Conduct Authority
3
Content s
Chairman/Chief Executive Introduction 4
1 Executive Summary 8
1.1 Our strategic priorities 9
1.2 Key European and international priorities 10
1.3 Measuring our performance 11
1.4 Using our resources effectively 12
2 Achieving our objectives 14
2.1 Conduct risks to our objectives 15
2.2 Consumer protection 22
2.3 Enhancing market integrity 25
2.4 Building competitive markets 30
2.5 Building a new regulator 33
3 Taking action against firms that do not 38
meet our standards
3.1 Market abuse 40
3.2 Transaction reporting and 40
market surveillance
3.3 Financial crime 41
3.4 Redress 42
4 Protecting the perimeter 44
4.1 How will we challenge businesses 45
and individuals?
4.2 Authorising dual-regulated rms 47
5 Delivering our operational platform 48
5.1 Our information systems 49
5.2 Our estate and shared services 49
5.3 Our people 50
6 Budget 2013/14 52
Appendices
1. Regulatory architecture, key stakeholders
and international regulation
2. Our accountability and transparency
3. Table of regulatory reform by market(s)
affected
4. Principal European legislation
5. FCA independent panels – strategy
for 2013/14
6. The Organisation charts
7. Corporate responsibility
8. Reference table of strategic priorities
9. 2013/14 Milestones
AppendicesChapter 6Chapter 5Chapter 4Chapter 3Chapter 2Chapter 1Introduction
Business Plan / 2013/14
Chairman/Chief Executive introduction
Business Plan / 2013/14
Financial Conduct Authority
5
The Financial Conduct Authority (FCA) is coming
into existence at a critical time in the history of
nancial services. As the global crisis appears
gradually to recede, we still nd ourselves
dealing with major conduct scandals from the
past. The scale of the mis-selling of Payment
Protection Insurance, the behaviour surrounding
the manipulation of LIBOR, and other instances
of material consumer detriment have convinced
everyone that things must change as far as
conduct in nancial services is concerned.
Our job is to require, through regulation, that such
a change takes place in the culture of financial firms
so they learn the lessons from the past to prevent
errors being repeated. We will do this by creating an
environment supportive of good conduct but where
the incentives and opportunities for bad behaviour are
low and the potential costs are high.
Our responsibilities extend to all consumers, whatever
their age or financial circumstances and whether an
individual, small company or a major participant in the
wholesale markets. The challenge for us in building the
FCA is to use the full range of our powers under the
new legislation to make financial markets work well, so
that everyone can use the UK’s financial services with
renewed confidence.
This is the FCA’s first Business Plan and our first
opportunity to set out our priorities for the year
ahead. At the same time we are publishing our FCA
Risk Outlook, which sets out the challenging economic
backdrop, plus the framework against which we will
assess the condition of the markets and will seek
to identify future risks to our objectives. Many of
these are complex and will require intervention over
several years. This document is not attempting to be
comprehensive in that regard but is designed to give
a clear indication of how we will operate for the next
twelve months.
New statutory objectives
Underpinning our work is our strategic objective of
making markets work well and our three operational
objectives which are:
• Delivering consumer protection − securing an
appropriate degree of protection for consumers.
• Enhancing market integrity − protecting and
enhancing the integrity of the UK nancial system.
• Building competitive markets − promoting effective
competition in the interests of consumers.
The FCA has a renewed focus on consumers. We
will work in a number of areas to ensure that our
objective of consumer protection is met, including
work to ensure that firms’ strategies are aligned
with producing good outcomes for consumers − for
example, through our work on product governance
and incentive structures in firms.
Our work on wholesale conduct will help us underpin
market integrity, as will our new approach to the
supervision of trading platforms. Clean markets are
key to ensuring the integrity of the UK financial system
and we continue to prioritise tackling market abuse to
address this.
Our new competition objective is a significant change
and we will make sure that we are equipped to
deliver it. This will involve building a new Competition
department; embedding competition analysis in the
FCA, assessing what is happening in the marketplace
and the impact on competition of any intervention
we may consider. We will work with, and learn from,
the Office of Fair Trading in particular.
Not all of our work is new. We carry forward many
tried and tested procedures from the Financial Services
Introduction
Business Plan / 2013/14
6 Financial Conduct Authority
“Our culture should reect
the world around us and
change in response to it”
Authority (FSA) as well as some major policy initiatives:
the Mortgage Market Review, the rules on retail
investment advice and extensive engagement with
Europe on important Directives. At the same time
we have a big task preparing ourselves to regulate
consumer credit from 2014.
New culture
Our culture should reflect the world around us and
change in response to it. A major risk for any regulator is a
natural tendency to become bound, often unconsciously,
to the conventional thinking and approaches of the day.
We need to build a new regulatory culture that stresses
openness − and therefore predictability − by learning
from our own experience and from others. We need to
make it natural to question ourselves so that we avoid
‘group think’ and are continually looking to explore
new approaches and perspectives, be it from our staff,
other regulators and the world at large.
We will be open and accountable. Our Discussion Paper
on transparency and accountability and our Policy
Statement on publishing regulatory failure reports are
only the start of a continual process of becoming more
open and holding ourselves to account.
New approach
Our first year as a new regulator will be an exciting
and challenging time but one for which we are well
prepared. We know that we will be scrutinised and
judged by how we perform against our new statutory
objectives. We are introducing new approaches and
techniques to the way we do much of our work. But
we cannot succeed wholly in isolation. Our outcomes
will be greatly enhanced by the conscious cooperation
of the firms we regulate and by the vigilance of their
customers. With both of these stakeholder groups we
want our relationships to be open, our messaging to
be clear and our interventions to be effective. While
there will be no room for the poor behaviour of the
past, there is every intention of combining financial
markets that work well with better outcomes for
consumers. All are essential for the long-term
sustainability of the industry.
John Grifth-Jones, Chairman Designate Martin Wheatley, Chief Executive Designate
Introduction
Business Plan / 2013/14
1.
Executive Summary
Financial Conduct Authority 9
Business Plan / 2013/14
Our strategic priorities are driven by three
components:
• the key forward-looking risks in the FCA Risk
Outlook;
• our operational objectives; and
• addressing crystallised risk.
The Business Plan sets out how we will achieve this,
including the prudent use of our resources.
To achieve our priorities we have a broad range of
regulatory tools available, from supervisory actions and
policy responses to research initiatives and engaging
with consumer bodies.
These tools are available to us throughout the regulatory
lifecycle, from authorising a firm, overseeing its day-
to-day conduct and taking enforcement action when
conduct has fallen short of what is expected.
Below we have outlined the three components of
our strategic priorities, which are explained in detail
throughout this Business Plan. A reference table is in
Appendix 8.
1.1 – Our strategic priorities
Key forward-looking risks from the FCA Risk
Outlook (Section 2.1)
Major priorities will be to address the key forward-
looking risks outlined in the FCA Risk Outlook, and
strongly influence the conduct of financial services.
These risks are:
• Firms do not design products or services that respond
to real consumer needs or that are in consumers’
long-term interests.
• Distribution channels do not promote transparency
for consumers on nancial products and services.
• Over-reliance on, and inadequate oversight of,
payment and product technologies.
• Shift towards more innovative, complex or risky
funding strategies or structures that lack adequate
oversight, posing risks to market integrity and
consumer protection.
• Poor understanding of risk and return, combined
with the search for yield or income, leads consumers
to take on more risk than is appropriate.
We will also consider the three main causes of conduct
risk set out in the FCA Risk Outlook.
Figure 1
E
n
v
i
r
o
n
m
e
n
t
a
l
I
n
h
e
r
e
n
t
S
t
r
u
c
t
u
r
e
s
&
b
e
h
a
v
i
o
u
r
s
Biases &
heuristics
Inadequate
nancial
capability
Conicts
of interest
Culture &
incentives
Regulatory
& policy
changes
Technological
developments
Economic &
market trends
Ineffective
competition
Information
asymmetries
Chapter 1
Business Plan / 2013/14
10 Financial Conduct Authority
• Inherent factors − A range of inherent drivers of
conduct risk interact to produce poor choices and
outcomes in nancial markets. These drivers are
a combination of supply-side market failures (e.g.
information problems) and demand-side weaknesses
(e.g. inbuilt biases), which are often exacerbated by
low nancial capability among consumers.
• Structures and behaviours − Structures, processes
and management (including culture and incentives)
that have been designed into and become
embedded in the nancial sector, allowing rms to
prot from systematic consumer shortcomings and
from market failures.
• Environmental factors − Long-running and current
economic, regulatory and technological trends and
changes that affect the factors explored in Chapters
1 and 2 and are important drivers of rm and
consumer decisions.
Our operational objectives (Sections 2.2 to 2.4)
Our operational objectives are contained in the
Financial Services Act 2012 and are set within the
context of our strategic objective, which is to ensure
that relevant markets function well. They are:
• Delivering consumer protection − securing an
appropriate degree of protection for consumers.
• Enhancing market integrity − protecting and
enhancing the integrity of the UK nancial system.
• Building competitive markets − promoting
effective competition in the interests of consumers.
Addressing crystalised risk
• London Interbank Offered Rate (LIBOR) −
reforming the setting and governance of LIBOR,
plus pursuing other signicant cross-border
investigations in relation to LIBOR and other
benchmark rates (Section 2.3).
• Payment Protection Insurance − focusing on
ensuring that consumers who have been mis-sold
PPI promptly receive appropriate redress, plus
other work into examining complaints handling
(Section 3.4).
• Interest rate swaps − overseeing the review and
redress process to ensure that fair and reasonable
outcomes are being reached and that appropriate
redress is paid to small businesses where due
(Section 3.4).
1.2 – Key European and international priorities
The importance of the UK maintaining its influence
internationally is a high priority for 2013/14. We will work
at every level with other UK authorities, maintaining and
developing a strong, influential voice that promotes the
UK’s regulatory priorities and objectives. We will engage
in a positive manner, coordinating effectively and
working closely with the Prudential Regulation Authority
(PRA), Bank of England and the Treasury.
In the Journey to the FCA, which we published in
October 2012, we recognised that an increasing part
of our work will be to implement, supervise and
enforce EU and international standards. We committed
to engaging actively in international debates and
rulemaking, to ensure that standards set on consumer
protection and market integrity are consistent with our
objectives. The following international priorities are
discussed throughout this Business Plan:
• Provide leadership in the discussions on EU and
international issues and establish the FCA as a
credible and inuential member of the EU and
global community.
• Ensure that our EU and international engagement
is coordinated with the UK regulators.
Financial Conduct Authority 11
Business Plan / 2013/14
• Inuence global policy debates to promote a framework
that makes markets work well for consumers.
We are also influenced by our obligations to implement
already agreed EU requirements.
1.3 – Measuring our performance
To be an open, transparent regulator, we must
be held to account. Central to this is the need to
evaluate our performance. Last year the FSA consulted
representatives from firms, consumer groups and other
stakeholders on what they expect of the FCA and what
the FCA’s statutory objectives mean to them. We used
this to help develop outcomes against which we can
measure our performance. Later in 2013 the FCA will
publish its approach to evaluating its performance.
Underpinning this will be a detailed performance
framework against our statutory objectives as detailed
in Figure 2.
We are also considering eight key success measures
that represent some of the things we should achieve
in the next two or three years. They will measure
how we:
• successfully intervened earlier to the benet of
consumers;
• dealt quickly and efciently with crystallised risks;
• actively involved and engaged with our stakeholders
and put consumers at the heart of what we do;
• addressed competition issues to the benet of
consumers;
• successfully inuenced international policy;
• have been able to deliver judgement-based, early
intervention regulation;
• delivered business as usual; and
Chapter 1
Statutory
objectives
Ensuring that relevant markets function well
Securing an appropriate degree of
protection for consumers
Promoting effective competition in the
interests of consumers
Protecting and enhancing the integrity
of the UK financial system
Outcomes Consumers have
access to fair
products and
services, which
deliver what they
promise
Consumers can
be confident that
firms will treat them
fairly, with problems
fixed promptly and
effectively
Competition
contributes to
better consumer
outcomes and
firms do not
exploit consumers’
behavioural bias
Firms compete on
clear costs and
quality of service
and consumers have
the information
they need
Consumers trust
authorised firms to
be fit and proper,
to keep their assets
secure and for
financial markets
to be clean and
protected from
abuse
FCA is part of a
respected regulatory
system that enables
firms to know
where they stand
and contributes to
the attractiveness of
financial markets
Indicators Fair products
and services
Building trust and
engagement
Value for money
products and
services
Competitive
markets
Clean regulated
markets
Attractiveness of
market
Improved consumer
experience
Effective remedies Getting better
service
Clear and useful
information
Low financial crime Respected,
joined-up
regulation
“To be an open,
transparent regulator,
we must be held
to account.”
Figure 2
Business Plan / 2013/14
12 Financial Conduct Authority
• encouraged positive cultural change in nancial
services rms.
1.4 – Using our resources effectively
Using our resources effectively
Another key measure of our performance as a regulator
is the value we deliver to stakeholders. In line with the
National Audit Office (NAO) guidelines that we will
be audited on, we consider value for money (VfM)
(defined as the optimal use of resources to achieve
intended outcomes) in our decision-making. To
measure this we have developed a VfM framework,
which we use across our major supervisory and policy
initiatives.
This will be coordinated as follows:
Value for
money
Economy
‘doing things
at a low price’
Effectiveness
‘doing the
right things’
Efciency
‘doing things in
the right way’
We will monitor
our costs to
identify where we
can be more
cost-effective
We will
allocate our
resources in a way
that reects what
is needed to
deliver our
objectives
We will
regularly
review how well
we use our
resources
We will review our
processes to see if
we can do things
quicker or cheaper
or do more for the
same resources
We will regularly
review how well we
are achieving our
objectives
We will assess the
impact of our work
Financial Conduct Authority 13
Business Plan / 2013/14
Chapter 1
Box 1: Executive Planning and Risk Committee (EPRC)
EPRC oversees the balance of FCA resources to policy, projects and risk. It is responsible for:
• Proposing the FCA Risk Outlook and Business Plan priorities.
• Risk management within the FCA, including external, firm and organisational risk, before its presentation
to the Risk Committee (external risks) and Audit Committee (internal risks).
• Providing direction on the use of FCA resources to deliver against risks.
• Approving resources for new policy projects.
• Providing direction on the resource requirements for new projects including policy, risk and operational
projects and significant thematic work.
Risk appetite framework
We need to take on a significant amount of risk if we are to meet our strategic and operational objectives.
Our risk appetite framework is a statement of our appetite, both absolute and relative, to take on risks of
different types and across our various activities. It will be reviewed and agreed by our Board annually.
In all cases, our over-riding principle will be to target our resources to best achieve our objectives. We also
recognise that, as well as risks to our objectives that have not yet caused harm, there are risks that are
already happening, and we have legal obligations that we have to fulfil under UK and EU law and under the
terms of international regulatory agreements. We will seek to balance our resources across these priorities
and within our risk appetite for each. To do this, we will classify our activities and assign our resources
through a single risk framework comprising four layers:
• Our mandatory activities (i.e those prescribed by UK and EU law, and by international agreements to
which we are a signatory).
• Forward-looking strategic priorities.
• Other major work areas (normally agreed at divisional level).
• Responses to crystallised events that threaten, or have exceeded, our risk appetite.
Business Plan / 2013/14
2.
Achieving our objectives
Financial Conduct Authority 15
Business Plan / 2013/14
We will supervise the conduct of approximately
26,000 rms across all nancial industry sectors
and the prudential standards of approximately
23,000 rms not regulated by the Prudential
Regulation Authority (PRA). We will use all of our
powers to ensure that rms continue to meet our
standards, that markets operate with integrity,
and that consumers are protected.
Our Supervision, Markets, Enforcement, Authorisations
and Policy, Risk and Research (PRR) divisions will work
together to ensure that we meet our objectives.
We will take a risk-based, proportionate approach to
supervision, recognising the diversity among firms and
markets, and allowing us to focus on the bigger issues,
either in individual firms or within and across sectors.
We will be a more proactive regulator, acting earlier
and decisively. Our PRR division will act as the FCA’s
radar, identifying risks and allowing us to address them
before they cause harm.
We will develop and use a range of policies to increase
consumer protection and market integrity. Many of
our rules are now made and influenced by what is
decided in Europe and internationally. We will work
closely with the Bank of England (BoE), the Treasury,
the European bodies and other relevant stakeholders
to ensure that these rules are appropriate and
proportionate, and that the UK’s interests are
represented in their development.
Market integrity benefits firms, individuals and society
as a whole, and our Markets division will work to
ensure markets operate in such a manner. We will
take a proportionate, risk-based approach and identify
the issues that have wider, longer-term effects on
consumers and market integrity.
We are committed to a credible deterrence strategy
through our enforcement actions. This means that we
will use our enforcement powers to take action against
firms and individuals who abuse the system and to
deter others from doing so.
We recognise that poor outcomes for consumers
may result from anti-competitive factors in markets,
including information problems, market structures
and consumer biases. We will work to ensure that
markets operate competitively to support positive
outcomes for consumers.
The rest of this chapter is set out as follows:
• In Section 2.1 we consider our FCA Risk Outlook,
which identies current and future risks to our
objectives.
• In Sections 2.2 to 2.4 we discuss how, in addition to our
FCA Risk Outlook work, we will achieve our objectives.
• In Section 2.5 we outline the framework we will use
to achieve our objectives.
2.1 – Conduct risks to our objectives
The conduct risks we have identified are based on what
the main risks are in firms’ behaviour that could stop us
achieving our objectives, and how much of this risk we
are willing to accept (our ‘risk appetite’). We set this out
in more detail in our FCA Risk Outlook. In this section
we set out the conduct risks we have identified and the
work that we are carrying out in 2013/14 to tackle them.
Risk: Firms do not design products or services
that respond to real consumer needs or are in
consumers’ long-term interests
Product governance
Poor product governance can cause conduct risk in
a number of ways. Unconscious consumer biases are
inherent and can be manipulated by product design
Chapter 2
Business Plan / 2013/14
16 Financial Conduct Authority
and sales processes. There may also be a lack of
oversight over a product’s lifecycle, which may lead to
complex or unclear products that are not in the best
interest of consumers.
We will be prepared to intervene earlier to prevent
or minimise harm to consumers before it becomes
widespread. We will be prepared to make judgements
on whether firms have identified an appropriate
target market, and if distribution strategies and
product oversight are likely to deliver fair outcomes
for consumers.
Where necessary we will intervene directly in the
design and distribution of products rather than
relying on information from firms to prevent harm
to consumers. We will use the range of product
interventions we developed in 2011, up to and
including banning products.
Product intervention
As well as supervisory work to address the risks related
to developing and distributing products, we will carry
out thematic reviews of firms’ product governance
processes across retail and wholesale markets to ensure
that the outcome is appropriate for consumers. We will
take tough action if standards are not adequate. We are
also looking into replacing the existing guidance with
rules to strengthen our requirements. More details on
our supervisory approach can be found in Section 2.5.
We will work together across the FCA to identify issues,
particularly on early intervention. Supervisors and
Enforcement will work to identify potential issues at an
early stage and will draw on the expertise across the
FCA to take appropriate action.
We will also discuss introducing product intervention
powers and developing high-level principles on product
governance with the European Commission (EC) and
the European Supervisory Authorities (ESAs).
Product Design and Oversight: Fund fee structure
In the asset management sector fund fees have
increased in the last decade, additional ‘hidden’ fees
have increased and overall charging structures have
become more complex as performance fees have
become more common. There is evidence that fee
structures exploit consumers’ behavioural bias, a key
cause of risk. For example, firms may:
• use complex fee structures that make price
comparisons difcult;
• apply more complex fee structures to retail customers
than institutional clients; and
• downplay the long-term impact of apparently small
increases in annual charges.
In 2013/14 we will undertake a project that will highlight
the behaviours and practices of asset management firms
in relation to charging structures that harm consumers.
Initial evidence suggests that fund fees are high in the
UK compared to comparable markets and charging
structures do not promote informed consumer choice.
Mortgage arrears and forbearance management
A key area of our focus in 2013 will be the fair treatment
of mortgage borrowers who have experienced
financial difficulty. We will conduct a thematic review
of firms’ arrears handling procedures and forbearance
management. This will consider the appropriateness
of firms’ strategies when dealing with long-term
arrears forbearance management, including recent
developments in arrears management practices, and
assess firms’ delivery of fair outcomes for consumers.
Following previous thematic reviews, which led to a
number of successful enforcement cases, we expect
firms to be able to clearly demonstrate how they comply
with our rules in this area, ensuring fair and appropriate
outcomes for borrowers in arrears.
“We will work together
across the FCA
to identify issues,
particularly on early
intervention.”
Financial Conduct Authority 17
Business Plan / 2013/14
Competition – General approach
This will involve detailed work from various teams within
the Policy, Risk and Research division, including our
Competition department. We will update stakeholders
regularly on the initial outcomes of this work.
We will address competition through our policy and
supervision work and by making sure we have the
right tools and engage with stakeholders to deal
with competition issues in pursuit of our competition
objective. In our work over 2013/13 we will develop
our competition expertise and focus on:
• how we identify risks;
• early intervention − using our range of regulatory
tools to prevent competition issues becoming
widespread;
• examining barriers to entry and exit; and
• undertaking market studies to help strengthen our
understanding of competition issues in markets
More detail on our competition work can be found
in Section 2.4
Risk: Distribution channels do not promote
transparency for consumers on nancial
products and services
Financial incentives
In 2012, the FSA published guidance on the risks to
customers from financial incentives after our thematic
work showed that most incentive schemes are likely
to cause mis-selling and firms are not managing this
properly. We welcome the significant changes that some
firms are now making to reduce the risks in their schemes.
In 2013/14 we will conduct a wider review to assess how
firms responded to this guidance and whether they have
established schemes and controls that avoid the risk of mis-
selling. We want firms to manage their incentive schemes
properly, so that consumers are less likely to suffer.
Depending on how firms react to our guidance, we
will consider more intrusive supervision, including
strengthening our rules. We will also take action against
individual firms that are not managing the risks from
their incentive schemes.
Financial promotions
Consumers are influenced by, and rely on, the information
they get from financial promotions when making their
purchasing decisions. We have a team dedicated to
reducing the potential risk of harm to consumers caused
by misleading promotions.
The team will review financial promotions across
all sectors to ensure firms provide consumers with
information that is fair, clear and not misleading and we
will take action where this is not achieved. We anticipate
reviewing a number of promotions and taking forward
cases as necessary.
The FCA has a new power to ban financial promotions
and publish the details relating to it. Using this power
will deliver a number of benefits. In particular and most
importantly, it allows us to take swift action to protect
consumers in a transparent and visible way. Publishing a
ban will inform and warn consumers of the misleading
promotion and encourage a broader understanding of
how promotions can be unfair, unclear and misleading.
For firms it will allow them to see real and varied
examples of where they fall short of our requirements
and allow them to proactively improve their own
financial promotions. We hope this power will deter
firms from misleading consumers. Where this is not the
case, we are ready to use this power.
We will also adopt a more streamlined and robust
approach to firms that consistently produce promotions
Chapter 2
Business Plan / 2013/14
18 Financial Conduct Authority
that can mislead, confuse or be unfair to consumers.
This may involve greater use of our supervisory and
enforcement powers.
Conicts of interest
Our Firm Systematic Framework (FSF) helps to address
some of the issues involved in conflicts of interest.
In 2013/14 we will also review the management of
conflicts of interest in the asset management sector.
Asset managers act as agents for their customers,
making investment decisions in financial markets
on their behalf. Confidence in the integrity of asset
managers is central to the trust between the industry
and its customers.
This means that when making investment decisions,
or buying products and services for customers, asset
managers must always act in customers’ best interests,
putting customers’ interests ahead of their own and
treating all their customers fairly.
Acting as an agent for customers may create conflicts
between the interests of a firm and its customers or
between the interests of different customers. Policies to
properly manage conflicts of interest mean customers
avoid unnecessary costs and have fair access to all
suitable investment opportunities. Properly managing
conflicts improves the returns earned by customers
and enhances general confidence in the UK asset
management industry.
In 2012/13 we carried out initial work on conflicts by
visiting firms and providing them with detailed feedback.
We communicated the findings from this first stage of
work to firms through a ‘Dear CEO’ letter in November
2012. We concluded that the seriousness of the issues
identified requires us to take action to ensure firms
comply with the rules. In 2013/14 we will carry out a
second stage of visits to firms.
Custody banks
Firms are facing considerable pressure on their business
models and strategies and consequential changes in
business models may lead to harm to consumers as
firms are pushed to exploit areas of profitability.
The custody bank business model is evolving and
the basic premise of providing safekeeping and
custody of client assets − which is high volume and
low margin − is facing strain in the ongoing low
interest-rate environment and because of changing
regulatory requirements.
Consequently, custody banks have become
increasingly reliant on revenues from secondary
services such as:
• securities lending;
• foreign exchange (‘custody FX sweep’ and ‘direct FX’);
• collateral and cash management;
• derivatives clearing; and
• data analytics, research services and transitions
management.
There is a risk that the pressure on firms to improve
profitability could lead to harm to consumers.
We want to investigate the transparency of secondary
services to establish whether investors are being
disadvantaged or charged excessively.
In 2013/14 will we will assess the secondary services
of custody banks to measure the impact of current
practices on their business models, on direct clients
and, where possible, on the indirect end-consumer. We
intend to identify the scale of any issues and develop a
strategy for reducing risk where we find issues.
Financial Conduct Authority 19
Business Plan / 2013/14
Transition management (TM)
TM allows improved performance through increased
portfolio returns and better risk management.
TM clients are usually pension funds, local authorities
or other institutional managers for whom transitions
occur infrequently. They are typically unadvised, so
information can be irregular when negotiating and
reviewing such transitions.
The use of affiliates by transition managers, unclear fee
structures and complex legal and pre/post-transition
documentation can result in poor customer outcomes.
This may have an immediate impact on pension
fund holders and cause a deterioration in market
confidence, with clients choosing not to use TM to
manage portfolio allocation risk.
There is evidence that the level of transparency and
market conduct among TM participants is not to the
standard we require.
In 2013/14 we will undertake a project to review
practices across the main TM industry participants to
assess whether customers are being treated fairly.
Product Design and Oversight – Fund fee structure
Our work in this area will also contribute towards
mitigation against this risk. Full details of our work can
be found on page 16.
Retail investment advice
We will continue to monitor developments and
changes in the retail investment market as firms adapt
to the new landscape. All firms in the distribution
chain for retail investment products will need to
consider the effects of the rules on retail investment
advice on their business models and propositions.
We will be monitoring these developments closely
by analysing individual sectors and the overall shape
of the market (‘macro’ analysis), and analysing how
individual firms adapt and their business models
manage the associated risks (‘micro’ analysis). Further
information on retail investment advice can be found
in Section 2.2.
Wholesale conduct strategy
Our wholesale conduct strategy will recognise that
even among wholesale counterparts, differences
in participant sophistication mean that some
participants should be given greater protection than
others. Our work on ‘payment for order flow’ reflects
this approach.
Payment for order flow is a practice that can influence
where orders are directed for executives, which can
take the form of brokers receiving payment from
market makers for every order sent to the market
maker. The risk is that the broker is incentivised to send
the client’s order to the market maker that pays the
most per order rather than the market maker offering
the best price for the consumer. Clients are unaware
of these payment arrangements, which are included
in the spreads they are offered, posing a risk to price
formation and market integrity.
Dealing commissions and stock-lending fees may
not be properly disclosed and poor management of
conflicts of interest may lead to excessive prices being
paid out of client funds for services received. Paying
for corporate access with dealing commission is not
transparent and creates a conflict of interest between
asset managers and their customers, making it
difficult for customers to judge how well their money
is being spent or whether the asset manager is acting
in their best interest. Overall fees may be presented in
a way that makes it difficult for the consumer to work
out what is being charged in total. Even in wholesale
markets, some participants have different degrees of
expertise and will need to be given higher protection
than others. We therefore place different regulatory
requirements on firms depending on the type of
participant they are conducting business with and the
type of service provided.
Chapter 2
Business Plan / 2013/14
20 Financial Conduct Authority
We will increasingly focus on the culture, systems and
controls that govern these relationships and be more
willing to intervene where we believe poor conduct could
have a negative impact on the integrity of the markets
or on the reputation of the UK as a place to do business.
LIBOR / Wheatley Review
The attempted manipulation of LIBOR highlighted
the weaknesses in some banks’ conflict of interest
management. The Wheatley Review will result in
LIBOR-related activity being brought into the regulatory
perimeter, which will raise the standards of governance
and systems and controls around the submission of
rates, and will create new Controlled Functions, which
will come into effect on 1 April 2013. Further detail on
our work on LIBOR is in Section 2.3.
Packaged Retail Investment Products (PRIPs)
The European Commission (EC) is concerned that the
existing disclosure requirements for PRIPs (which include
investment funds, structured products and insurance
contracts used for investment purposes) vary according
to the legal form a product takes, rather than its
economic nature or the risks it poses for retail investors.
Providing good quality, consistent information will help
consumers make better informed decisions, offering
them better protection.
In 2013/14 we will work with the Treasury to influence
PRIPs regulation. We are keen to make sure that the
new documents will be genuinely useful for consumers,
as well as practical for firms to produce. Once the high-
level regulation is complete, we will work with all three
ESAs to develop detailed technical requirements.
Risk: Over-reliance on, and inadequate oversight
of, payment and product technologies
Insurance − Price comparison rms
Price comparison firms have been responsible for
major structural changes in the way the industry
manufactures, prices and distributes retail insurance
products, particularly motor and increasingly home
insurance products. We will review the risks that
price comparison websites present to consumers and
whether they comply with regulatory requirements.
New payment methods / Mobile banking
and payments
It is likely that new payment methods, particularly those
enabling consumers to make payments with their mobile
phones, will increase rapidly in popularity over the
next few years. Mobile banking and payments services
may have benefits for consumers, including greater
convenience. However, it is important that firms also
consider the potential risks to their customers when
launching these services.
Following initial work on mobile banking and payments
in 2012, we identified a number of potential risks to
consumers, including:
• consumers suffering fraud on their accounts;
• consumers being inadequately informed about how to
use the services or protect themselves from fraud; and
• rms failing to properly consider the needs of their
customers when developing and marketing mobile
banking and payment services.
During 2013/14, we will intervene to ensure that
firms offering such services are taking appropriate
steps to protect consumers. This may include
firms providing suitable information to consumers
on what the services do and how to use them,
ensuring customers’ funds are secure at all stages
of the payments chain and that any unauthorised
transactions are appropriately refunded.
Technological resilience/banking
We will address the risks to retail customers arising from
“We will review the risks that price
comparison websites present to
consumers and whether they comply
with regulatory requirements.”
Financial Conduct Authority 21
Business Plan / 2013/14
a major failure of core banking and payment systems.
This includes implementing the lessons learned from
the RBS Group systems failure in the summer of 2012,
including a better understanding of the root causes
of major events like this and the action required to
minimise the impact on banks’ customers.
Market infrastructure
Firms are placing new demands on market infrastructure
in the trading strategies they use, such as the increased
use of algorithmic and high-frequency trading. This
creates new risks to the operational resilience of market
infrastructure.
We will use our supervisory framework of regulated
investment exchanges and multi-lateral trading facilities
(MTFs) to assess whether the market infrastructure’s
operational risk management is sufficient to respond
to the risks these new demands place on operational
resilience. As well as this, we will maintain a full picture
of the risks around technology-dependent trading
strategies may pose to market integrity.
The Payment Services Directive (PSD)
The Payment Services Directive (PSD) is currently being
reviewed. The FCA and the Treasury will seek changes
to make it clearer and to promote competition and
innovation, which should make the new Directive more
able to embrace future technological change.
The EC has announced their intention to complete
the PSD review in 2013. The closely-related second
Electronic Money Directive (2EMD) will not be reviewed
until 2014 because it has not yet been implemented in
some Member States.
Risk: Shift towards more innovative, complex
or risky funding strategies or structures that
lack adequate oversight, posing risks to market
integrity and consumer protection
CRD IV
We are the prudential regulator for a large number
of investment firms currently covered by the Capital
Requirements Directive (CRD). They will therefore
need to implement the changes introduced in CRD IV.
CRD IV is the EU legislative response to the Basel
Committee on Banking Supervision’s ‘Basel III’
agreement for internationally active banks, and
represents a major strengthening of the prudential
regime. CRD IV represents a major change in
approach from the current CRD, because the majority
of the CRD IV text will be by way of a regulation,
which will be directly binding on the firms and/or
the regulators. As a result, large parts of the current
prudential rules for CRD firms in the FSA Handbook
(e.g. BIPRU) will disappear.
The FCA will need to consult on those parts of CRD IV
where it can still retain its own rules and guidance and,
within the tighter constraints of the new EU legislation,
seek to implement the changes in as proportionate
and risk-based manner as possible. There will be many
areas of detailed change, which could affect individual
investment firms differently, according to their own
individual circumstances, including current capital
structures and business models.
The EC proposed implementation date of 1 January
2013 was delayed. We will continue to undertake
all preparatory work that is possible in the absence
of finalised legislative text and expect all firms in
scope to do likewise. Timing for implementation now
depends on the implementation date agreed through
the EU legislative process. We will proceed with the
necessary preparations to be ready to begin collecting
data under Common Reporting for the period
beginning 1 January 2014, should the legislation and
related standards be in place by then. Transitional
periods and phasing in of various parts of the new
requirements will run through to 1 January 2019.
Chapter 2
Business Plan / 2013/14
22 Financial Conduct Authority
Risk: Poor understanding of risk and return,
combined with the search for yield or income,
leads consumers to take on more risk than is
appropriate.
General approach
We are currently establishing a detailed strategy to
deal with the complex issues underlying this risk and
decide how best to intervene. This will involve significant
scoping and research work across the FCA, coordinated
by our Policy, Risk and Research division. We will update
stakeholders regularly and as appropriate on the initial
outcomes of this work.
Interest-only mortgages
We have been looking into the maturity of interest-only
mortgages, considering the risk of existing interest-
only mortgage customers being unable to repay the
amount due at the end of their mortgage term.
We are working closely with relevant industry and
consumer bodies. We will be reporting on the findings
from our initial review shortly. We will also continue to
monitor product developments that aim to resolve the
issue and will intervene where we have concerns about
particular products.
2.2 – Consumer protection
Much of our work addressing the key forward-
looking risks in the FCA Risk Outlook also contributes
towards meeting our consumer protection objective.
In addition to the work highlighted in Section 2.1, we
will be carrying out work in other areas to ensure that
consumers are protected, which is outlined below.
Section 2.5 also expands on our consumer-focused
work through our supervision strategy.
Domestic supervision initiatives
The Mortgage Market Review (MMR)
The MMR will ensure that the mortgage market works
better for consumers by tackling responsible lending,
distribution and disclosure, arrears management
and prudential requirements for non-deposit-taking
mortgage lenders. We have already published our Policy
Statement (PS12/16) on the MMR and our final rules
come into effect on 26 April 2014.
In 2013 we will engage with firms covered by the MMR
in a number of ways. Building on the roadshows that we
held in early 2013, we will conduct online surveys and
workshops throughout the year. We will also publish the
results of our readiness tracking in Q3 2013 and Q1 2014.
To help effectively supervise the MMR, our Policy
division will:
• enhance our reporting requirements (the information
that we require rms to send us); and
• review our Perimeter Guidance (PERG) to see how
we can make the boundary between advice and
information clearer ahead of implementation of
the MMR.
We will continue to monitor how ready the industry is
to implement the new MMR rules when they come into
effect. We will support the industry through ongoing
communication including:
• early engagement and education with rms and
their relevant trade bodies;
• monitoring how ready rms are to implement the
MMR;
• feeding back to the industry on our ndings from
the readiness tracking, with further education given
where needed;
Financial Conduct Authority 23
Business Plan / 2013/14
• engagement with consumer groups to promote
consumer awareness of the MMR and how it affects
them; and
• taking appropriate action in response to any risks
we see emerging in the lead-up to implementing
the MMR.
Retail Investment advice
The way we supervise firms in the retail investment
market should help reduce the risks associated with
adviser firms failing to devise, disclose and consistently
deliver compliant charging and service advice models.
It will also look for individuals who are not suitably
qualified, and those that misrepresent advised sales as
non-advised sales.
The rule changes around retail investment advice, and in
particular the qualifications requirements, could lead to
a significant proportion of advisers leaving the market,
making investment advice more difficult to access. We
are monitoring the number of advisers in the market
to understand if this is happening. Our figures show
there were 31,132 retail investment advisers operating
in the market, as at 31 December 2012. We have also
published guidance on simplified advice to help tackle
the risk that the cost will deter consumers.
Apart from our assessment of adviser qualifications,
we will tackle other risks through thematic work
and by communicating with industry throughout
2013/14. For all firms, the rules on retail investment
advice represent a significant change to business
models; we recognise that this poses a risk to the
market and to consumers. We will produce good
and poor practice, speeches and workshops as
appropriate to guide firms through implementation.
Where we find that firms are not complying with the
rules on retail investment advice, we will consider
tightening or amending rules to ensure that firms
deliver the outcomes we expect. We are also making
changes to the way that platforms are paid. This will
require a change in firms’ business models and a
substantial amount of work. We will provide support
through this process.
Managing Client Assets (CASS)
Our supervisory work shows that a number of firms
have inadequate records and ineffective segregation of
client assets, heightening the risk that any departures
from the market could prove disorderly, causing
harm to clients, creditors and counterparties and
the market as a whole. Increasing firms’ compliance
and awareness of CASS rules is a key aim for us in
2013/14. We will:
• Increase the supervision of rms holding client
money and safe custody of assets through more
intrusive visits to rms, thematic projects and
desk-based reviews, actions initiated through
Client Asset and Money Return (CMAR) /audit
information and taking regulatory action where
rm failings are identied.
• Embed our risk assessment and prioritisation
method, using the information given to us by rms
through CMAR audits, and combining this with
rm intelligence.
Specific actions that we will be taking include:
• Implementing EMIR (Part 1) and consideration of
EMIR (Part 2 − binding technical standards) and the
possible implications for CASS.
• Strengthening our oversight of the rms holding
client money as insurance intermediaries through
the CASS 5 Policy Statement.
• Reviewing and re-drafting of Chapters 6 and 7
in CASS to achieve the wider objectives of the
distribution review.
Chapter2
Business Plan / 2013/14
24 Financial Conduct Authority
• Reviewing the CASS Handbook to re-evaluate issues
that have arisen over recent years (e.g. deposit
exemption, term deposits).
• Working to engage rms through more dened
engagement and wider participation with CF10a
individuals to address issues.
Where we find that firms do not have adequate
systems and controls in place to ensure the safe
segregation of client assets, we will consider taking
enforcement action. The FSA took enforcement
action against a number of firms for failures relating
to client asset obligations. We will take tough action
and impose fines on those firms that still do not have
adequate arrangements in place
Complaints data
A firm’s complaints handling process, including the
right of referral to the Financial Ombudsman Service
(FOS), is a significant ‘line of defence’ for consumers
suffering harm from poor advice and/or inappropriate
products and services.
Information on complaints can also provide an early
warning of emerging conduct risks in a firm. We will
focus on the effectiveness of complaints handling
in major banks through our supervision and we will
widen this to include firms from other sectors. The
supervisory approach will consider key stages of a
complaints lifecycle which, if ineffective, may act as a
barrier to fair treatment of the complainant. We will
also consider the effectiveness of the firm in identifying
emerging conduct risks through their complaints data
and the action they take as a result.
Domestic policy initiatives
Listing rules
To help protect consumers and deliver market
integrity, we will continue to ensure the listing rules
reflect and encourage high standards of market
practice and disclosure. Following the consultation
in October 2012 on enhancing the effectiveness
of the listing regime, we will finalise our proposals
for corporate governance within the listing regime,
quality of markets and listed funds.
The European Commission are due to publish their
proposals on EU standards for corporate governance
for listed issuers in 2013. We will exercise our influence
to ensure these appropriately cater for the UK market
and reflect the standards we promote
Wealth management
The FSA looked at the standards of suitability and
record-keeping in the wealth management industry.
One consequence of this work is that many wealth
management firms are improving their systems to
ensure their customers receive − and can be shown
to receive − portfolios that match their risk appetite
and meet their investment objectives. Often, firms
are updating the information they hold on their entire
client base to embed these improvements and, as
these efforts continue into 2013/14, we will continue
to work with firms to check that the outcomes are in
line with our requirements.
More generally, wealth management will remain a
major focus of ours over the coming year and firms
can expect to see more activity in this business
area, both thematically and as part of their regular
supervision arrangements.
International policy initiatives
Insurance Mediation Directive (IMD2)
The EC reviewed IMD2 with a number of key aims:
• extending the regime to include more insurance
mediation activity, bringing insurance undertakings
within scope;
“Where we nd that rms
do not have adequate
systems and controls in
place to ensure the safe
segregation of client
assets, we will consider
taking enforcement action.”
Financial Conduct Authority 25
Business Plan / 2013/14
• addressing what it sees as the inconsistent
application of IMD2 across Europe; and
• raising levels of consumer protection.
Negotiations will continue well into 2013. We are
working with the Treasury to influence the development
of IMD2 so that we can maintain the consumer
protection measures that apply to UK insurance
intermediaries.
Mortgage Credit Directive
The European Commission published a proposal in March
2011 that tackles a number of conduct issues, such as
responsible lending, advertising and disclosure, as well
as creating a passporting regime for mortgage credit
intermediaries. We will continue to help the Treasury
negotiate on the proposal, helping to formulate and press
the UK position. While the timetable for the proposal has
slipped, it may be agreed in 2013, and we would then
begin preparations to transpose the Directive (Member
States are likely to have two years to do this).
Box 2: Working with the ESAs on
consumer protection
We will actively participate in the work of the
three European Supervisory Authorities (ESAs) −
the European Securities and Markets Authority
(ESMA), the EBA (European Banking Authority)
and EIOPA (European Insurance and Occupational
Pensions Authority) − on conduct and consumer
protection issues. This includes through our
membership of the ESAs’ standing committees
on consumer protection and financial innovation,
and our involvement in various other ESMA
groups with an investor protection remit. We will
also continue to participate in the cross-sectoral
consumer protection committees established
under the Joint Committee of the three ESAs.
2.3 – Enhancing market integrity
We will address the drivers of market integrity in a
number of ways. This will include our continued focus
on wholesale conduct, ensuring that participants act
with integrity at the start of the investment chain. Details
of our wholesale conduct supervision approach are in
Section 2.5.
We have also refreshed our approach to the supervision
of trading platforms, recognising the increased role they
play in market integrity. Our work on LIBOR addresses
the weaknesses in governance, systems and controls in
the overall architecture of the regime and participants.
We will continue to prioritise tackling market abuse to
ensure that our markets are clean. Further details are
in Chapter 3.
Domestic supervision initiatives
Using new powers set out in the Financial Services Act
and through redeveloping our processes for authorising
and supervising markets, we will strengthen the way we
supervise markets for Recognised Investment Exchanges
(RIEs), sponsors and Primary Information Providers (PIPs)
so that they support our FCA objectives.
Supervising Recognised Investment Exchanges (RIEs)
Following the transfer of responsibility for the
supervision of clearing and settlement infrastructure
to the Bank of England, we will refocus our supervision
of market infrastructure to be targeted on the specific
risks to market integrity and consumer protection
posed by RIEs. As well as refining our supervisory
framework for RIEs, we will also incorporate new
powers for the FCA regarding holding companies
in a group context, information gathering and our
supervisory toolkit.
Primary Information Providers (PIPs)
Irregular information is a key cause of conduct risk.
In markets, PIPs have a key role in ensuring that
regulated information is communicated in a timely
Chapter 2
Business Plan / 2013/14
26 Financial Conduct Authority
manner. This is important to ensure a level playing
field in regulated markets and to enable consumers to
make informed decisions.
PIPs will be brought within our regulation through the
new statutory regime. In 2013/14 we will implement
processes to exercise our new powers for PIPs. This
will include new resource to supervise the enhanced
regime and reflect its importance in supporting the
listing regime.
Multilateral Trading Facilities (MTFs)
Since the implementation of MiFID, a significant
proportion of secondary trading of shares has moved
to MTFs. We will implement a new framework for
supervising MTFs, which will ensure a consistent and
proportionate approach to supervising these operators,
and that participants in MTFs are protected in a
consistent manner to those participating in regulated
markets. We will supervise MTF operators to an
equivalent standard to the regulated markets in which
they compete. We will ensure that our supervisory
approach is proportionate to the nature and scale of
an MTF’s activities. Where an MTF has a significant
market impact, or affects our statutory objectives, we
will supervise it more closely.
Sponsors
Sponsors are key for the capital raising of listed companies
and the integrity of the UK financial system. The FCA
has extended powers to impose financial penalties and
suspend sponsors. In 2013/14 we will increase the level of
resource dedicated to sponsor supervision, in line with the
number of firms supervised, to reflect the importance of
the sponsor role they perform. We will also exercise these
powers in a broader domestic and international context
where there is a concerted effort to improve sponsor
standards, to offer better protection for consumers of
their services. Following publication of CP02/12 we
will continue with our focus on sponsor standards and
tightening the requirements to which they are subject.
International policy initiatives
Though there is a significant domestic aspect to our
work on market integrity, the interconnectedness
of financial markets means that much of our market
integrity work also has an international focus or is
driven by international initiatives.
Markets in Financial Instruments Directive
(MiFID) and Markets in Financial Instruments
Regulation (MiFIR)
MiFID and MiFIR cover the buying, selling and trading
of financial instruments, including shares, funds, bonds
and derivatives. The rules are being revised to reflect
how financial markets have changed in recent years due
to new trading venues, products and technologies, and
to respond to the financial crisis by implementing G20
commitments regarding the trading of standardised
Over-The-Counter (OTC) derivatives.
The proposals aim to make financial markets more
efficient, resilient and transparent, and to strengthen
the amount of protection for investors. The revisions
to MiFID will have implications across client assets,
wholesale conduct, secondary trading and transaction
reporting. They will, among other things:
• introduce information requirements for dealings
with eligible counterparties;
• create a framework for pre/post-trade transparency
for the trading of non-equity instruments;
• introduce a new category of trading venues
(Organised Trading Facilities);
• require position limits be set for the trading of
commodity derivatives;
• expand and harmonise the scope of transaction
reporting; and
Financial Conduct Authority 27
Business Plan / 2013/14
• introduce a new authorisation regime for Approved
Reporting Mechanisms (ARMs).
Industry will be required to make major systems
changes. During 2013, we will continue to work
with other regulators in the European Securities and
Markets Authority (ESMA) in preparing detailed,
technical standards. We will consult on implementing
the new Directive once the standards are finalised.
An implementation date has yet to be finalised.
MiFID aims to improve investor protection in a
number of ways, most notably by introducing more
specific requirements to tackle both inducements
and remuneration practices that can cause bias,
as well as requirements on product governance
and intervention. As MiFID underpins many of
the conduct of business standards applying to the
investment market, it will be important to ensure
that it delivers appropriate and proportionate levels
of investor protection.
Alternative Investment Funds Managers
Directive (AIFMD)
The AIFMD aims to create a harmonised EU framework
for monitoring and supervising the risks that alternative
investment fund managers could pose to financial
stability and to investors. It applies to investment
companies and a wide range of firms that manage
funds, including hedge funds, private equity funds and
retail investment funds.
Member States are required to implement AIFMD by
July 2013. We intend to publish a Policy Statement in
2013 to implement the rules required by the Directive
and to put in place appropriate rules where we have
national discretion. We will also be working within
ESMA to finalise Level 3 guidelines on reporting
templates and supervisory cooperation arrangements
with non-EEA states.
UCITS (Directive on Undertakings for Collective
Investment in Transferable Securities)
UCITS V focuses on rules covering depositaries,
remuneration and sanctions, aiming to align UCITS with
the AIFMD. Discussions are on-going in the European
Parliament and in the Council. Along with the Treasury
we are actively participating in the negotiations taking
place. We expect the Level 1 text to be agreed in Q3/4
2013 and will consult on any necessary changes to our
rules shortly thereafter.
UCITS VI (as consulted on in July 2012) covers eligible
assets, use of derivatives, EPM, OTC derivatives,
liquidity management, depositary passport, money
market funds and long term investments. Additionally,
stakeholders’ comments were sought on whether
or not the rules concerning the UCITS management
company passport, master-feeder structures, fund
mergers and notification procedures might require
amendments. We submitted our joint response with
the Treasury in late-2012 and we will continue to feed
into the development and publication of Level 1.
We will consider the implications and any changes
necessary following the publication of ESMA guidelines
on ETFs and other UCITS issues, which were officially
published on 17 December 2012.
Financial Market Infrastructures (FMIs)
We expect legislation in this area to be proposed
by the Commission in 2013. FMIs play a critical role
in the global financial system and the disorderly
failure of an FMI or the closure of a critical service
provided by an FMI could lead to serious disruptions
to the financial markets. It is, therefore, important
for FMIs and authorities to have the necessary tools
and powers in place to help implement FMI recovery
and resolution. EU work will run in parallel to UK
developments in 2013.
Chapter 2
Business Plan / 2013/14
28 Financial Conduct Authority
Commodities market regulation
In all of our work on commodities market regulation,
we will factor in its impact on market efficiency
and liquidity. We will contribute to the following
international work on commodities markets in 2013/14:
• Chairmanship of the ESMA Commodities Task
Force, negotiating and implementing EU directives
and regulations wholly or partly affecting commodity
markets. Over the next year, the focus will be on
the Level 2 measures for MiFID, MiFIR and Market
Abuse Regulation (MAR) together with putting in
place the structure for cooperating with the Agency
for the Cooperation of Energy Regulators (ACER)
under the Regulation on Wholesale Energy Market
Integrity and Transparency (REMIT).
• Co-Chairmanship of the IOSCO Standing
Committee on Commodities, inuencing the
direction of global regulatory initiatives affecting
commodity markets. This group will particularly
focus on the implementation of the Principles for
Oil Price Reporting Agencies published by IOSCO
in October 2012 and input on the commodities-
related aspects of wider work on benchmarks.
Other key international proposals
Other key proposals on which we will continue to
support the Treasury in negotiations include:
• The Market Abuse Regulation and Criminal
Sanctions Market Abuse Directive, which
will improve the scope and operation of the
market abuse framework without imposing
disproportionate burdens on market participants.
• The Central Securities Depositaries Regulations
(CSDR), which aims to increase the level of safety of
securities settlement and improve the conditions of
cross-border provision of services. We will support
the Treasury in negotiations on CSDR, to improve
safety of CSD operations and operation of pan-
EU settlement services. We expect CSDR to be
implemented in 2014.
• The review of the Transparency Directive (TD),
which seeks to enhance the transparency of certain
types of information regarding issuers with shares
admitted to trading on regulated markets. This
includes information about the major shareholders
of the issuer, along with obligations that ensure the
maintenance of a timely and complete information
ow from the issuer to the market. We expect
the review of the TD to be nalised in 2013, with
implementation in the UK in 2014.
• Securities Law legislation proposals, which
we expect to be forthcoming in 2013 and aim to
provide legal certainty of securities holdings and
dispositions, ensuring investor condence and fair
and efcient markets.
• Anticipated proposals from the Commission
regarding a Close out netting Directive. Here
we will support EU negotiations to ensure that
cross-netting of exposures in default happens on a
reliable legal basis.
• The European Market Infrastructure Regulation
(EMIR), which came into force on 16 August 2012.
We will continue to play a leading role in ESMA on
nalising the technical standards under EMIR, which
we expect to come into force throughout 2013. The
FCA will assume a range of new responsibilities under
EMIR. Our work in 2013/14 will focus on preparations
on implementing the reporting, risk management
and clearing and collateral requirements of EMIR. We
will also help rms understand new obligations.
• Credit rating agencies were the subject of much
scrutiny in the aftermath of the nancial crisis, so it
is an important focus for regulation internationally.
“In all of our work on
commodities market
regulation, we will
factor in its impact
on market efciency
and liquidity.”
Financial Conduct Authority 29
Business Plan / 2013/14
The latest and third piece of EU legislation on
Credit Rating Agencies (CRAs) was nalised in
late 2012 and enhances the current regulatory
framework in this area. We will work within ESMA
on implementing the new regulation in 2013.
Box 3: Working with the ESAs on market integrity
In most cases, legislative initiatives will be supported by technical standards in the European Supervisory
Authorities (ESAs), notably ESMA from a markets perspective.
We will continue to play a leading role in ESMA on drafting technical standards on legislation that is still
under negotiation (such as CSDR, MAR and MiFID). We will also play a key role on finalised legislation, which
is being implemented to enable a smooth and efficient implementation in the UK. Recognising the significant
quantity of legislative initiative in the market integrity space, we will be strengthening our focus on policy
implementation to help ensure that those market participants affected are aware of their obligations and
the FCA is ready to implement legislation in an orderly and timely fashion.
Chapter 2
Box 4: Outcomes of the Wheatley Review
Benchmarks are used across a wide variety of financial markets as a reference in pricing contracts, calculating
payments in contracts or measuring the performance of a financial instrument. In light of concerns regarding
the integrity of the LIBOR rate, highlighted by investigations and enforcement action, a review of the LIBOR
was undertaken by FCA CEO-Designate Martin Wheatley at the request of the Chancellor of the Exchequer.
The Wheatley Review in September 2012 outlined a plan to comprehensively reform the setting and
governance of LIBOR. A key recommendation was bringing LIBOR-related activity within the regulatory
perimeter. As a result, the Government has amended the Financial Services Act and secondary legislation
to create two new regulated activities: ‘providing information in relation to a regulated benchmark’ and
‘administering a regulated benchmark’. In the first instance, the only regulated benchmark will be LIBOR.
It is our responsibility to create and supervise a regulatory regime for these activities. We published a
Consultation Paper with our proposals on 5 December 2012.
We will introduce two new significant influence controlled functions under our Approved Persons regime
that will create clear and unambiguous points of accountability within the LIBOR administrator and
submitter functions. Our Authorisations division will lead on assessing the administrator firm application
and applications from authorised firms for the new control functions, which are expected between April
and September 2013.
Business Plan / 2013/14
30 Financial Conduct Authority
2.4 – Building competitive markets
Our ability to use our new duty and powers granted
under the Financial Services Act 2012 to promote
effective competition will be a significant change,
improving our ability to make markets work well
for consumers. Understanding how best to protect
consumers will include assessing how competition
weaknesses arise from both firm and consumer
behaviour, which gives us a wide range of options to
choose from when designing solutions.
We will address competition through our supervision
and policy work, and by making sure we have the
tools and information we need and work with
stakeholders to deliver this. A key part of this is
forming a new Competition department. We have
recruited a director for the Policy, Risk and Research
division with competition experience, to lead the
development of the new department. We are also
recruiting a new director to run this department.
This director will be supported by colleagues with
specialist experience across a range of disciplines,
including economics, law, finance and competition
investigations.
We will be able to use our regulatory powers to
promote competition. This includes our general
rule-making powers, for example requiring firms to
submit information to price comparison websites,
and firm-specific orders.
We will use our resources effectively and will target our
work strategically on the areas where we believe we
can address significant consumer harm. The financial
services industry in the UK accounts for approximately
£150 billion of GDP, so the scale of potential benefit
to UK consumers through our new approach could be
considerable.
In 2013/14 we will liaise very closely with the Office of
Fair Trading (OFT) at both a working and strategic level,
including a revised Memorandum of Understanding
and regular contact between chairmen. We will
share work plans and coordinate action, so that the
organisation with the most appropriate resources,
expertise and potential remedy powers leads on the
issues identified and we avoid duplication.
In the next six months, considerable effort will be
dedicated to establishing our Competition department
and embedding competition analysis across the
organisation. The supervisory and policy initiatives to
deliver this are detailed in this section. We have already
begun to gather information for the first market study
into add-on services in the general insurance market.
We have also set out in this chapter how we will
engage with international initiatives on competition.
“Our enforcement investigations
into LIBOR-related misconduct
will continue.”
The Wheatley Review also recommended the creation of a new criminal offence related to manipulation (or
attempted manipulation) of specified benchmarks. To achieve this, the Government has proposed a new
offence under the Financial Services Act, of having misleading practices or making misleading statements
regarding specified benchmarks. The creation of this criminal offence will promote market integrity by
ensuring a credible deterrence to those who seek to abuse the system.
Recognising that important benchmarks affect markets and firms at the global level, we are also co-chairing
a task force in IOSCO, which will bring forward principles in 2013 designed at promoting a coordinated and
consistent approach by regulatory authorities to benchmark-related issues.
Our enforcement investigations into LIBOR-related misconduct will continue.
Financial Conduct Authority 31
Business Plan / 2013/14
Domestic supervision initiatives
When we supervise firms and individuals, there
will be a greater focus on business model and
strategy analysis. This will include considering a
firm’s competitive position in various markets when
assessing the conduct risks that may arise from their
strategies. If competition appears to be ineffective
in a market, the evidence of this will be given to
the Competition department, which will assess
what action needs to be taken. Our key supervision
initiatives are as follows.
Identifying risk
Our supervision function will play a key role, together
with our Competition department, starting from when
we gather intelligence and identify risks, through to when
we decide how to act to tackle the problems we find.
We will use information from a variety of sources,
including from firms, consumer groups and competition
regulators. When analysing business models and
strategy, and assessing the potential conduct risks that
may arise from these strategies, we will take account of
a firm’s competitive position in various markets.
Early intervention
To stop certain types of competition problems from
becoming widespread in markets we will, where
appropriate, apply our new powers, such as temporary
product intervention rules, at early stages of product or
market development.
If we become aware of competition problems that
potentially infringe the Competition Act 1998, or where
competition problems also involve markets outside our
perimeter, we will refer these to the OFT.
Barriers to entry
In line with our competition duty, we will ensure that
our regulation, and the processes of delivering it, do
not restrict competition by presenting excessive barriers
to entry and exit.
We are aware that the authorisation process for new
banks can be long and costly, and that our position
at the ‘gateway’ to the sector makes it important that
our requirements are not unnecessarily burdensome.
However, it is essential that new entrants meet
minimum standards that prevent undue risk to the
financial system or to consumers. We need to achieve
this while making entry as easy as possible, provided
these minimum standards are met.
We have reviewed the authorisation process to bring
it more in line with the business realities that new
banks face. We have restructured the overall process to
make it clearer, with firms receiving focused feedback
throughout, including before they apply, to help them
submit a better application.
As well as addressing the overall approach, we have
sought to structure the authorisation process to be
in line with the specific business issues faced by new
applicant banks. We expect firms will need to submit
less material at application and, with the greater
feedback provided, this should be of a better quality.
Also, we will apply a more proportionate approach to
assessment, based on the circumstances of individual
firms. Overall, this should reduce time and cost and
provide earlier certainty for the applicants. We believe
these changes will make a significant difference to
ease of entry into the UK banking system. Having
made these changes for banks, we have started
a similar review of our wider regulatory approval
processes for all types of firms.
Furthermore, in line with the response by the Treasury
to the proposals of the Independent Commission
on Banking, the FSA has reviewed the prudential
and conduct requirements for banks to ensure that
they are proportionate and do not pose unnecessary
barriers to entry or expansion. On the conduct side, our
requirements set out minimum standards for effective
competition in the interests of consumers. In addition,
we have not seen any evidence that the requirements
Chapter 2
Business Plan / 2013/14
32 Financial Conduct Authority
are causing particular difficulties for prospective banks.
We are not, therefore, planning to make any changes to
the conduct requirements in the areas in which we are
able to do so (many of the requirements come from the
maximum harmonising Payment Services Directive).
Domestic policy initiatives
Market studies
These help strengthen our understanding of why
markets fail − with a view to identifying the solutions
that would address the root causes of poor competition.
Key studies for 2013/14 are the general insurance add-
on study and the asset management study.
We are considering further market study work for
2013/14 in both retail and wholesale markets. We
recognise that, while competition problems might
differ between these areas, we should treat retail and
wholesale markets as being equally important to our
competition work.
General insurance add-on market study
We have started work on a market study on general
insurance add-ons products. Preliminary research
carried out by the FSA suggests that consumers might
not be sold a product that meets their needs, at a price
that is competitive, when purchasing certain types of
insurance, such as gadget insurance, home emergency
cover, personal accident/accident cash plans, or
guaranteed asset protection. This is related to the
risk of problems with access to suitable products that
address consumers’ needs.
Asset management study
At the FSA Asset Management Conference in September
2012, we highlighted that there are some issues in
the asset management market around charging,
competition and consumer behaviour. We will continue
to analyse and progress the debate on these issues
during next year.
International policy initiatives
Commission work on the transparency of fee
structures and charges related to bank accounts
In March 2012, the Commission consulted on measures
to improve the transparency and comparability of bank
account fees, including standardised lists of fees and
glossaries of terms. The aim is to help consumers
compare accounts and shop around more easily. We
have been liaising with the Treasury regarding the
UK’s views on the proposals. A legislative proposal is
expected in 2013, and we are keen that any finalised
legislation can be applied flexibly across Member
States. This is important because the UK ‘free if in
credit’ banking model is unique in Europe. We also
want to ensure that any new disclosure material is
genuinely useful to consumers.
Commission work on current account switching
In March 2012, the Commission consulted on possible
measures to improve the bank account switching
process to drive improvements in competition.
Currently, there are self-regulatory standards,
developed by the European Banking Industry, known
as the Common Principles for Bank Account Switching.
However, the Commission is concerned that not all
banks are following the Principles, and so it has now
consulted on making them compulsory, with the
possibility of further initiatives such as a cross-border
switching service.
Liaising with the Treasury, we are keen that any
legislative proposal is high-level enough to encompass
existing and planned Member State initiatives, and that
it will not result in disproportionate costs for firms or
consumers. In the UK, following a recommendation
by the Independent Commission on Banking, the
industry body, the Payments Council, is developing a
new domestic bank account switching service, with a
payment redirection feature, which is due to launch in
September 2013.
Financial Conduct Authority 33
Business Plan / 2013/14
Box 5: Using our resources to deliver our
competition objective
We are undertaking a programme of training
across the organisation to embed competition
thinking, including the roll-out of a new, holistic
approach to analysing financial markets. This
‘integrated analysis’ toolkit has been developed
to ensure we think about problems wholly
and consider how best to pursue all of our
operational objectives.
2.5 – Building a new regulator
How will we supervise to ensure consumer
protection?
In delivering consumer protection, we are moving from
a reactive approach to a more proactive one, where
we will seek to address issues before they adversely
affect the consumer. This will give consumers greater
confidence, transparency and trust in products and
providers. It will also mean that we are using our
resources more effectively. Our Complex Event-
Driven Team will aim to resolve issues quickly and
more decisively, and free up supervisory resources,
which can then be spent in more pre-emptive work.
This proactive approach will also reduce costs to the
consumer when things go wrong, increase product safety,
and raise standards and awareness among providers. Our
approach will have greater focus on the business model,
culture and product supervision, looking through the eyes
of the consumer to ensure that they are treated fairly.
Supervisory framework
Firm Systematic Framework (FSF)
We have designed the FSF to allow supervision to focus
on the key conduct risks in firms. It is forward-looking
and focuses on highlighting the areas of greatest
potential risk. We will examine key conduct risks in a
firm and identify the causes of those risks. The FSF will
cover all types of firms, considering potential harm to
consumers and the impact on market integrity.
The FSF will be carried out by the Supervision division and
will include business model and strategy analysis to identify
the areas of potential conduct risk, including focusing on
product design, governance, sales effectiveness and post-
sales handling in a firm to ensure that firms’ practices are
in line with good consumer outcomes and practices for
managing conflicts of interest. This will help tackle the key
causes of conduct risk, where firm structures, processes
and management cause harm to consumers.
Initially the FSF will be rolled out to the largest retail
deposit takers and then extended to all C1, C2 and
C3 firms, across all sectors. The intensity of these
assessments will vary according to the potential impact
of the firm in the context of our statutory objectives.
Chapter 2
“We will examine the
key conduct risks in a
rm and identify the
causes of those risks.”
Business model
and strategy analysis
– to identify areas of
potential conduct risk
Governance and
culture – to assess
how effectively a
rm identies,
manages and
reduces conduct
risks
Product design –to
determine whether a
rm’s products or
services meet customer
needs and are targeted
accordingly
Sales processes
– to assess
rms’ systems
and controls
Post-sales/services and
transaction handling – to
assess how effectively a
rm ensures its customers
are treated fairly after
the point of sale, service
or transaction, including
complaints handling
F
i
r
m
s
y
s
t
e
m
a
t
i
c
f
r
a
m
e
w
o
r
k
Are the interests of
customers and
market integrity at
the heart of
how the rm is run?
Business Plan / 2013/14
34 Financial Conduct Authority
In 2013 the highest impact wholesale firms will go
through the first module of FSF.
The list of rms in
each category is:
C1: Banking and insurance groups with
largest retail customer footprint
C2: Retail rms across all sectors with large
retail customer footprint and wholesale rms
with signicant market presence
C3: Mid-sized rms across all retail and
wholesale sectors
C4: Retail and wholesale rms with
a smaller footprint
Wholesale conduct supervision
Our focus on achieving a better deal for consumers,
underpinned by soundly functioning markets, gives us
the opportunity to adjust our approach to wholesale
conduct supervision. Wholesale conduct describes
how market participants interact with each other and
conduct their business in wholesale markets. It captures
a wide range of activities and relationships in the
securities, business and insurance markets.
Poor wholesale conduct poses a risk to the integrity of
markets and the protection of consumers (both retail and
wholesale). It can undermine the soundness, stability and
resilience of financial markets and the transparency of
the price formation process. It can also feed through to
retail markets and ultimately affect individuals who rely
on products and services to meet their needs. Wholesale
conduct risks are driven by many of the same factors as risk
in the retail market. We will consider these drivers of risk
in our approach to both the wholesale and retail sectors.
We will take a more assertive and interventionist
approach to risks caused by wholesale activities.
We will increasingly focus on the interconnections
and relationships between participants in wholesale
activities and be more willing to intervene where we
believe poor conduct could have a negative impact on
market integrity or the protection of consumers.
Our approach will recognise that:
• consumers, including wholesale participants (such
as corporate clients and buy-side rms), are entitled
to receive a fair deal;
• many rms engage in both retail and wholesale
activities and risks caused by poor conduct can
be transmitted between retail and wholesale
markets; and
• rms must be mindful of their market footprint and
how it may affect other participants.
We will follow the same supervisory approach for
firms mainly involved in wholesale activities as for firms
mainly involved in retail, made up of the FSF issues,
product and event-driven work.
Issues and product work
We will undertake various thematic projects in 2013,
touching on the wider wholesale and retail agenda.
They will focus on market sectors, or products within
a sector, that may cause poor outcomes for wholesale
or retail customers or where practices may harm
market integrity.
We will work together with industry practitioners
to increase our understanding of what causes poor
behaviour and to find ways to improve conduct
Financial Conduct Authority 35
Business Plan / 2013/14
standards and the integrity of the financial industry.
Based on the strong belief that a cleaner, healthier
industry will be beneficial to firms, individual
consumers and society as a whole, we expect firms to
be proactive in improving their conduct by monitoring
and assessing their own practices and supporting
industry integrity.
Event-driven work
We will respond faster and more decisively to
problems that are emerging or have happened
regarding wholesale and retail conduct risks. We will
have a consistent and efficient process to ensure that
‘event-driven’ cases − for example, a whistleblower
alleging misconduct − are dealt with quickly and
appropriately.
Thematic supervision
In conducting both firm-specific and industry-wide
reviews, in 2013/14 we will use thematic supervision to
focus on discovering and addressing the root causes of
poor conduct, including addressing incentive structures
and corporate culture.
Chapter 2
Business Plan / 2013/14
36 Financial Conduct Authority
Box 6: OFT − Consumer credit and competition
Consumer credit
The UK consumer credit market is one of the largest in Europe and is rapidly changing. It includes a diverse
range of products, from mainstream credit, such as credit cards and personal loans, to high-cost forms of
credit, such as payday lending.
In August 2012, total outstanding debt was £156 billion, the largest proportion of which was personal
loans. The National Audit Office recently estimated that the unscrupulous behaviour by firms in this market
costs consumers at least £450 million in 2010/11, with the most vulnerable consumers potentially being at
highest risk.
The Government proposes to transfer responsibility for consumer credit regulation from the Office of Fair
Trading (OFT) to us, and will make its final decision in 2013. Consultation on consumer credit will be ongoing
throughout 2013/14.
Our first consultation, in Q1 2013, gave an outline of the proposed regime, including our high-level approach
to authorisation, conduct standards, supervision, reporting and other areas. It also included consultation on
applying the high-level rules, such as the Principles for Businesses, to consumer credit activities. We will consult
further in autumn/winter 2013 on the detailed conduct rules and guidance, and other remaining rules.
Throughout the consultation, we will work closely with consumer bodies, the industry and Government
to develop proposals for effective regulation that help the market work well and seek to ensure the fair
treatment of consumers in a competitive and vibrant market.
If the transfer goes ahead, we expect to take responsibility for consumer credit in April 2014. This will be a
challenging task, due to the large number of firms undertaking consumer credit activities, and we estimate
that over half are currently not regulated by the FSA. Preparation for any transfer will include arrangements
for the transfer of relevant OFT staff, systems design to support the movement of firms to our regime,
communicating and engaging with firms and appropriate trade bodies, and consulting on and finalising our
approach and rules.
The Government is also proposing to transfer the responsibility for regulating second charge mortgages to the
FCA in April 2014. The Mortgage Credit Directive, currently being negotiated, is expected to have an impact
on the regulatory treatment of these loans. The Government is proposing that these loans be treated in the
same manner as other consumer credit lending and will consult on the longer-term regime for second charge
mortgage once there is greater clarity on the requirements of the Directive. We will include second charge
lending in preparatory work and consultations on the transfer of consumer credit. We will also undertake
preparatory work and consult on the longer-term regime as necessary once the Directive has been agreed.
Competition
In pursuing our competition objective and duty, we will work closely with the Office of Fair Trading (OFT)
and the future Competition and Markets Authority. We will have a MoU with the OFT that sets out how we
will develop our respective roles, underpinned by a complementary, consistent approach.
“…we expect to
take responsibility
for consumer credit
in April 2014.”
Financial Conduct Authority 37
Business Plan / 2013/14
Chapter 2
Business Plan / 2013/14
3.
Taking action against rms that do not meet
our standards
Financial Conduct Authority 39
Business Plan / 2013/14
Enforcement will focus on reinforcing proper
standards of market conduct and ensuring rms
put consumers at the heart of their businesses.
We will pursue a strategy of credible deterrence,
taking tough and meaningful action against the
rms and individuals who break our rules. We will
continue to use the full range of our criminal, civil,
and regulatory powers to support our priority
of securing better results for consumers and
reinforcing our commitment to ensuring markets
function well.
To meet these aims, our key enforcement priorities for
2013/14 will include:
• reinforcing our expectations of wholesale markets
by taking decisive action where rms fail to manage
risks effectively or observe proper standards of
market conduct;
• removing from the industry the rms or individuals
who do not meet our standards;
• continuing to pursue aggressively the rms or
individuals who abuse UK markets by using our
criminal and civil powers;
• taking tough action where rms fail to treat
customers fairly, penalising those who are
responsible and ensuring that effective redress is
delivered quickly; and
• continuing to pursue major investigations into LIBOR,
working with other agencies here and overseas.
Box 7: Effective Regulation –
working together
In order to secure our priorities and meet our
objectives, plus ensure that our resources are
used in the most effective way, the Enforcement
division will work more closely with other areas
of the FCA to identify problems earlier. It will aim
to be more pro-active, more direct and prepared
to intervene earlier, which will mean working
closer with our Supervision division in particular.
There will be a more joined-up approach to
thematic issues, and more focus on Significant
Influence Functions across the Supervision
and Enforcement lifecycle. The Markets and
Enforcement divisions are closely linked and
will work together to ensure that, once market
abuse has been detected, it can move quickly
into an Enforcement investigation.
We will continue to work closely with other law
enforcement agencies in the UK and abroad.
The complexity of our work means that there is
often overlap with other agencies, and we will
maintain a close relationship with the police, the
Serious Fraud Office, the development of the
new National Crime Agency, and other agencies
domestically and internationally to ensure that
there is an effective and coordinated approach
to combating financial crime.
Chapter 3
Business Plan / 2013/14
40 Financial Conduct Authority
3.1 – Market abuse
Continuing to tackle market abuse
Irregularities in information in markets can lead to a
misuse of information that then misleads or distorts the
market − for example, through insider dealing. We will
continue to work to reduce the risk posed by irregular
information in markets, which can lead to market abuse.
Using our diverse notification methods to pursue
market misconduct, we will continue to develop more
sophisticated practices for investigating market abuse,
regardless of the form of abuse. We will develop our
credible deterrence agenda through better working
practices between our Market Monitoring, Intelligence
and Enforcement areas.
Regarding insider dealing, we will build on expertise
and technical capabilities developed over a number
of years, and we will use these to conduct large and
complex investigations and prosecutions. For those who
are found guilty, we will confiscate the proceeds of their
crimes. We will use our civil powers to impose tough
penalties against both firms and individuals who commit
market abuse. Taking action against individuals is a key
part of our credible deterrence strategy and we will
impose bans and fines on those we find have committed
market abuse. Where appropriate, we will seek High
Court injunctions to prevent ongoing abusive conduct.
We will increase standards of market conduct and
encourage better behaviour by demonstrating that we
can and will identify, expose, and punish those who
engage in market abuse or market manipulation.
We will also take steps to develop alternative non-
enforcement options to disrupt market abusive behaviour.
We will progress our educational agenda through
thematic projects, while continuing to provide advice
on an ad-hoc basis. We will continue to engage and
cooperate with our overseas counterparts, both
regulators and law enforcement agencies, to ensure
that national borders do not prevent us from effectively
pursuing instances of market abuse.
3.2 – Transaction reporting and
market surveillance
Transaction reporting
During 2013/14 we will build on thematic work
undertaken on Suspicious Transaction Reports and
Transaction Reporting. Both regimes serve as vital
tools in identifying market misconduct, and we will
continue supervisory work in this area to ensure that
firms are aware of, and comply with, their obligations.
We will educate and assess firms through an ongoing
programme of visits and will take action where necessary
to ensure that firms and individuals comply with their
reporting obligations. Ensuring good transaction
reporting will enable us to identify risks more quickly
and respond in an appropriate manner, to minimise any
potential harm to consumers.
Improving our systems
We have further automated and enhanced our
interrogation of the information we collect within the
ZEN database. ZEN is the system that collects and holds
the transaction reports that reflect the daily financial
instrument transactions undertaken by firms and
reported to us (as required and defined by MiFID).
We have upgraded our technology to improve our
surveillance and detection of market abuse to reinforce
our credible deterrence strategy. This upgrade will
help us to more effectively process the notifications
of suspicious trading that we receive from industry,
and improve our ability to monitor failure to submit
suspicious notifications. This will help us to protect and
enhance the integrity of the UK financial system by
improving our ability to monitor markets, and identify
and respond to risks.
Financial Conduct Authority 41
Business Plan / 2013/14
3.3 – Financial crime
How will we tackle nancial crime?
We will have the following priorities in the area of
financial crime for 2013/14:
• Effectiveness of systems and controls within
the regulated community: we will continue to use
thematic reviews to identifying upcoming issues. We
will publish the ndings from our thematic reviews
and will advise on what reviews we will carry out in
2013/14.
• Embedding risk-based proportionate
supervision: we will embed our intensive intrusive
Systematic Anti-Money Laundering Programme
across the high-impact rms to investigate their
anti-money laundering, terrorist nancing and
sanctions systems and controls. In the second half
of 2013 we will add anti-bribery and corruption to
the programme.
• Credible deterrence: we will work with our
colleagues in Enforcement to ensure we keep
criminals out of the markets and send the
appropriate messages to the industry.
• Working with international and domestic
partners: we will continue to work with our
international and domestic partners. 2013/14 will be
an important year for all involved in nancial crime
with the development of the National Crime Agency
we will work with our domestic partners to ensure a
smooth start. The Financial Action Task Force (FATF)
will begin its fourth-round mutual evaluations and the
Commission will pass the Fourth Money Laundering
Regulations, which we will work closely with and
support the Treasury in transposing into UK law.
Box 8: Systematic Anti-Money Laundering
Programme (SAMLP)
The SAMLP will work with many other
supervisory tools to ensure that firms meet
their regulatory obligations and standards in
industry improve. This programme will look
into the financial crime systems and controls
of 14 major retail and investment banks every
four years and it will focus on their anti-money
laundering, countering terrorist finance (AML/
CTF) and financial sanctions risks.
We will also include anti-bribery and corruption
(ABC) in the programme. Our reviews will
focus largely on UK operations, but will include
visits to overseas operations, where the risks
justify it or important AML functions are off-
shored. We highlighted the development and
pilot of this programme, formerly referred to as
the ‘Core Financial Crime Programme’, in our
Financial Crime newsletter, Issue 15.
The SAMLP will focus on the inherent risks in
each bank’s business model. Once we have
assessed each bank, we expect there to be
a four-year rolling cycle for the programme,
where each institution will have two business
units, plus any associated central functions,
examined at each cycle. As part of our work
to increase transparency, we are considering
the extent to which the results of our SAMLP
assessments may be published.
Chapter 3
Business Plan / 2013/14
42 Financial Conduct Authority
3.4 – Redress
How will we help secure redress for customers?
We will be proactive and forward-looking to protect
consumers from risks before they happen. However,
when things do go wrong, we will work to secure
appropriate redress for consumers.
Payment Protection Insurance (PPI) redress
In 2012/13 firms paid over £5billion of redress to
customers who had been mis-sold PPI. We will continue
the FSA’s work in ensuring the consumers who have
been mis-sold PPI receive appropriate redress in a
timely manner.
We will continue testing firms’ complaints handling and
root cause analysis. We also intend to continue our work
with several major firms to complete the delivery of a
past business review of single premium PPI sold face-
to-face with unsecured personal loans. This analysis
will help us identify where failures lay in the handling
of PPI sales and will help inform our forward-looking
approach to risk identification by highlighting potential
problem areas. We will continue to provide information
about consumer outcomes.
Arch Cru redress
In January 2013, the rules setting out the Consumer
Redress Scheme for investors in Arch Cru investment
funds came into force. The scheme becomes operational
on 1 April 2013. It is expected to deliver £20 million to
£40 million in redress to consumers and in 2013/14 we
will publish information about consumer outcomes.
Interest rate swap (IRS) redress
In 2012, it was announced that the FSA had reached
an agreement with a number of banks to review their
sales of interest rate hedging products (IRHPs) to small
businesses. Following a pilot in late-2012, the FSA
announced that Barclays, HSBC, Lloyds and RBS will start
the full review of their sales of IRHPs to small businesses,
with the remaining banks to follow shortly after.
During 2013/14 we will oversee the review and redress
process to ensure that fair and reasonable outcomes are
being reached and that, where due, appropriate redress
is paid to small businesses. We will continue to work with
the independent reviewers so that small businesses can
see the independence and thoroughness underpinning
the exercise. We will also provide information about
outcomes for small businesses.
“During 2013/14 we
will oversee the review
and redress process
to ensure that fair and
reasonable outcomes
are being reached…”
Financial Conduct Authority 43
Business Plan / 2013/14
Chapter 3
Business Plan / 2013/14
4.
Protecting the perimeter
Financial Conduct Authority 45
Business Plan / 2013/14
Ensuring a high quality of entrants into the
industry helps protect consumers and markets
from harmful behaviour. Our intention is to
ensure that new entrants do not pose an
unacceptable degree of risk to consumers, there
is a balance to be reached so that there are not
excessive regulatory barriers to entry that would
inappropriately stie competition.
The way we achieve this is through our Authorisations
division. It provides a robust ‘gateway’ for the
regulation of entities and individuals to achieve good
outcomes for consumers and the wider financial
services market. This sits alongside work to deliver
credible enforcement to protect consumers against
risks posed by unauthorised businesses.
This year we will focus on higher-risk, complex cases,
enhancing our systems and processes, and preparing
for changes to the regulatory regime where we will
take on the regulation of new markets.
4.1 – How will we challenge businesses and
individuals?
Providing a robust gateway
In 2013/14 we expect to make around 40,000
regulatory decisions across a range of applications for
authorisation, variation of permissions, cancellation,
approved persons, change in control, waivers,
passporting and the registration of mutual societies.
These decisions will be taken in line with the risk they
pose to our statutory objectives and with a consistent
focus on conduct. Firms and individuals will be
expected to demonstrate that they have considered the
impact of their actions on consumers throughout their
applications and throughout their regulatory lifecycle.
Our threshold conditions give us an important new
requirement to analyse a firm’s business model at
authorisation and, on an ongoing basis, supporting our
objectives and prudential scrutiny of business models
for firms regulated by either only the FCA or PRA. This
new condition will enable us to assess a firm’s entire
business model, including unregulated business, so that
we can ensure the overall business is suitable. If a firm
cannot demonstrate that its business model will not put
consumers at risk, then we will recommend refusing its
application, as the threshold conditions will not have
been satisfied. This requirement will help mitigate
against the risk posed by strategies that are not aligned
with delivering fair consumer outcomes.
Applications for authorisations are the first opportunity
in the regulatory ‘life-cycle’ where we will be using
early intervention to protect consumers and will be
prepared to make robust decisions to address risks
before they have the opportunity to happen. We will
look at firms’ business models, and the nature of the
products proposed, in the context of competition
to ensure there are no fundamentally uncompetitive
aspects, e.g. regarding the ease of switching bank
accounts. In line with the Treasury White Paper
response to the proposals made by the Independent
Commission on Banking, we are also reviewing the
conduct requirements for banks to ensure that they are
proportionate and do not pose unnecessary barriers to
entry or expansion.
Approved persons
Given the key risk posed by firms that have a culture
or strategy that is not aligned with fair customer
outcomes or market integrity, it is important that
individuals performing significant influence functions
and/or customer functions promote the right culture
in firms. Individuals should ensure that the values of
the company promote these and are embedded at all
levels. We seek to ensure that this is the case through
our approved persons regime by:
• pre-approving all SIF and customer functions;
Chapter 4
Business Plan / 2013/14
46 Financial Conduct Authority
• assessing tness and properness with reference to
previous regulatory history; and
• for the most senior functions within our higher-
risk rms, taking a more in-depth assessment to
assess the robustness of the rm’s approach to
appointment, and also interviewing some SIFs
before approval.
The approved persons regime will continue to be a
key focus for us for 2013/14. We will embed changes
arising from the split to the PRA and FCA, as well as
looking to improve our approach to approved persons
throughout their regulatory lifecycle, not just at the
point of application.
We will work with firms to ensure that the
accountabilities of approved persons are clearly defined
by firms and understood by us, as clear accountability
is a key reinforcer of the behaviours we expect from
individuals and firms. In particular, we are looking to
see whether our knowledge of SIF accountability within
firms improves so we can ensure senior management
accountability for issues. This should provide greater
clarity over who is accountable for problems that arise,
including conduct issues, and firms should expect to see
increased enforcement action against approved persons
who breach our rules as a result. When approving
an individual to a firm’s board, we will consider the
appropriateness of an individual’s appointment within
the context of the board’s overall composition.
We will consider what, if any, further changes to the
approved persons regime are needed, taking into
account the Wheatley Review and the Parliamentary
Commission on Banking Standards.
Unauthorised businesses
Protecting consumers from scams and swindles will
continue to be a priority for us in 2013/14. We will
continue to take action against firms that operate unlawful
schemes, such as boiler room frauds, land banking scams,
rogue carbon trading firms and Ponzi schemes.
This action will include publishing alerts about
unauthorised firms to warn the public about investment
scams, closing down unauthorised business schemes,
and freezing assets to distribute money back to victims.
We will continue with consumer guidance initiatives to
raise awareness of scams, to help the public understand
the risks unauthorised businesses pose and how to
protect their money.
Pensions
We address pension risks within our overall strategy
as to what we see as risks to consumers and how
we plan to address them. This includes supervision of
life insurance pension providers, asset managers and
financial advisers dealing with pensions business as well
as co-ordinating work with the Department for Work
and Pensions (DWP) and the Pensions Regulator (TPR)
where our responsibilities overlap.
From October 2012, qualifying employees have to be
automatically enrolled into their employer’s pension
scheme − this is being rolled out gradually to all
employers over the next six years. This is a Department
of Work and Pensions-led initiative and the Pensions
Regulator is responsible for ensuring employers comply
with the legislation.
Some of the pensions used for automatic enrolment are
provided by insurance companies and asset managers
regulated by us. We will continue to work with the DWP
and TPR about the progress of automatic enrolment,
remaining open to revisiting our regulations if necessary.
We will also work with other organisations linked with
pensions to secure appropriate outcomes for consumers
when dealing with pension products and advice.
“We will continue with
consumer guidance initiatives
to raise awareness of scams,
to help the public understand
the risks unauthorised
businesses pose and how
to protect their money”
Financial Conduct Authority 47
Business Plan / 2013/14
Improving ONA
ONA is the system that enables firms to submit online
applications and notifications to the Authorisations
division. It also provides the main case-management
tool within the division.
There have been a number of problems with the
performance of the system since it was introduced in
2010, which has limited our ability to introduce some
of our desired regulatory changes. Investing in ONA
has been identified as a high priority within the IS
development programme. We intend to upgrade the
technology to a more resilient and flexible platform,
which will provide firms with a more reliable service.
It will also help us to protect the perimeter in a more
efficient way and puts us in a better position to be able
implement new regulations. This in turn will strengthen
our ability to meet objectives.
4.2 – Authorising dual-regulated rms
Becoming the FCA and PRA enables us to change our
approach for authorisation processes for dual-regulated
firms. We will be working closely with the PRA to ensure
these processes are as smooth and efficient as possible.
Any risks will be managed effectively by dealing with
all authorisations processes relating to dual-regulated
firms in a single department.
Signicant Inuence Functions
The PRA will receive and consider applications
relating to the most senior functions − such as chief
executive or senior directors – for dual-regulated firms.
We will either give or refuse our consent to those
applications. We will ensure that conduct-related skills
and experience are taken into account when assessing
senior function applications.
Passporting
For authorised firms within the European Economic
Area (EEA) wishing to passport into the UK, we will
manage all passporting notifications except for banking
and insurance, which will be managed by the PRA. For
authorised firms wanting to passport out of the UK
into the EEA, we will be responsible for issuing relevant
notices for the authorised firms that are not PRA
regulated. When firms wish to establish themselves in
the UK, we will assess them based on conduct risks, EU
directives and adherence to local rules. We will analyse
the types of business that we think hold more risk for
consumers and UK markets and act accordingly.
Chapter 4
Box 9: Reviewing key authorisations processes
We are undertaking a step-by-step review of key authorisations processes so they are efficient, risk-based
and proportionate, and we are using our resources in the most effective way. We will be applying lean
process techniques to streamline our processes and strip out activities that do not add value or represent
inefficiencies in our decision-making.
A key outcome of this work is to encourage effective processes and enable our staff to spend more time
analysing more complex, higher-risk cases. This will ensure that our processes support and facilitate our
decision-making and are directly linked to our risk appetite. Enhancing our processes will also enable us to
focus more on the quality and timeliness of our decision-making and have clear measures of what ‘good’
looks like when determining applications. Improving the efficiency and effectiveness of our resources will
also help enable us to adapt to and absorb changes to the perimeter − for example, taking on responsibility
for consumer credit regulation and second charge lending on 1 April 2014.
We will also be harnessing the wealth of information we can collect at the gateway about firms, individuals,
markets and sectors − for example, mergers and acquisitions trends we can identify from our ‘change in
control’ work. We are developing processes for sharing this information more effectively, which will produce
increased efficiencies throughout the organisation.
Business Plan / 2013/14
5.
Delivering our operational platform
Financial Conduct Authority 49
Business Plan / 2013/14
We are committed to ensuring that we have an
efcient and stable operational platform in place
to help us to deliver our statutory objectives
and do business with our stakeholders. At the
same time, our plans are designed so that our
operational platform delivers year-on-year
improvements in value for money, ensuring that
we are using our resources more effectively.
This section outlines our commitment to:
• invest in our information systems (IS) infrastructure
to reduce our operational risk;
• use improved systems to deliver our approach to
regulation;
• work in close collaboration with the PRA to improve
efciency and ensure that costs are not unnecessarily
duplicated;
• employ the right people with the right skills required
to achieve our statutory objectives; and
• make changes to our HR department so it can fully
support the change we will deliver in 2013/14.
5.1 – Our information systems (IS)
Investment in our IS
A significant investment in our IS capability began
last year with our Information Systems Investment
Programme (ISIP). ISIP will ensure that our IS are
modernised, fit for purpose and able to support our
key regulatory systems. Without this investment,
there is an increasing risk that we will not be able
to recover systems that fail, which could result in
us being unable to support interaction with our
stakeholders and be unable to meet our statutory
objectives. As such, we have committed £14m of
our 2013/14 revenue budget towards the ongoing
delivery of ISIP.
The key deliverables of ISIP for 2013/14 include:
• Beginning to replace the 220 databases that hold
information for 25 key systems. This is a two-year
initiative that will require signicant investment to
ensure our systems are t for purpose.
• Replacing our secure le transfer system to allow
us to submit data to exchanges, regulated rms,
Reuters and ESMA with greater security and support
our relationships with stakeholders.
• Implementing a new telephone system for our
contact centre, which will provide a greater
level of stability and better information for us
to manage our services. The improved capability
will support our risk-based supervision model and
enable us to increase our efciency by investing
in technology solutions. The improved system
will also help us to manage call centre capacity
and offer us the ability to increase capacity in the
future if required.
5.2 – Our estate and shared services
The FCA’s estate
We have retained the FSA premises in Canary Wharf
and Edinburgh. A large proportion of these costs are
fixed to current contracts, so remain largely inflexible
in the short term. As part of our value-for-money
drive we have reduced our budgeted accommodation
costs by rationalising our space following the creation
of the FCA. In 2013/14 we will commence work on
our longer-term property strategy in anticipation of
our Canary Wharf lease expiring in 2018.
Chapter 5
Business Plan / 2013/14
50 Financial Conduct Authority
Shared services with the PRA
In delivering our operational platform, we will
continue to provide a range of services to support
the PRA. This is aimed to promote efficiency within
the regulatory family and minimise direct and indirect
costs on the industry. These services include sharing
information systems with the PRA to promote a
single data repository and return, collecting PRA fees
and a single complaints scheme. Provision of these
shared services is yet another way we can deliver a
joined-up approach with the PRA and ensures that
costs are not unnecessarily duplicated across the FCA
and PRA.
IS services form a core part of our Provision of Services
Agreement with the PRA. We will provide systems
support for four FCA systems that the PRA will also
use, including our internal firm database, TARDIS, our
regulatory reporting system, GABRIEL, the FSA Register,
and our Business Intelligence System. During 2013/14
we will put into practice the planning that we have
done leading up to the formation of the FCA.
5.3 – Our people
We will be a forward-looking organisation with high
levels of accountability. We will be known for our
ability to make effective judgements at pace in an
increasingly complex external environment. In order for
the organisation to deliver its objectives we will need to
attract and retain high calibre staff who are motivated
to make a difference to consumers.
One of the ways we will retain staff is by providing the
right development and training. In 2013/14 we will
develop a comprehensive people plan to identify the
training needs across the FCA and understand where
gaps may exist. This will enable us to structure and
deliver training that equips our staff with the skills
and capabilities to achieve our objectives. This has
already begun and we now deliver specific training
modules for our supervisors on effective oversight of
product development and understanding consumer
behaviour. We will expand our training programme in
2013/14 to include:
• FCA consumer highlights: A module for
authorisations staff that provides an overview of issues
and aspects of consumer behaviour and purchasing
decisions which will help our people to understand
the implications of a rm’s business model.
• Firm classication training: Training for our staff
on changes to the new supervisory approach and
rm classication.
We will also improve our performance management
methods to help ensure that the best people progress
and are properly recognised. Again, this will help us to
ensure that we can attract and retain the best staff to
help deliver the FCA objectives.
A strategic Human Resources (HR) department
Our HR department is key to supporting the organisation
through the ambitious change we will begin to deliver
in 2013/14. As such, we are reviewing it to ensure that
its structure, capability, systems and services support
the delivery of the FCA vision and objectives.
Improvements are underway that will help us to move
to a greater level of self-service, reduce administrative
burdens on line managers, streamline processes, deliver
greater value for money and help us focus on the
strategic needs of the organisation and industry.
“We will be a forward-looking
organisation with high levels
of accountability”
Financial Conduct Authority 51
Business Plan / 2013/14
Box 10: Corporate responsibility
To provide the best service to the public and to the financial sector, we also need to support staff to
understand, be representative of and have close links with the marketplace and the wider community. Our
corporate responsibility strategy will enable us − through staff developing skills and understanding while
giving something back to the community through a range of volunteering opportunities − to build and sustain
these links. Our corporate responsibility strategy for 2013/14 is explained in more detail in Appendix 7.
Chapter 5
Business Plan / 2013/14
6.
Budget for 2013/14
Financial Conduct Authority 53
Business Plan / 2013/14
This section sets out the rst budget prepared for
the FCA, and reects the cost of the resources we
require to deliver our vision and objectives.
The key elements of this budget are:
• headcount: staff costs are the largest component of
our cost base;
• Ongoing Regulatory Activity (ORA): the total cost of
our core operating activities;
• capital expenditure: focused on the development
of our IS capability to deliver new regulatory and
operational requirements; and
• our Annual Funding Requirement (AFR): the total
amount we levy the industry to fund planned
expenditure.
Our budget, and the way we have allocated resources
to divisions is aligned with our strategic focus on
the new FCA approach to regulation, including the
creation of the Policy, Risk & Research (PRR) Division,
and underpinned by continued investment in our
technology platform.
Headcount
Table 6.1 sets out our planned headcount by division
for 2013/14. Just under a quarter of our headcount will
be focused on Supervision and Supervisory Oversight
and 10% in the new PRR Division. Overall 70% of our
headcount will be allocated to front-line divisions.
Table 6.1 Headcount
Headcount by Division as at
31 March 2014
FTE %
Supervision
(i)
675 24%
Enforcement & Financial Crime 480 17%
Authorisations 286 10%
Markets 285 10%
Policy, Risk and Research 271 9%
Front Line Supervisory Divisions 1,997 70%
Communications
and International
80 3%
Operations
(ii)
478 17%
Other
(iii)
293 10%
Total Headcount 2,848 100%
(i) Includes Supervisory Oversight
(ii) Operations Division includes Finance & Operations, HR and IS functions
(iii) Includes Chairman’s and CEO offices, legal, secretariat, internal audit and
other central support functions.
Ongoing Regulatory Activity (ORA)
We plan to spend £445.7m in 2013/14; the main
components of which are as follows.
Chapter 6
Business Plan / 2013/14
54 Financial Conduct Authority
Table 6.2 ORA expenditure
ORA Expenditure by cost type 2013-14
£m
2013-14
%
Staff costs 261.3 59%
IT costs 76.4 17%
Depreciation 44.0 10%
Accomodation and Ofce Services 32.9 7%
Enforcement Case Costs 19.8 4%
Professional fees 18.0 4%
Training, Recruitment, Travel 12.3 3%
Other costs 4.5 1%
Sundry income (23.5) (5%)
Total ORA 445.7 100%
Staff costs reflect the costs relating to the 2,848
FTE detailed above and a £19.5m continued annual
commitment to reducing the deficit in the final salary
pension fund, which was closed to future accruals
from 1 April 2010. The annual commitment is based
on the last three-yearly scheme specific valuation
(SSV) which forms the basis of the present recovery
plan. Future contributions depend on the outcome of
the next SSV on 31 March 2013. To mitigate the risk
of a significant increase in our contributions and to
reduce the FSA legacy, we have made a £22m one-off
contribution to the fund in 2012/13, in addition to the
£19.5m annual commitment.
IT costs include the costs of our outsourced providers
and the continued improvements the FSA committed
to last year to deliver the operational platform required
to support both the FCA and, initially, the Prudential
Regulation Authority (PRA). We continue to work closely
with counterparts at the PRA to ensure we achieve the
most cost-effective outcomes.
Depreciation mainly relates to our IS systems. Just
over 30% relates to our three most important systems
which enable data collection, online authorisations and
market transaction monitoring.
Accommodation and office services reflect the costs
of the FCA’s premises in Canary Wharf and Edinburgh.
We have retained sufficient floor space following
regulatory reform to be able to accommodate the extra
people we need to regulate consumer credit from 1
April 2014.
Enforcement case costs are based on our current
case-load and are expected to peak in 2013/14, driven
mainly by the cost of our LIBOR investigations.
Professional fees include the costs of specialist advice
and external support, as well as our contact centre.
Sundry Income mainly reflects application and
authorisation fees received. It also includes £8.0m
cost recoveries from the PRA for the cost of certain IT
systems expected to be shared with the FCA for the
next two to three years.
Capital expenditure
Our capital expenditure budget reflects planned
improvements to our existing IT systems and the
building of new capabilities to support the FCA in
meeting its broad range of responsibilities.
Financial Conduct Authority 55
Business Plan / 2013/14
Table 6.3 Capital expenditure
Capital Expenditure 2013-14
£m
2013-14
%
IT Systems Development 27.7 62%
IT infrastructure 15.0 33%
Property, Plant & Equipment 2.3 5%
Total Capital 45.0 100%
Included in the IT systems development capital budget
is £6m for a new customer relationship management
system and £4m to further develop our HR self-
service capability as we continue to streamline back-
office processes.
We have committed £9m of our £15m IT infrastructure
budget towards the ongoing delivery of the Information
Systems Investment Programme (ISIP).
Annual Funding Requirement (AFR)
The total amount required to fund our budgeted costs
for 2013/14, as set out in table 6.4, is £432.1m. This
includes the recovery of our ORA budget in addition
to the final £2.6m funding required to complete the
regulatory reform programme and the recovery of
£3.3m of scope change costs relating to the Retail
Distribution Review. Offsetting these is an estimated
£19.5m reduction as a result of underspends in
2012/13, principally reflecting the unused CEO
contingency of £15m.
Table 6.4 Annual Funding Requirement (AFR)
Annual Funding Requirement (AFR) 2013-14
£m
ORA Budget 445.7
Funding for regulatory
reform implementation
2.6
Recovery of scope for
change activities
3.3
Less:
Underspend
(i)
(19.5)
TOTAL AFR 432 .1
Financial penalties
(ii)
(40.6)
Fees payable 391.5
(i) 2012/13 FSA under spend (estimate)
(ii) 2012/13 financial penalties retained by the FSA (estimate)
Scope change and consumer credit
We are resourcing our preparations for consumer credit
out of the 2,848 FTE noted above. However the £12.6m
estimated cost of these preparations is being ring fenced
and not included as part of our 2013/14 ORA or AFR.
Once the consumer credit regime is operational we
intend to recover these costs from authorised consumer
credit firms over a number of years in line with our scope
change policy.
Applying nancial penalties
Under the new Financial Services Bill the FCA must pay
the Exchequer all financial penalties received, apart
from certain enforcement costs incurred in generating
these penalties in the same year. We will use these
retained penalties to reduce our fees, apart from the
fees levied on the penalty payer itself.
Chapter 6
Business Plan / 2013/14
56 Financial Conduct Authority
Impact on our fee payers
Each year we consult on how we allocate our Annual
Funding Requirement (AFR) between fee blocks and our
fee rates for the forthcoming financial year. The chart
below reflects how we will be funded by industry sector
as we propose in The FCA regulated fees and levies –
Rates proposals 2013/14, March 2013.
AFR allocation by industry sectors
30.3%
28.5%
13.6%
12.5%
15.1%
AFR allocation by industry sector
Investment (inc CASS), mortgage
& general insurance
intermediaries
Accepting deposits, mortgage
providers & principal position
taking
Insurance providers
Fund managers & operators of
schemes
Other
30.3%
28.5%
13.6%
12.5%
15.1%
AFR allocation by industry sector
Investment (inc CASS), mortgage
& general insurance
intermediaries
Accepting deposits, mortgage
providers & principal position
taking
Insurance providers
Fund managers & operators of
schemes
Other
Business Plan / 2013/14
Appendices
Contents
1. Regulatory architecture, key stakeholders and international regulation
2. Our accountability and transparency
3. Table of regulatory reform by market(s) affected
4. Principal European legislation
5. FCA independent panels – strategy for 2013/14
6. The Organisation chart
7. Corporate responsibility
8. Reference table of strategic priorities
9. 2013/14 Milestones
Appendices
Business Plan / 2013/14
58 Financial Conduct Authority
Appendix 1
Regulatory architecture, key stakeholders and
international regulation
Working with our regulatory family
The Financial Services Act 2012 set out the new
regulatory system for the UK. It created two new
bodies − the Prudential Regulation Authority
(PRA) and the Financial Conduct Authority (FCA),
which replace the Financial Services Authority
(FSA). The FCA is responsible for ensuring that
relevant markets function well and for the
conduct supervision of nancial services rms.
It also prudentially supervises those rms not in
scope of the PRA.
The other main bodies involved in financial regulation are:
• The Bank of England (BoE) − responsible for
protecting and enhancing the UK’s nancial stability.
It has primary operational responsibility for nancial
crisis management, oversight of payments and
settlement systems and clearing houses.
• The PRA − sits within the BoE and is responsible
for promoting the safety and soundness of
deposit-taking rms, insurers and systemically
important investment rms.
• The Financial Policy Committee (FPC) − sits
within the BoE, will be responsible for aiding the
BoE’s objective of protecting and enhancing the
stability of the UK nancial system. It will focus
on identifying, monitoring and managing risk to
the system.
• Her Majesty’s Treasury (the Treasury) − has
overall responsibility for the UK’s nancial system,
the institutional structure of nancial regulation, and
the legislation that governs it − both domestically
and internationally.
Bank of England
PRA
Subsidiary
of the Bank of
England
FCA
Ongoing legal
entity of
the FSA
Cooperation & coordination
Dual-regulated rms
(deposit takers, insurers and signicant
investment rms)
Prudential
regulation
Conduct
regulation
Prudential and
conduct regulation
Powers of
direction and
recommendation
in relation to
nancial stability
FPC
(Financial Policy
Committee)
HM Treasury and Parliament
Veto
Subsidiary
All other
regulated rms
FCA accountable
directly to HM Treasury
and Parliament
We are also part of a wider family of regulatory bodies
that protect financial consumers:
• The Financial Ombudsman Service (FOS) provides an
independent, free-of-charge service to consumers that
helps them to handle their complaints against rms.
• The Financial Services Compensation Scheme (FSCS)
may pay compensation to consumers when a rm is
unable, or likely to be unable, to pay claims against
it, usually because it has failed or ceased to trade.
Financial Conduct Authority 59
Business Plan / 2013/14
• The Money Advice Service (MAS) provides free,
unbiased advice to help consumers make the most
of their money.
While these are independent organisations, we will fulfil
our statutory duties of oversight and we will maintain
open and flexible links with each organisation, as they
can provide us with a very useful insight into the issues
affecting consumers and how firms are behaving − such
as the types of problems that consumers contact the
FOS about. We will then be able to use this information
to decide whether to intervene and to inform our
policies and other activities.
Working with external bodies and stakeholders
Independent Commission on Banking (ICB)
The ICB made recommendations in September 2011 on
reforms to the UK banking sector intended to promote
financial stability and competition. These include
imposing a ‘ring-fence’ on banks that provide deposit-
taking services, additional loss absorbency requirements
for the banking sector generally, and specific measures
intended to improve competition in the retail banking
market. Any resultant action will most likely be aimed
primarily at the PRA.
However, we will need to consider the implications
of any legislation − whether for the conduct of ring-
fenced banking entities, the prudential treatment of
solely FCA-regulated firms that are part of groups with
a ring-fenced bank, or competition in the retail banking
market − in light of our own objectives.
Parliamentary Commission on Banking Standards
The Parliamentary Commission on Banking Standards
published its final report in March. We will respond
to the recommendations relevant to us and provide
appropriate input to the Treasury.
Box 11: Working with firms, consumers
and consumer groups
We will consider regulation from a consumer’s
point of view. We will work with consumer
groups so we can better understand issues and
emerging problems − especially those related
to everyday products that most people use, like
bank accounts or general insurance. We will
also make it as easy as possible for consumer
groups to work with us so we can mutually
benefit from their information, knowledge and
experience to improve how we regulate.
We will enhance the capabilities and knowledge
of our contact centre advisers to enable them to
confidently resolve a broader and more complex
range of enquiries, allowing more firms and
consumers to benefit from quick, easy and helpful
access to the FCA. This will be supplemented by
an investment in the contact centre infrastructure,
so that advisers have all relevant resources and
information at their fingertips.
We will also develop processes for gathering
and communicating the valuable insights we
gain through our Consumer Helpline about the
issues consumers are facing and the impact
of firms’ actions on consumers − for example,
identifying a new type of scam or a problematic
feature of a particular type of product. In addition
to continuing to provide useful information
and guidance to consumers, we will develop
processes for reporting and escalating these issues
throughout the organisation as appropriate to
ensure a timely resolution of any conduct issues.
We also recognise the importance of our
relationship with firms and we will work to
ensure that our approach is effective and that
firms experience us as an open and fair regulator.
AppendicesAppendices
Business Plan / 2013/14
60 Financial Conduct Authority
Working with international bodies
Our membership of the global
regulatory community
We will be an active member of the International
Organisation for Securities Commissions (IOSCO), the
European Security and Markets Authority (ESMA) and
the Financial Stability Board (FSB). We will also engage
with other European and global standards-setters
where their work is relevant to our objectives including:
• the European Banking Authority (EBA);
• European Insurance and Occupational Pensions
Authority (EIOPA);
• the International Association of Insurance Supervisors
(IAIS);
• the Financial Action Task Force (FATF); and
• the Basel Committee for Banking Supervision
(BCBS).
We will establish the FCA as a credible contributor
by engaging early in debates, taking leading roles in
negotiating and drafting standards, and proactively
recommending areas where EU or international-level
rules would be most appropriate.
In addition to engagement in committees, we will
build and maintain relationships with key stakeholders
around the globe. Where possible, we will use these
relationships to share information, ideas and best
practice to find the best solutions. We will cooperate
on supervisory and enforcement matters and the
development of international standards. We will
continue to support a strong secondment programme
to EU and global institutions, enabling our staff to
develop critical skills in EU and global engagement.
How will we interact with international bodies?
We will coordinate our EU and global engagement
with the PRA, the BoE, the Treasury and other relevant
stakeholders. We have established a Memorandum
of Understanding (MoU) between the FCA, PRA,
BoE and the Treasury on participating in the key EU
and international organisations which sets out the
framework for this coordination. The International
Coordination Committee (ICC), involving officials from
the UK authorities and chaired by the Treasury, will also
support this.
In addition to these formal requirements, we will
continue to build on the work of the FSA to ensure
that we have the necessary working-level processes
in place for bodies and committees at a European and
global level. These processes will continue to evolve
and we intend to incorporate sufficient flexibility to
ensure that they remain fit for purpose. Each part of
the UK regulatory structure has a different but critical
role to play. We will review the operation of these
processes to ensure they remain fit for purpose and
deliver real results.
How will we make the international regulatory
structure work for consumers?
A large portion of our policy is set at EU or international
level and EU and international negotiations will make a
large contribution to delivering markets that work well
for consumers. Specific policy initiatives, which will be
debated throughout 2013/14, are set out in greater
detail in other parts of this Business Plan, but in our
engagement we will:
• seek legislation and standards that appropriately
reect the unique features of UK markets;
• ensure that conduct and consumer protection issues
are considered in debates;
• take negotiating positions that are based on a
Financial Conduct Authority 61
Business Plan / 2013/14
comprehensive understanding of what is in the
consumer’s interest; and
• seek to ensure that there is no dilution of consumer
protection at domestic level as a result of EU and
international actions.
The European Supervisory Authorities (ESAs) play
a crucial role in regulating and supervising financial
services in Europe. In addition to the role that ESMA
undertakes in markets and securities, all three ESAs
(including the EBA and EIOPA) have a consumer
protection mandate that the FCA will continue to
support. The operation and structure of the ESAs
will be reviewed before 1 January 2014 and the FCA,
along with the Treasury and the PRA, will contribute
to this review with an aim of ensuring the ESAs are
effective and take into account the interests of all
Member States.
We will also continue to play a leading role in ESMA
through Martin Wheatley’s membership of the
Management Board and our chairmanship of the
ESMA Standing Committees on Secondary Markets
and Commodities, as well as strong contributions
across the range of ESMA work. Please see Appendix 3
for a table detailing the regulatory reform timeline and
market(s) affected.
Box 12: Our legal support
The General Counsel’s Division will provide legal advice to the FCA on all its regulatory functions except
enforcement, which maintains its own legal expertise. It will have wide-ranging responsibilities, including:
• advising the FCA on the exercise of its functions and powers;
• providing legal advice and support to the FCA on its responsibilities as the supervisor of regulated firms;
• providing legal support on the development of FCA policy, including drafting rules and guidance (which
includes rules to implement EU directives);
• identifying and managing legal risk;
• advising on EU and international legal issues across the FCA, including EU legislation at the formative
stages; and
• advising on corporate and constitutional matters.
Good quality legal advice will help ensure that the FCA works in an appropriate, proportionate way.
Appendices
Business Plan / 2013/14
62 Financial Conduct Authority
We are committed to being an open and
transparent regulator. We recognise that the rms
we regulate have a huge impact on people’s daily
lives and on the economy, so it is our duty, as a
public body, to do what we do in a way that is as
accountable as possible.
This appendix will set out how we will operate, both in
general and through specific initiatives in 2013/14, in a
way that helps us to be held accountable.
How will we be accountable through
independent Panels?
We receive advice and guidance on our policies from
four independent Panels − the FCA Financial Services
Consumer Panel (FSCP), FCA Practitioner Panel (FCA PP),
the FCA Smaller Business Practitioner Panel (FCA SBPP)
and the FCA Markets Practitioner Panel (FCA MPP).
The Panels each develop their own strategic plans to enable
them to set their own agendas, as well as responding to
the work of the FCA. These plans are reviewed annually
in the summer to ensure they are updated and reflect
changing events. The work of the Panels helps keep the
FCA accountable to the industries and markets we regulate
and the consumers we aim to protect. Further details of
the work of our Panels can be found in Appendix 5.
Lessons learned − building on our experiences
We are committed to being a transparent and learning
organisation. We will promote a culture of learning
by doing more regular internal reviews into significant
events so we can learn from them. These internal
reviews will help keep us accountable by providing a
critical view of our actions and will provide us with
lessons we can learn. These lessons learned will help
inform and improve our approach in the future. We
will consider publishing the results of these reviews to
improve our transparency as a regulator.
We also have a statutory duty that requires us to
carry out investigations into events and circumstances
surrounding possible regulatory failures and report to
the Treasury. This will be where it appears to us that two
of the following conditions have been met: Events have
occurred in relation to a regulated person or a collective
investment scheme that has harmed our objectives by:
• Indicating a signicant failure to secure an
appropriate degree of protection for consumers;
• having, or potentially having, a significant
adverse effect on the integrity of the UK financial
system; and
• having an adverse effect on effective competition in
the interests of consumers.
• Events have occurred that might not have occurred,
or the failure or adverse effect might have been
reduced, if it had not been for a serious failure in the
regulatory system or the operation of that system.
The Treasury may also require us to carry out an
investigation and report to them where they consider
that the conditions have been met, or if they think
that an investigation is in the public interest. The
Treasury must publish reports in full, subject to
prescribed exceptions.
Regarding statutory reports required by the Treasury,
we will publish a statement of our policy setting out:
• what we will take into account when deciding
whether the conditions have been met that require
us to carry out investigations and report to the
Treasury; and
• how investigations will be carried out.
Post-implementation reviews
In the Journey to the FCA we stated that we will follow
up new policy with rigorous post-implementation
reviews to evaluate the success our policy interventions,
Appendix 2
Our accountability and transparency
Financial Conduct Authority 63
Business Plan / 2013/14
their impact and the residual risk. For example, when
we published the Mortgage Market Review Policy
Statement in October 2012, we stated that we intend to
conduct a formal review of the impact of our proposals
not more than five years after implementation. That
process will start this year through our work with firms
to identify and collect the necessary information for the
post-implementation review.
Complaints scheme
The Financial Services Act 2012 requires the FCA, the PRA
and the BoE to establish, as part of their accountability
mechanisms, arrangements for investigating complaints
against them. These include appointing an independent
investigator (a Complaints Commissioner). As stipulated
by the Act, we have consulted on our new proposals for
the Complaints Scheme and our Policy Statement was
published on 25 March 2013.
Box 12: Financial Services Compensation
Scheme (FSCS) funding model
The FSCS is an industry-funded scheme that
provides compensation to customers of firms
who cannot meet the claims against them. It
is funded by levies on firms regulated by us. A
well-funded, sustainable compensation scheme
is vital for consumer confidence.
Changes to the FSCS funding model take effect
from 1 April 2013 and are designed to establish
a credible funding approach for the FSCS: one
that balances the need for adequate funds with
affordability for those contributing.
Transparency Discussion Paper
We are committed to be a transparent regulator and
to carry out our activities in a way that is as open and
accountable as possible. As a result of changes made to
the Financial Services and Markets Act 2000 (FSMA) by
the Financial Services Act 2012, we will be required to
have regard to two new regulatory principles relating
to transparency:
• The desirability of publishing information about
regulated rms/individual or requiring such persons
to publish information.
• The FCA should exercise its functions as transparently
as possible.
In light of these new principles, we are reviewing
the extent of our constraints and when and how we
balance transparency with effective regulation. Our
approach is informed by the principle that the focus
should be towards transparency unless there are
compelling regulatory, legal or other reasons to the
contrary. We have to strike the right balance between
disclosing information where we are legally able to
do so and where the public has a legitimate interest
in knowing about a particular matter, and refraining
from disclosing information where it would be unfair
to a particular firm or individual or where it could harm
the public interest.
In March 2013 we published a Discussion Paper setting
out our ideas on information we could release about our
organisation and about firms, individuals and market
information that we could require firms to release.
There will be a discussion period and stakeholders are
invited to contribute further ideas and challenge ours.
Appendices
Business Plan / 2013/14
64 Financial Conduct Authority
Appendix 3
Table of Regulatory reform by market(s) affected
Note:
* All dates are expectations only and therefore subject to change.
Life insurance is covered in “Retail investment, fund management & related services”.
** Solvency II dates are subject to current Omnibus II negotiations and potential quick x directive
Retail deposits
Secured retail lending
Unsecured retail lending
General insurance
Retail investment, fund management & related services
Wholesale investment, fund management
Wholesale insurance & related services
Markets (primary & secondary)
2013
Q2
UK: Implementation of new FSCS funding model (Apr)
UK: Implementation of new LIBOR regime (Apr)
UK: Implementation of referral fee ban in personal injury cases (Apr)
UK: Implementation of changes stemming from Consumer Insurance Act (Apr)
EU: Solvency II transposition deadline (Jun)**
EU: Legislative proposals on basic bank accounts, current account switching and transparency of fees and charges
EU: Legislative proposals for IORP Directive
EU: Legislative proposals for a European framework for MMFs
EU: Legislative proposal to review PSD
Q3
EU: Implementation of AIFMD across member states (Jul)
UK: FCA to publish two reviews into money laundering
Global: FSB proposed publication of nal recommendations on shadow banking sector (Sep)
EU: Possible legislative proposals on long-term investments
UK: PRA implementation of new capital and liquidity requirements for credit unions (Sep)
EU: Possible agreement of Directive on mortgage credit
Q4
UK: Implementation of National Crime Agency (including economic crime unit) (Dec)
EU: Possible agreement on PRIPs regulation
EU: Legislative proposals on UCITS VI
EU: Possible agreement on UCITS V
2014
Q1
EU: Proposed implementation date for Solvency II regime (Jan)**
EU: Possible implementation of minimum capital requirements under CRD
IV
EU: Possible agreement on IMD2
Global: FATCA withholding begins for certain payments (Jan)
EU: Proposed implementation date for FTT (Jan)
Q2
UK: Possible implementation of new Platforms rules
UK: MMR implementation (Apr)
UK: Transfer of consumer credit and peer-to peer-lending regulation from the OFT to the FCA (Apr)
Q3
Global: Proposed implementation of US Volcker Rule (Jul)
2015
Q1
Global: Revised implementation date for IFRS 9 (Jan)
UK: Banking Reform Bill to receive Royal Assent (before end of current Parliament)
Q3
EU: Possible implementation of Directive on mortgage credit
Q4
EU: Possible entry into force of PRIPs regulation
EU: Possible implementation of revised market abuse regulation
EU: Possible implementation of UCITS V
UK: Implementation of ILAS regime (end 2015)
2016
EU: Possible implementation of revised MiFID/MiFIR
EU: Possible implementation of IMD2
2018
EU: Possible implementation of NSFR (part of CRD IV) (Jan)
UK: Full implementation of pensions auto-enrolment
2019
Global: Full implementation of CRD IV liquidity coverage ratio (Jan)
Financial Conduct Authority 65
Business Plan / 2013/14
The principal European legislation that the FCA will be working to influence during 2013/14 is:
EU Legislation Action Detail Statutory Objective
Review of the European
System for Financial
Supervision
Commission Review Review to conclude close
2013. New Regulations to
follow in 2014
EMI, DCP, BCM
European Market
Infrastructure
Regulation
Development of Technical
Standards to progress the full
implementation
Technical standards will enter
into force during 2013 & 2014
EMI
Markets in Financial
Instruments Directive
and Markets in Financial
Instruments Regulation
Negotiation of revised legislation Ongoing EMI
Alternative Investment
Fund Managers
Directive
Implementation of changes
already agreed
Implementation deadline July
2013
EMI
Undertakings for
Collective Investment in
Transferable Securities V
Negotiation of revised legislation Ongoing EMI
Undertakings for
Collective Investment in
Transferable Securities VI
Awaiting legislative proposal Publication of proposed
legislation expected Q4 2013
EMI
Recovery and Resolution
framework for nancial
institutions other than
banks
Awaiting legislative proposal. Legislative proposal expected
in 2013
EMI
Market Abuse
Regulation & Directive
on criminal sanctions
for insider dealing and
market manipulation
Negotiation of revised legislation Negotiation in trialogue
phase
EMI
Central Securities
Depositaries
Regulations
Negotiation of revised legislation Ongoing EMI
Transparency Directive Negotiation of revised legislation Negotiation in trialogue phase EMI
Appendices
Appendix 4
Principal European Legislation
Business Plan / 2013/14
66 Financial Conduct Authority
EU Legislation Action Detail Statutory Objective
Securities Law
legislation
Awaiting legislative proposal Publication of proposed
legislation expected in 2013
EMI
Credit Rating Agency
Regulation III
Implementation of changes
already agreed
ESMA developing technical
standards
EMI
Capital Requirements
Directive IV
Negotiation on revisions to the
CRD in line with Basel agreement
Ongoing, expect agreement
Q2 2013. Transitional
periods and phasing in of
various parts of the new
requirements will run through
to 1 January 2019
EMI
Anti-Money Laundering
Directive IV
Negotiation of revised legislation Negotiation on-going in 2013
– 2014
DCP
Corporate governance
for listed insurers
Commission Review Publication of legislative
initiatives expected in 2013
DCP
Payment Services
Directive
Negotiation of revised legislation Review to be completed
in 2013. Publication of
legislative proposals in Q2
2013
DCP
Electronic Money
Directive
Negotiation of revised legislation Review expected in 2014 DCP
Package Retail
Investment Products
Negotiation of new legislation and
implementing measures
Level 1 on-going.
Development of technical
standards
DCP
Insurance Mediation
Directive
Negotiation of revised legislation Ongoing expected to be
agreed in
Q4 2013
DCP
Mortgage Credit
Directive
Negotiation of new legislation Legislative proposals
expected to be agreed in
2013
DCP
Legislative proposals
on basic bank accounts;
account switching and
transparency of fees
and charges
Negotiation of new legislation Legislation proposals expected
in Q2 2013
BCM
Key for statutory objectives:
DCP - Delivering consumer protection
EMI - Enhancing market integrity
BCM - Building competitive markets
Financial Conduct Authority 67
Business Plan / 2013/14
From April 2013 we will receive advice and
guidance on our policies from four independent
Panels – the Financial Services Consumer Panel
(FSCP), the FCA Practitioner Panel (PP), the FCA
Smaller Business Practitioner Panel (SBPP) and
the newly created FCA Markets Practitioner
Panel (MPP).
The Panels each develop their own strategic plans
to enable them to set their own agendas, as well as
responding to the priorities of the FCA. These plans
are reviewed annually, in the summer, to ensure they
are updated and reflect changing events. This section
highlights the key points as at the beginning of 2013.
FCA Financial Services Consumer Panel (FSCP)
The FSCP represents the interests of consumers by advising,
commenting and making recommendations on existing
and developing FCA policy and practices as appropriate. It
speaks on behalf of consumers by reviewing, monitoring
and reporting to the FCA on the effectiveness of FCA’s
policies and practices in pursuing its duties.
With the backdrop of a new regulatory structure,
the Panel’s primary role will be to influence how the
consumer interest is upheld, and is fundamental, in
financial services regulation.
The FSCP currently has five key priorities for 2013/14:
• the future effectiveness of the FCA as a conduct
regulator;
• the transfer of consumer credit regulation to the FCA;
• sales practices in general insurance;
• decumulation in later life; and
• effective consumer representation at EU level.
The Panel will be working closely with the FCA as
the latter develops its future priorities, particularly
with regard to the new powers and responsibilities
it will adopt in the coming years. The Panel will be
concentrating much of its work on the effectiveness of
the FCA as a conduct regulator and the transition to the
new regime for the regulation of consumer credit.
FCA Practitioner Panel (PP)
The PP aims to provide early and effective practitioner
input into the FCA’s policy development. Its priorities
in 2013/14 will continue to focus on the areas of
regulatory change that have the greatest impact on
financial services firms and consumers, seeking to
improve outcomes for all.
The development of its strategic priorities enables the
Panel to pursue its own agenda as well as following
the consultation agenda of the FCA. The Panel has
developed a more effective and efficient way of
operating by adopting a “thematic” approach and by
becoming more attuned to the EU and International
regulatory policy making agenda. As such, the Panel is
working to the following themes for 2013:
• potential unintended consequences of regulatory
action;
• balance between consumer protection and
consumer responsibility;
• potential inconsistencies between EU/international
and UK regulatory approaches; and
• appropriate regulatory approaches for wholesale
and retail markets or rms.
Appendices
Appendix 5
FCA independent panels – strategy for 2013/14
Business Plan / 2013/14
68 Financial Conduct Authority
For 2013/14, the Panel’s work has been driven by the
significant changes to the regulatory structure that are
due to take effect during the year and their impact for
the UK financial services industry.
Going forward, the Panel will work closely with the
FCA in developing its key priority areas. It will continue
to monitor its key themes throughout 2013/14 and
establish its new areas of focus as the FCA embeds its
own strategic plans.
FCA Smaller Business Practitioner Panel (SBPP)
The SBPP’s overall objective continues to be to work
to ensure the regulatory environment enables smaller
firms to be commercially viable and to flourish, so
contributing to the wider economy and providing a
broader choice and access for consumers.
The SBPP will for the first time have statutory status
under the Financial Services Act 2012. The purpose
of the SBPP is to represent the interests of the smaller
financial services businesses through the provision of
practitioner input into our policy development.
For the smaller firms within the industry, the impact
of changes within the supervisory approach for the
FCA and the continued need for all firms to comply
with regulatory policy changes, bringing additional,
sometimes disproportionate, burdens. The work of
the SBPP during 2013/14 focusses on this changing
environment. The Panel has linked its key priorities
for 2013/14 to those areas that the Panel considers
important for the smaller firms within the industry. The
priorities for 2013/14 are as follows:
• design and development of the FCA;
• cost effectiveness of regulation;
• FCA engagement with smaller rms; and
• balance of responsibilities between rms and
consumers.
The SBPP will also continue to consider the changing
regulatory agenda and how it continues to impact on
smaller firms within the industry. Similar to the PP and
FSCP, the Panel will review its specific areas of focus, in
line with the FCA’s business plans.
FCA Markets Practitioner Panel (MPP)
Joining the other two practitioner Panels under the
Financial Services Act 2012, the MPP will be modelled on
the role and operation of the existing practitioner panels.
The statutory role of the MPP will be to represent the
interests of practitioners who are likely to be affected by
the exercise of the FCA’s functions relating to markets,
including its duties as the listing authority, in relation to
short selling powers and the regulation of recognised
investment exchanges.
The MPP will aim to engage with and provide active
input into all operations of the FCA’s Markets Division.
It will seek to ensure that wholesale markets and market
practitioners are subject to appropriate regulation
within the FCA approach. Further, the MPP hope to
encourage the consistent and coherent regulation
of FCA regulated market infrastructure providers in
support of the FCA’s objectives in ensuring markets
function well. The Panel is also likely to take an interest
in the wider infrastructure mechanisms which support
UK financial markets.
Financial Conduct Authority 69
Business Plan / 2013/14
Appendices
MARTIN WHEATLEY
CHIEF EXECUTIVE OFFICER
SEAN MARTIN
1
GENERAL COUNSEL
ROSEMARY HILARY
INTERNAL AUDIT
CLARE BOLLINGFORD
SUPERVISORY OVERSIGHT
LESLEY TITCOMB
1
CHIEF OPERATING
OFFICER
DAVID LAWTON
MARKETS
CHRISTOPHER
WOOLARD
POLICY RISK AND
RESEARCH
TRACEY
MCDERMOTT
ENFORCEMENT &
FINANCIAL CRIME
ZITAH MCMILLAN
COMMUNICATIONS &
INTERNATIONAL
CLIVE ADAMSON
SUPERVISION
VICTORIA RAFFÉ
AUTHORISATIONS
1 Acting
Appendix 6
The Organisation chart
Business Plan / 2013/14
70 Financial Conduct Authority
Appendix 7
Corporate responsibility
We play a key role in protecting and enhancing the
integrity and stability of the UK nancial system.
Corporate citizenship is a vital part of this and we
will lead by example to inuence positive change,
not only within the FCA but also among our peers.
To provide the best service to the public and the
financial sector, we need to support our staff to
understand, represent and have close links with
both the marketplace and the wider community. In
this way we can be in the strongest position to fulfil
our obligations and role, as well as to play our part
in sustaining the environment and being a positive
contributor to community improvement.
Diversity and corporate citizenship in the FCA
In 2013/14, we will continue to recruit, develop and
retain the most talented, engaged and diverse workforce
that we can. We will work with supervisors to enable
them to engage with firms on this issue and equip
our line managers to ensure all staff feel valued and
respected and there is a culture of inclusivity. We will
measure progress by the nine ‘protected characteristics’
in equality law:
• age;
• disability;
• gender reassignment;
• marriage and civil partnerships;
• pregnancy and maternity;
• race;
• religion or belief;
• sex; and
• sexual orientation.
And for each of the protected characteristics we will
measure these against metrics including:
• staff prole;
• employment applications and success rates;
• internal promotions;
• training;
• appraisals (including performance ratings); and
• leavers (voluntary and involuntary).
We will provide an update on progress against our metrics
in our Annual Diversity Report. We are also revisiting
our community volunteering programme to ensure
we are giving our staff the best opportunity to engage
meaningfully in the community, and to gain skills and
understanding that will benefit our role as a regulator.
What does diversity mean in practice to the FCA?
• We demonstrate due regard for promoting equality;
therefore we ensure that we take full and due regard
of our actions as a regulator to avoid inadvertant
discrimination. We conduct Equality Impact
Assesements (EIA) as part of our policy and guidance
work in which we identify the potential impact of the
proposed policy/guidance on each of the protected
characteristic groups and mitigate agains any negative
impacts. Positive impacts are also outlined and shared.
This procedure ensures that we foster a culture of
inclusion in the FCA, and that the interests of these
groups are not compromised as a result of our actions.
Financial Conduct Authority 71
Business Plan / 2013/14
• We have a committed Corporate Responsibility
(CR) Team who are the rst point of contact for
environmental, community affairs, and diversity
issues at the FCA. The team works with HR and
other departments to make progress in these areas
and to ensure that the FCA has a positive impact
on the community. In particular reference to
diversity, there are two diversity-based roles in CR.
One involves the oversight of ‘internal’ diversity
in terms of advancing the welfare of our own
diverse staff and the other looks at diversity within
the regulatory sphere, by overseeing EIAs and
ensuring that the FCA is working in compliance
with the Equality Act.
• We look to promote and encourage diversity and
inclusion across the sector. However, we do work
within a limited capacity as we have no legislative
powers to compel rms to advance their diversity
agenda (beyond the basic obligations imposed
upon them as employers under the Equality Act;
violations of these are not reported to us but to
the EHRC).
• We conduct an Annual Industry Diversity Survey to
gain intelligence on the workforce demographic of
the sector, and an Annual Internal Diversity Survey
to gain an understanding our own workforce and
their needs.
• We have an Executive Diversity Committee
(EDC) which meets on a monthly basis to discuss
emerging issues in the diversity agenda. EDC acts
as a high-level guide for the organisation, reecting
the importance that we attach to the corporate
responsibility agenda.
• We are working with our supply chain to ensure
that the high corporate responsibility expectations
we have of ourselves are reected in how we do
business with others.
Diversity in nancial services
We will measure progress on diversity within financial
services. We will do this by building on last year’s initial
work of gathering the diversity statistics of firms in the
financial sector. This will enable us to understand sector
trends and work with firms to:
• support and encourage rms to have robust and
challenging strategies in place to ensure that they
are drawing on the broadest pool of talent, helping
them to maintain a competitive edge in terms of
human capital;
• understand and discuss with rms the barriers
to people gaining employment in the sector or
developing their full potential; and
• support rms in understanding the implications of
boardroom composition on governance and risk.
Box 13: Employee volunteering at the FCA:
Community Affairs
Employees can volunteer with the aim of
making a positive contribution within the
community, developing business skills and
improving our understanding of a diverse
range of consumer experiences when using
financial services. Staff are allocated time to
participate in individual volunteering activities
and also to complete a team-based activity.
Reflecting the working hours of charities
and the need for staff to manage a work/life
balance, we have also recently introduced a
Personal Volunteering Scheme through which
employees can volunteer with a local charity of
their choice.
Appendices
Business Plan / 2013/14
72 Financial Conduct Authority
In 2012 we launched a Charity Committee, which will
bring together the fundraising work that the staff at
the FCA do.
Environment
The FCA is committed to a sustainable future by
limiting and reducing its environmental impact. It
does this in a number of ways, principally energy
reduction, waste management and recycling. In the
coming year the FCA will seek to further reduce its
energy consumption by replacing plants and systems
at the end of their life cycle for energy efficient
alternatives. It also encourages staff to increase the
amount of waste they recycle and reduce the waste
generated across all its offices. As part of this in 2013
we are imbedding a recycling system onto all floors
of the FCA. The environmental programme monitors
our progress throughout the year and reports this to
senior management. In addition, the FCA participates
in the government energy efficiency carbon reduction
commitment scheme.
Financial Conduct Authority 73
Business Plan / 2013/14
Appendix 8
Reference table of strategic priorities
FCA statutory objectives
Delivering consumer protection Enhancing market integrity Building competitive markets
Mortgage Market Review (MMR)
Retail investment advice
Management of Client Assets (CASS)
Complaints data
Listing rules
Wealth Management
Insurance Mediation Directive (IMD2)
Mortgage Credit Directive
Supervision of Recognised Investment
Exchanges
Primary Information Providers (PIPs)
Multilateral Trading Facilities (MTFs)
Sponsors
Markets in Financial Instruments
Directive (MiFID) and Markets in
Financial Instruments Regulation
(MiFIR)
Alternative Investment Funds
Managers Directive (AIFMD)
UCITS (Directive on Undertakings for
Collective Investment in Transferable
Securities) V
Financial Market Infrastructures (FMIs)
Commodities market regulation
Market Abuse Regulation and Criminal
Sanctions Market Abuse Directive
The Central Securities Depositaries
Regulations (CSDR)
Transparency Directive (TD)
Securities Law legislation
Close out netting Directive
The European Market Infrastructure
Regulation (EMIR)
EU legislation on Credit Rating
Agencies
Outcomes of the Wheatley Review
Identifying risk
Early intervention
Barriers to entry
Market studies
European Commission work on
transparency of fees and charges
related to bank accounts
European Commission work on current
account switching
Appendices
Business Plan / 2013/14
74 Financial Conduct Authority
Key forward-looking risks
Firms do not design
products or services that
respond to real consumer
needs or are in consumers’
long-term interests
Distribution channels do
not promote transparency
for consumers on nancial
products and services
Over-reliance on, and
inadequate oversight of,
payment and product
technologies
Shift towards more
innovative, complex or
risky funding strategies
or structures that lack
adequate oversight, posing
risks to market integrity
and consumer protection
Poor understanding of
risk and return, combined
with the search for yield or
income, leads consumers
to take on more risk than
is appropriate.
• Product governance
• Product intervention
• Product Design and
Oversight: Fund fee
structure
• Mortgage arrears and
forbearance management
• Competition approach
• Financial incentives
• Financial Promotions
• Conicts of interest
• Custody banks
• Transition management
• Product design and
oversight – fund fee
structure
• Retail investment advice
• Wholesale conduct strategy
• LIBOR/Wheatley Review
• Packaged Retail Investment
Products (PRIPs)
• Price comparison rms
• New Payments Methods/
Mobile Banking and
Payments
• Technological resilience/
banking
• Market infrastructure
• The Payment Service
Directive (PSD)
• CRDIV • Extensive scoping work
• Interest-only mortgages
Crystallized risks
LIBOR Interest Rate Swaps PPI
• Outcomes of the Wheatley
Review
• Redress work • Redress work
Financial Conduct Authority 75
Business Plan / 2013/14
Key forward-looking risks
Firms do not design
products or services that
respond to real consumer
needs or are in consumers’
long-term interests
Distribution channels do
not promote transparency
for consumers on nancial
products and services
Over-reliance on, and
inadequate oversight of,
payment and product
technologies
Shift towards more
innovative, complex or
risky funding strategies
or structures that lack
adequate oversight, posing
risks to market integrity
and consumer protection
Poor understanding of
risk and return, combined
with the search for yield or
income, leads consumers
to take on more risk than
is appropriate.
• Productgovernance
• Productintervention
• ProductDesignand
Oversight:Fundfee
structure
• Mortgagearrearsand
forbearancemanagement
• Competitionapproach
• Financialincentives
• FinancialPromotions
• Conictsofinterest
• Custodybanks
• Transitionmanagement
• Productdesignand
oversight–fundfee
structure
• Retailinvestmentadvice
• Wholesaleconductstrategy
• LIBOR/WheatleyReview
• PackagedRetailInvestment
Products(PRIPs)
• Pricecomparisonrms
• NewPaymentsMethods/
MobileBankingand
Payments
• Technologicalresilience/
banking
• Marketinfrastructure
• ThePaymentService
Directive(PSD)
• CRDIV • Extensivescopingwork
• Interest-onlymortgages
Crystallized risks
LIBOR Interest Rate Swaps PPI
• OutcomesoftheWheatley
Review
• Redresswork • Redresswork
Appendix 9
2013/14 Milestone s
Appendices
Delivering consumer protection
1
Q2 2013
April–June
Q3 2013
July–September
Q4 2013
October–December
Q1 2014
January–March
Retail investmenmt advice
Guidanceforrms
duringimplementationas
appropriate
Guidanceforrms
duringimplementationas
appropriate
Guidanceforrms
duringimplementationas
appropriate
Interest only mortgages
Publicationofresultsof
initialreview
Mortgage Arrears and Forbearance
Management
Engagewithselected
lenders
Firmassessmentvisits Reportthematicndings
Financial incentives
Initialreviewstarts Completionofreview
Mortgage Market Review (MMR)
OnlineSurveys
Data requirements Consultation
Paper
Readinesstrackingresults
published
Workshops Readinesstrackingresults
published
Perimeter Guidance Consultation
Paper (PERG)
Consumer credit
On-goingconsultation PolicyStatementand
furtherConsultation
Paper
Authorisations – interim
permissions applications open
On-goingconsultation PolicyStatement
PPI Redress
Resultsofreviewof
complainthandling
1
Wewillalsobeundertakingreviewsintheareaof:Custodybanks,Assetmanagementfundfeestructures,ConflictsofinterestandTransitionmanagement.Weareconfirmingthe
datesrelatedtothesereviewsbuttheworkwillfallwithintheyear2013/14.
Business Plan / 2013/14
76 Financial Conduct Authority
Enhancing market integrity
Q2 2013
April–June
Q3 2013
July–September
Q4 2013
October–December
Q1 2014
January–March
AIFMD
Policy Statement
LIBOR
New rules related to
Controlled Functions
come into effect
Building competitive markets
Q2 2013
April–June
Q3 2013
July–September
Q4 2013
October–December
Q1 2014
January–March
General Insurance Add-on Study
Assessment complete
Financial Conduct Authority
© Financial Conduct Authority 2013
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Telephone: +44 (0)20 7066 1000
Website: www.fca.org.uk
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