Positive first year for the FCA’s strategy

The FCA paints a positive picture of progress against its objectives in its Annual Report for the year 2022-23. This is the first Annual Report presented jointly by Nikhil Rathi CEO, and the incoming Chairman Ashley Alder.

The FCA’s Press Release invites the reader to focus on two issues:

• Tighter regulatory control over entry to the financial services sector. The FCA withdrew permission to operate, on grounds of failure to meet minimum standards, from 30% more companies than the previous year (over 600 firms) and 1 in 4 firms didn’t get through authorisation gateway (compared to 1 in 5 the previous year);
• Greater support for consumers caught up in the cost of living crisis. The FCA put out new rules on how lenders should support borrowers in financial difficulty, passed ￡47 million in redress payments to consumers poorly treated by lenders, and directed insurers not to push unnecessary add-on products or impose unfair penalties.

These are the activities the FCA has chosen to stress from a complete and wide-ranging Annual Report. To be fair, the regulator could have chosen any number of other headlines. Once immersed in the detail of the Report, the reader is overwhelmed by the volume of the FCA’s interventions, and the variety of their work.

Nikhil Rathi is fully justified in drawing attention to the operational improvements at the FCA, a failing under previous FCA management, and a key focus of his tenure as CEO. This is best illustrated by the improvements in the authorisation regime, where the backlog has been cut by 60% from 12,500 to under 6000 cases.

The Report is mainly a backward-looking document of record, but also briefly sets the tone looking forward to next year, with the introduction of the Consumer Duty, and the new regulatory framework following the passage of the Financial Services and Markets Act.?

As usual, the best bits are in the Annexes.

There is a really laudable attempt to set out, for the first time, the FCA’s performance against their objectives in the first year of their three year strategy. The outcomes and metrics report uses a number of selected metrics. For reasons of space I am not going to comment on the individual metrics, but if you wish to understand how the FCA looks at its own activities, this report is a fascinating read. Perhaps the most impressive feature is how aware the FCA staff are of the difficulties of measurement and interpretation. I should add that this report dispels any suggestion that the FCA operates from an ivory tower in Stratford, remote from the real world – the metrics are drawn from consumer surveys and hard economic evidence.

Efforts to quantify the benefit of the FCA’s work are less convincing. The Press Release highlights a headline claim that each pound of operational expenditure by the FCA has delivered ￡17 of benefit to companies and consumers. This figure is reached by analysing the impact of the FCA’s policy and enforcement activities. It is poor practice that the headline claim is based on the benefits of the FCA’s policies, without taking any account of their costs. Nevertheless, the detail of the Positive Impact 2023 Report is also well worth a read.

Hugh Savill , Senior Adviser