General Insurance Article - FCA speech on agile regulation and planning for success

 Speech by Emily Shepperd, Chief Operating Officer and Executive Director. Authorisations, FCA, delivered at the CISI/The Financial Planning Conference 2022 in Liverpool.

 When I left the private sector last year to join the FCA, my former colleagues patted me on the back with a mixture of envy and pity.

 Envy because they assumed it would be more relaxed in the public sector compared to the cut and thrust of the C-suite.

 And pity, because quite frankly, they assumed I would be a little bored.

 Within weeks of joining, I was helping lead a major internal transformation project.

 This followed on from a global pandemic where colleagues had worked round-the-clock to support financial institutions to help their customers.

 Then, just as we thought the crisis was petering out, Russia invaded Ukraine, triggering volatility in the markets and further stymying supply chains.

 Since then, we have had a fiscal event and the market reaction that followed it.

 So much for boredom and a quiet life in the public sector.

 Liverpool's financial services hub
 I must add that I am delighted to be in Liverpool, which is the antithesis of quiet or boring.

 You have the nightlife that is the envy of the rest of the UK and are a UNESCO Music City.

 Being the beating heart of the British music scene will give you a huge advantage in your bid to host next year’s Eurovision.

 And although it is not nearly as glamorous as rock and roll, financial services are also at the heart of this great city.

 Some 41,000 – or nearly one in five residents – are employed in the sector in Liverpool.

 The city also boasts the largest wealth management centre outside of London.

 With operating costs a fraction of some other cities and six million workers living within an hour’s drive, Liverpool is an increasingly important hub for financial services.

 We at the FCA recognise that financial services do not start and end in the City of London.

 Increasingly, our work transcends not just borders and locations but sectors.

 Progress on authorisations
 We did not set out to regulate third party tech firms, for example, but with the rise in reliance on critical third parties – such as cloud services – we have had to work with other regulators and the Treasury to come up with ways to mitigate the risk of harm when things go wrong.

 The problem with working for a regulator is that when things go right, when you protect consumers from harm, issue guidance on sanctions to banks or liaise or block a malevolent firm from being authorised, the public won’t hear about it.

 But when things go wrong, everyone knows about it.

 As a regulator, we recognise that there are areas where we need to make improvements to support the outcomes we want to see.

 Our authorisations processes is one area where we have had challenges, which we fully recognise have had an impact on firms.

 But we have turned a corner in that area.

 Since December last year we have slashed pending cases from 12,500 to 6,600 – a reduction of more than 45 per cent.

 We continue to work to improve this and to deliver a faster, better and easier to use service.

 That is why we are investing in our technology, starting with automated application forms that seek to ensure the applications we receive are complete.

 This reduces the repetitive experience of many firms at the gateway – saving time and resource for both us and firms.

 We have already taken steps to strengthen our assessments at the gateway, ramping up our scrutiny of firms’ financial and business models.

 In the previous financial year 1 in 5 firms did not get authorised. That is up from 1 in 14 the year before.

 We do want firms to set up and to flourish. But we know how the contagion can spread from a bad apple and we feel it is best to weed these out before they go anywhere near the other crop of healthy firms.

 A key part of ensuring that the UK is an attractive destination is to maintain high standards at the outset.

 Supporting firms at every step
 To support this, we are placing more firms that gain authorisation into the early and high growth oversight programme.

 This is where we give firms that are new to regulation extra help with navigating the rules from the start.

 This will help to smooth the cliff edge for budding firms, and is part of a continuous journey throughout regulation that for many starts in our Sandbox – where firms can test innovations on real consumers - and hopefully doesn’t end with enforcement!

 Protecting consumers
 Another way we have tried to help firms to put their best foot forward is with the new Consumer Duty.

 It has been a hot topic for firms, but it should not be controversial. The main thrust of the Consumer Duty is to require firms to put their customers’ needs first and deliver good outcomes. It’s not just the right thing to do for consumers: It makes business sense.

 Boards and senior management also have a critical role in overseeing firms’ implementation of the Duty.

 That’s why we have strengthened the requirements around governance and accountability to ensure senior managers and executives are held accountable.

 This Duty should help firms hold onto customers in challenging times.

 And our own data and calls to our consumer line show that cost of living challenges are biting.

 Customers are beginning to face challenges around debt, with fixed rate mortgage deals expiring and prices of household items going up.

 The use of credit should not be demonised. It’s an important part of smoothing unexpected bills, and can be a lifeline if it’s affordable and managed correctly.

 Where we have concerns is in ensuring that people understand how much they are borrowing and the cost of that credit, and that lenders are offering the right information and deal for customers.

 We are also keen to make sure that lenders help customers at the first signs of vulnerability – and that customers speak to lenders as soon as they feel they may not be able to make their usual payments.

 Proceed with caution
 We also know that some investors could be listening to commentators’ gloomy forecasts and may be tempted to cash out their investments or pensions.

 Our research shows that a quarter of consumers would be tempted to draw down early on their pensions in the face of cost of living pressures.

 It also shows that this increases vulnerability to scams: 44% of consumers would fall for the ‘free pension review’ offer which is a classic scam tactic.

 Today we launched our Scamsmart campaign highlighting such ‘misdirection’ tactics.

 Consumers could also be imperilling their financial security if they liquidate their investments at what could be the bottom of the market and investors should make sure they get appropriate and professional advice before taking big decisions.

 With the cost of living rising, vulnerable consumers could also be considering whether to cancel or downgrade their insurance cover to eliminate a bill.

 They could however be exposing themselves to dramatic and costly financial shock if they cancel or reduce their insurance cover.

 We have asked financial services firms such as banks and insurers to keep a watchful eye on consumer behaviour and to offer help and forbearance where they can.

 We would recommend customers take the right advice if seeking to take drastic action over their finances.

 And we know many small businesses will be worried about rising rates too and we are mindful of the impact this will have on them.

 The role of financial planners will no doubt be much in demand. We know the financial planning industry is driven by being agile and taking the right decision for clients with the long view in mind.

 Adapting to a changing world
 At the FCA, we too are moving towards becoming a more innovative, more assertive and more adaptive regulator.

 The FCA is no longer the prescriptive organisation of the past and we recognise that there is no one size fits all.

 We are transforming into an organisation driven by outcomes and clear end goals that is investing in both data and people.

 This vision is captured in our three-year strategy, which launched in April. The strategy is underpinned by three key pillars:

 Number one is to reduce and prevent serious harm. We are doing this by using data more to assess problems quickly. This helps us to act sooner to prevent harm from happening in the first place.

 Our second pillar is setting and testing higher standards. We are focussing on consumer outcomes and ensuring that products are of a good standard by putting consumer needs first, enabling consumers to help themselves, minimising the impact of operational disruption and putting more focus on ESG and positive change.

 Our third pillar is to promote competition and positive change. We aim to make sure that the UK remains an attractive destination for firms, while maintaining high standards.

 That includes looking at what the future looks like for financial services, strengthening our position in wholesale markets and shaping digital markets.

 These three pillars explain what we are going to do and why we are doing it.

 But our success also relies on how we’re doing it and having the metrics to hold ourselves to account and to show progress.

 We recognise the regulatory burden that we can create. Each time we write a Dear CEO letter that isn’t understood, firms call our Supervision Hub for help.

 We collect this information and we feed it back, so that the next Dear CEO letter is written with additional clarity, and we measure the effectiveness of that communication through how many calls that generates.

 Similarly, every time we ask for a piece of information it means that someone needs to sit down, fill in a form, send it in. We have to collate that information, clean it up, understand it, translate it. We only use this technique when we absolutely have to.

 So, when it comes to data and regulatory data collection, we are being more innovative.

 We assess to see if we already have the right information or if it’s available from any open sources in the market before we ask for it.

 Importantly, it feeds into our published data strategy, where we are streamlining the mechanism of collecting and using data.

 As I’m sure you’re all aware, we have lived through some extraordinary events over the last few months.

 This has meant we have had to be adaptive. We saw Russia invade Ukraine.

 Not only did that have an impact on the market, but the reaction was to implement sanctions at speed in collaboration with partners around the world.

 We were responsible for ensuring that our firms were aware of their anti-money laundering obligations and adapted to work quickly with our firms to make sure that sanctions on individuals and company structures were being followed through.

 The invasion of Ukraine was quickly followed by a nickel price explosion at the London Metal Exchange.

 This meant working at pace to respond to the commodities volatility, working with partners in regulatory family and industry at pace to support the re-opening of the nickel market with market stability.

 Becoming a data- led organisation, having the skillset and competence, and having the calmness and planning in place to react has meant the risks arising from the events have been managed and contained successfully. It has allowed us to take assertive action.

 Post-Brexit, we have more freedom to set our own regulations and we want to make sure this is tailored to our markets.

 Simplifying the advice regime
 One area that we are exploring is in the sphere of financial advice.

 As part of the FCA’s Consumer Investments Strategy we have said that we want to establish a simplified advice regime for mainstream stocks and shares ISAs where the risks to consumers are relatively low.

 This will remove some of the burden of regulation which currently applies across the board to all advisors. It will also enable firms to reduce their charges and make advice on mainstream investments more accessible to mass-market consumers.

 Sometimes it feels like we ask a lot of firms. We also – rightly - ask a lot of ourselves and measure our progress against clear metrics.

 These range from the number of firm cancellations or withdrawals of permissions as we look to shut down problem firms, to halting the growth in investment fraud victims and losses to increasing our interventions on non-compliant financial promotions by authorised firms.

 Our core activities as a regulator – from authorisation to policy-making, support for competition and innovation to taking enforcement action -- drive these goals.

 In a recent article, a journalist quoted me as saying ‘I like to run towards fires’ and I would just like to put on the record that I am not a pyromaniac.

 I do, however, like to hose down a potential disaster where I can.

 Of course the best course of action is to prevent catastrophes in the first place.

 The FCA has at its heart, the same thing that business and financial planners do: we want to ensure sustainability, we want to ensure resilience and we want to put consumers and our customers at the centre.

 These are the things that will promote that positive competition and change and support the future growth of the UK economy.