The future is bright… but it will be a bumpy ride

There is noise that the regulatory landscape is undergoing a transformation, with the FCA promising to become a more efficient, effective, and proportionate regulator. Following discussions with the Government, the FCA has now set out a new five-year strategy which will involve both consumer protection and regulating for growth. This long-term strategy will take time to deliver.

For insight into the more immediate future, we can turn to the Portfolio Strategy Letter issued on October 7th 2024, which sets the agenda for the upcoming two years; both what is expected of firms and what supervisory activity the FCA will be carrying out. Most of the focus areas remain consistent with those of the past 18 months. Consumer Duty and outcomes-based regulation is central to the FCA’s strategy, with the potential benefit that it may well reduce the complexity, but the drawback that it may increase uncertainty.

Firms should demonstrate compliance with Consumer Duty on an ongoing basis, the second annual assessment of Consumer Duty Outcomes and Board Report (also referred to as a Governing Body Report) is due for completion by 31 July 2025. There should be demonstrable actions with commentary of progress against action points from the previous year.

In addition to Consumer Duty, there are other focus areas identified within the Portfolio Strategy Letter. On Retirement Income Advice, the FCA will follow-up on the findings from the thematic review, intending to publish additional commentary in the first quarter of 2025. The letter reminds firms that they should be able to evidence the review they have undertaken in response to the publication and changes made accordingly. To enhance consistency of advice, we recommend aligning advice standards with those published by the FCA in its Retirement Income Advice Assessment Tool. This publication has been useful; we have updated our file review standards, and our Advice Quality Team have reviewed their processes accordingly. We would suggest that all advisers have a sample of their files checked against the standards set out by FCA, with the output feeding into your ongoing Consumer Duty monitoring and helping to identify areas for improvement.

The provision of ongoing advice continues to be an important area of focus for firms with an updated expected from the FCA on work it has done with the 20 largest advice firms. We continue to recommend that firms focus on the design, the delivery, and the data around the provision of ongoing services to clients. Firms must not impose adviser charges on clients for services that aren’t provided. Furthermore, firms must maintain comprehensive records to facilitate appropriate monitoring and to demonstrate their commitment to delivering good outcomes for clients.

"To enhance consistency of advice, we recommend aligning advice standards with those published by the FCA in its Retirement Income Advice Assessment Tool."

The FCA focus on “polluter pays” has been welcomed by firms, signifying a proactive stance towards rectifying past mistakes by requiring firms to set aside prudent capital provisions for potential and actual redress liabilities. With the emphasis on growth, we will see how final rules on capital adequacy reform for personal investment firms look when announced.

The landscape on sustainability disclosure requirements is evolving, with new regulation now in force aimed at improving trust enhancing transparency from the top down. We are expecting focus on this area to grow over the course of the year, with feedback expected from an industry-let Adviser’ Sustainability Steering Working Group, extension of the regime for portfolio management and further developments expected to support advisers in their research of this market.

For firms active in providing protection insurance, fair value is the FCA’s motivation for the upcoming Protection Market Study which will review whether this market is functioning well and whether consumers are receiving good outcomes. It is important firms can demonstrate a client centric process when selling protection, which includes clear consideration of demands and needs, and a governance framework that focuses on the quality of the broking service provided. The FCA will be conducting their market study throughout 2025, and we encourage firms to engage with the regulator.

Finally, some potential good news for firms and those responsible for regulatory reporting, with the FCA committing to review the proportionality of regulatory reporting and the potential that they might look to retire the collection of less valuable data. We live in hope, and take every opportunity to engage with the regulator on this subject.

The overarching strategy communicated for the coming months appears to be pretty clear. Whilst we are likely to see some interesting regulatory developments towards stimulating growth, these will take time to implement. In the meantime, focusing on Consumer Duty, retirement income advice, ongoing service provision, and supporting customers with sustainable preferences will continue to be the foundation of the regulatory outlook for the coming year.

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