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The UK’s financial services regulator, the Financial Conduct Authority (FCA) has launched a new five-year strategy for regulatory oversight, intended to improve trust in the country’s financial services sector, create the right environment for growth, and address the growing threat of financial crime. 

The document includes commitments on topics such as emerging technology, financial crime, and its integration of the Payment Systems Regulator’s (PSR) work on issues such as open banking and open finance.

It also outlines the FCA’s plan to change how it regulates organisations under its supervision, with the aim of increasing efficiency. 

For example, the regulator says it intends to take a less intensive approach, streamlining how it sets its supervisory priorities and considering areas where it can stop requiring data returns. 

In addition, it plans to digitise and simplify authorisation processes to make it quicker and easier to apply. This should also mean that the information it receives is better quality, leading to a reduction in follow-up requests.

The bigger picture

The FCA’s strategy identifies four priorities for the coming five years:

• Be a smarter regulator — predictable, purposeful and proportionate. 
• Support sustained economic growth. 
• Help consumers navigate their financial lives.
• Fight financial crime.

The regulator intends to improve its processes and make greater use of technology to become more efficient and effective. It also plans to work with industry to boost trust and innovation.

Its goal of supporting economic growth is aligned with the priorities of the Labour government, which has repeatedly stated that it sees growth as the key to resolving the challenges to the UK’s finances.

The pressure on the government is growing, with the need to increase defence spending in the context of shifting geopolitical realities prompting unpopular and potentially damaging cuts to spending in other areas. The FCA’s stated intention to boost growth will therefore provide a welcome change.

The strategy takes into account the likely impact of emerging technologies such as artificial intelligence (AI), which are set to play an important role in the coming years.

It identifies the key challenge as being how to make the most of technological progress while managing the risks inherent in the ubiquity of advanced tools.

One area where technology can offer advantages to payments organisations is in the facilitation of open banking; the regulator aims to promote the development of seamless account-to-account (A2A) payments that ensure consumer choice.

This should lead to the development of open finance, and the FCA intends to push for greater data sharing across the financial services sector. It plans to develop a roadmap for open finance within the next year, with regulatory foundations for the first scheme expected by 2027. 

One further topic that the FCA’s strategy seeks to address is the high-profile issue of financial crime.

Its goal is to collaborate with other market participants, including payments firms and law enforcement agencies, focusing on sharing information and intelligence and taking coordinated action to tackle criminal activity.

The regulator aims to use a mix of approaches to address financial crime, with enforcement and public education high on the list.

Why should you care?

The FCA’s updated approach aims to balance regulatory oversight with fostering innovation  and will affect all firms under its regulation to at least some extent. 

The changes in emphasis and the goal of easing the regulatory burden will be welcome to many in the payments industry.

Although a relaxation in the rules may mean an initial increase in compliance activity, as firms will need to scrutinise the changes and ensure compliance, in the longer term, the loosening of regulation and streamlining of compliance practices should benefit FIs and free them to focus on their commercial activities.

The government is due to publish its Financial Services Growth and Competitiveness Strategy later this year, with regulation set to be one of the policy pillars, so the FCA is getting ahead of the game.

Payments firms should note the areas the regulator has highlighted.

Technology is likely already top of mind for most organisations, and they should  examine their approaches to AI and other tools.

Just as the regulator plans to make better use of technology to drive efficiency and provide greater insight, FIs should be looking to use advanced tools to improve their compliance and risk management processes.

They should also acknowledge the growing threat from scammers, who are harnessing deepfakes and voice cloning, and consider how they can themselves use AI in the prevention and detection of fraud.

On a more optimistic note, the regulator’s commitment to moving ahead with open banking and, in due course, open finance should create opportunities for payments firms in these areas. 

Organisations should monitor further developments, consider how the regulatory environment can facilitate new areas of business, and ensure that they have reviewed and updated their compliance frameworks.