Speaker: Emily Shepperd, FCA chief operating officer
Event: TheCityUK National Conference, Birmingham
Delivered: 26 November 2024
Highlights
- Our new 5-year strategy will focus on four key themes of economic growth and innovation, financial crime, consumer resilience, and how we become a more efficient and effective regulator.
- The strategy has been built in partnership with a wide range of stakeholders, consistent with how we intend to deliver it.
- Trust in both the FCA and the financial services sector underpins these themes and will be crucial as we look to pursue growth, alongside ensuring proportionality in regulation and encouraging innovation.
- To support this, we need to have a debate about the appropriate risk appetite in the sector.
By Emily Shepperd
I want to take you back to 2008. The Library of Birmingham – where TheCityUK have gathered us today – was a mere idea and plans were being drawn up for what was then a car park.
In 2013 this magnificent building opened. And it is now the largest library in the UK and the largest cultural space in Europe. So it is a fitting backdrop for my speech today, which also looks at what can be achieved as we explore our next multi-year strategy.
Building a strategy
As many of you know, this is the final year of our current strategy.
We’ve made significant progress in delivering against our 3 key commitment areas: reducing and preventing serious harm; setting and testing higher standards; and promoting competition and positive change. And we are now focussing on how we can build on our work, and what comes next.
When we first started looking at this, someone joked that we could use ChatGPT. You could do that – except that is not a strategy.
Our approach has taken time. Time to morph, to evolve, to include lots of people’s different inputs. A strategy needs to be shaped by the people delivering it. And the people it serves.
Over the last few months, we’ve given everyone in the FCA the opportunity to input. And we’ve sought views from firms, trade bodies, consumer organisations and politicians. This strategy is being built in partnership with a wide range of stakeholders, consistent with how we intend to deliver it.
Defining our focus
The FCA wants to enable a fair and thriving financial services market for the good of consumers and the economy. To achieve this, a key cornerstone of our strategy will be growing trust. Trust in us as a regulator. Trust between us and those we regulate. And consumer trust in the financial services they rely on.
Our strategy has four main themes:
- Becoming a more efficient and effective regulator.
- Tackling financial crime.
- Building consumer resilience.
- Supporting economic growth and innovation.
All of which are supported by our approaches to technology, data and how we develop our workforce to match the needs of the future.
We have also decided to set our ambitions on 2030, a 5-year strategy, learning from our first 3-year strategy that it takes time to deliver and cement change.
Now let me take you on the next stage of the journey and tell you more about what that looks like.
A more efficient, effective and proportionate regulator
Our first area of focus is based on consistent feedback we got from CEOs around the industry. And that was the need to be more efficient, more effective and more proportionate. Quite simply to do the day job better. It’s a theme that’s common to many corporate strategies – brilliant in its simplicity yet challenging to execute.
We want to increase value for money and reduce regulatory cost where we can – recognising your feedback that industry is not an open cheque book.
Through the practitioner panel survey and various fora you’ve told us that you want us to streamline data requests. You’ve told us that you want us to be more predictable, pragmatic and proportionate in the way that we operate. We hear you, and we’re addressing all of these under this theme.
We are also rethinking how we supervise, ensuring firms get the right supervisory experience.
Under Nikhil’s leadership in the last 4 years, we have made significant improvements. I joined to turn around our performance in Authorisations, which is now operating comfortably at a much higher pace with 98.5% of cases assessed within our committed service deadline. We made changes to improve the customer journey, and launched the first of our digitised forms, which in time will support greater automation.
Across the FCA, with a few exceptions, our service metrics are now green. But getting a green service metric doesn’t mean that we’re doing things in the most efficient way possible – we can still improve. Recently, we have sped up our enforcement investigations – as low as 13 months in recent cases versus a 42-month average.
It’s also reflected in our policy work. With our recent Consumer Duty Call for Input – which we’ve had over 170 responses to – we are looking to simplify our retail conduct rules and guidance, especially where there are areas of complexity, duplication or over-prescription.
At the same time technology is changing. We want to make sure that we automate elements that are rote, and focus colleagues’ time on the judgements to be made. We may have concluded our transformation programme – but we continue to embed a mindset of continuous improvement.
Within that is a greater focus on data and digital tools in how we regulate – fundamentally it’s about advancing skills. As part of this we continue to benefit from talent across the country, with our locations in Leeds and Edinburgh now the base for 10% of our workforce – better reflecting firms and consumers nationwide.
Financial crime
Moving on to our second theme of financial crime.
Financial crime, including fraud and money laundering – does enormous damage. It harms consumers and businesses, and undermines trust in our financial system.
Our regulation plays an important role in the collective fight against it. In our current strategy, we set ourselves the target of slowing the growth of fraud. We have seen some positive results, but we are thinking about how we can go further. And how we can shift regulation towards a greater focus on outcomes in continued partnership with the wider national system, where we are leading or supporting on 20 of the 43 actions in the second national economic crime plan.
Our next strategy will re-enforce partnership working, also looking internationally to achieve a further step change on the prevalence of financial crime.
Financial crime knows no borders and so our response must reflect this. We are seeking partnerships to share data where we can, to use data analytics to find connections that help to identify and prosecute the underbelly that operates in financial services. We’ve already run a proof of concept that synthesised what would have been weeks’ worth of data analysis into a couple of hours, resulting in the identification of criminal activity.
The UK regulatory regime is highly regarded and only pipped from first placeLink is external by Singapore.
We have no intention of eroding the high standards the UK is known for. Financial crime not only harms consumers but is a drain on economic growth – it’s in all our interests to fight it. But we also hear concerns about the cost of financial crime controls – is there something we can do here?
Perhaps digital passports are the answer? If we are able to confirm identities in a new way, can we reduce the need for some of the KYC AML checks that need to be completed when you set up a new customer?
We are open to ideas on how we can tackle financial crime more efficiently and proportionately, while maintaining the standards necessary to protect consumers and ensure trust in the system.
Consumer resilience
This leads me on to our next area of focus – consumer resilience.
We want to ensure consumers have access to, and the confidence to use, appropriate products and services to support their financial wellbeing through their whole lives. Building trust in the services they rely on.
The consumer duty places the onus on firms to ensure that consumers are empowered to understand products on offer, to help them make informed decisions on what is appropriate. While we do not have financial education within our remit, we work closely with organisations such as the money and pensions service.
If I look at the financially excluded – we have made sure there are basic bank accounts, but these aren’t always pushed, they aren’t always offered. For others, it may be about boosting their savings and improving their resilience.
In recent weeks, there has been a focus on the amount of cash held in accounts. Choices on how much cash you need, quickly accessible, versus how much you put to work, be that in pensions, investment vehicles or anything else, are individual.
We are working to refine the line between advice and guidance, making the distinction clearer to help consumers understand their choices. One of those choices might be around pensions, where we are working closely on targeted support, and ways to increase value. Financial choice could even include investments that offer better returns in the long run, even if they have a slightly different risk profile to more traditional forms of saving.
Ultimately, we are seeking to build trust through greater consumer understanding – in a way that is mutually beneficial.
I promise it’s an unintentional pun, but I would like a moment on mutuals. They are longstanding features of the sector and the economy, so may seem paradoxical in the context of a new and shiny strategy. But the stability and value they bring through financial inclusion and access to services are great examples of how to improve consumer resilience. We welcome the Government’s invitationLink is external to participate on growing the co-operatives and mutuals sector and look forward to working with them on it.
Growth and innovation
And that theme of growth brings me to the final area of focus in our next strategy – supporting growth and innovation.
I joined the FCA from the City because I believe that a well-run regulator can set the mood and environment to underpin a thriving financial services sector and a strong economy. The financial services sector produced £278bn in economic output for the UK in 2023Link is external – that’s 12% of the economy and £110bn in tax revenue. Our asset managers are responsible for £11trnLink is external – making us the world’s second largest investment manager.
Growth in the sector is stronger and more sustainable when there is consumer confidence and the market has integrity – supported by healthy competition between firms.
At the same time, you want the sector to be a magnet for international investment. Foreign direct investment (FDI) in 2022 stood at £2bnLink is external as asset managers, fintechs and investment banks opened offices here, creating 15,000 jobs. TheCityUK estimatesLink is external that we are the world’s leading net exporter of financial services, with a trade surplus of £80.2bn.
As a regulator, we cannot grow the economy in and of itself, but there are ways we can facilitate that growth.
The first is to reduce the cost of regulation, or more specifically, to ensure there is good value from it. Domestic and international partnerships will be key to shaping this. This links back to ensuring an attractive regulatory environment through operational and regulatory excellence, predictability and consistency.
The second is to support innovation, facilitating a more productive and competitive sector. We are looking at ways of helping new business models to stand up quickly in future, building on the work we have done with Early and High Growth Oversight, the Regulatory Sandbox and Innovation Pathways. In the last decade we have supported nearly 1,000 firms through our innovation services. And we continue to evolve our offer.
Our AI Lab will help firms overcome challenges in building and implementing AI solutions, while supporting safe and responsible development.
We will explore new opportunities through open banking and open finance, as well as private finance.
I want you to think about these and what they could do for you. If you could see transactional level data, would that help create a stronger lending environment?
The third is about facilitating investment in the real economy, including resolving the advice guidance boundary. We have reformed public markets through changes to our listing rules, introduced greater freedom in how asset managers pay for investment research and proposed a public offer and admissions regime to replace the current prospectus regime. We plan to improve retail access to fixed-income markets.
Our policy programme on sustainable finance is one that seeks to build trust through high, but proportionate standards – supporting the green finance transition. This goes hand in hand with consumer resilience and an important debate on risk appetite. We welcomed the Chancellor’s statements on this in her recent speech.
As someone who worked in banking in 2008 and throughout the crisis, taking more risk is not a topic I treat lightly. Investments may go up or down. Some firms can fail, and some innovations may not succeed. Managing risk is a careful balance. It requires us all to build trust by being clear why some risk is necessary and what it means in practice.
The next chapter
In 2013 this building replaced a structure that King Charles III once described as resembling ‘a place where books are incinerated, not kept’. The library became an emblem of the city’s regeneration. An emblem for the future economy.
I’m excited to be writing the next chapter for the FCA, in partnership with the government, fellow regulators, and importantly – you. And I am optimistic to show what we can build together in the next five years.
