Balancing oversight and efficiency—what's the right approach?
The Financial Conduct Authority (FCA) has outlined its vision for the future of financial regulation with a new five-year strategy aimed at fostering economic growth, improving consumer outcomes, and enhancing oversight in the financial services sector. Alongside this, the regulator has reinforced its expectations for Appointed Representatives (ARs) and their principal firms, emphasising the need for stronger compliance and accountability.
Strategy to boost growth and consumer protection
The new strategy focuses on four priorities: becoming a more efficient and technologically advanced regulator, supporting economic growth through investment and innovation, helping consumers make informed financial decisions, and combating financial crime.
FCA chair Ashley Alder emphasised the need to shift the industry’s approach to risk. “Too often the focus has been on the risks of a decision taken rather than the lost opportunity of taking none. We want to change that so we can spur growth and improve lives,” Alder said.
David Brooks, head of policy at financial services consultancy Broadstone, noted the FCA’s increasing focus on encouraging investment. “The FCA estimates that 70% of adults aged 18-54 have a pension in accumulation and just over half (56%) of consumers with £10,000 or more in investible assets hold any mainstream investments. It is aiming to grow these metrics to address low financial capability, build financial resilience and help consumers plan for the future,” he said.
As part of its plan, the FCA will reduce regulatory burdens on compliant firms, invest in technology and staff training, and advance Open Finance to improve data-sharing and product innovation.
Calls for stronger compliance from ARs
In a separate statement, the regulator emphasised the need for stronger compliance in the AR sector. At Stonebridge’s annual conference in Birmingham on February 24, Joanna Legg, head of consumer policy and outcomes at the FCA, acknowledged the benefits of the AR model but stressed that both principal firms and ARs must take responsibility for meeting regulatory standards.
“The Appointed Representative regime offers significant benefits to both consumers and financial services providers,” Legg said. “It’s right that the principal firm has responsibility for the monitoring and oversight of its ARs and ensure that they comply with our rules. But ARs have a part to play in that, too.”
The FCA introduced stricter oversight rules in December 2022, requiring principal firms to provide more detailed information on their ARs’ operations and risk management. Legg outlined three key elements for effective oversight: principal firms must understand their ARs’ business activities, maintain transparency, and provide appropriate challenge when necessary. There are around 2,900 principals with approximately 35,000 ARs reporting into them.
The FCA also stressed the importance of high-quality financial advice. Legg highlighted that good advice extends beyond product eligibility. “Advice is about more than just assessing eligibility. It’s also about advising on needs and whether the products the customer is eligible for are really going to deliver a good outcome,” she said.
Stonebridge chief executive Rob Clifford welcomed the FCA’s focus on compliance, highlighting the network’s investment in technology-driven systems to support brokers. “One of our key advantages is our technology-driven proprietary compliance systems, which allows us to monitor activity in real time, quickly identifying any areas that may require additional support or intervention,” Clifford said.
How do you think the regulator’s plans will impact the financial sector? Share your insights in the comments below.
