The UK’s financial services watchdog is embarking on a wide-ranging examination of the future of regulation as the industry gears up for talks on the country’s post-Brexit relationship with the EU.
The Financial Conduct Authority said on Wednesday that while it continued to face the “considerable” burden of extracting Britain’s financial services industry from the EU, the changes also presented an opportunity to rethink how it operates.
Presenting its business plan for 2019/20, the watchdog said its “immediate priority” for the coming year was supporting an orderly transition after Britain’s exit from the bloc, which is currently scheduled for October 31.
But FCA chief executive Andrew Bailey said the next stage of Brexit talks, about the UK’s future relationship with Brussels, would be “the big one” for the country’s financial services sector.
“The debate about the future of regulation is important to inform what that second stage process will be,” he said.
The FCA’s business plan said that “post-Brexit, we need to consider the future of regulation to ensure the regulatory landscape is fit for the challenge it faces”.
Technology, different consumer needs and new business models were transforming the financial services industry, the plan said, “and as the UK leaves the EU, we believe it is time to review how we regulate to ensure it keeps pace”.
The FCA has said there will be no “bonfire of regulations” after Brexit. Together with the Bank of England, it has pushed for a relationship with the EU that maintains the UK’s flexibility through a regime focused on equivalence of outcomes rather than a commitment to keep rule books aligned.
In last year’s business plan, the watchdog said it would have to cut back on some non-essential operations because of the demands of Brexit, explaining that it had made “difficult and challenging decisions about our priority activities”.
In a sign that the watchdog is seeking to move beyond Brexit, however, it said on Wednesday it would be scaling back its budget for operations linked to EU withdrawal. The FCA said it expected to spend about £22m of its £559m budget for 2019/20 on Brexit activities, down from £30m last year.
David Miller, a partner at KPMG, said the financial industry would “welcome that the regulator is starting to think long-term with a heavy focus on technology”.
“Financial services is changing at an unprecedented pace; the FCA needs to manage the fine balance between encouraging innovation and ensuring the shift to digital and use of data doesn’t harm markets or consumers”, Mr Miller said.
Along with the future of regulation and exploring what role technology could play, the FCA said it would prioritise work on culture, operational resilience, fair customer treatment and financial crime.
Simon Turner, a partner at consultancy EY, said the FCA had “made clear they will not allow Brexit uncertainty to deter them from their main consumer-focused priorities”.
He said the challenge the regulator now faced, however, was how it would be able to implement such a broad range of measures.
Mr Bailey said the FCA would try to balance its supervisory responsibilities with shaping global regulation via its work with overseas regulators and international organisations.
“The next few years are likely to prove challenging,” he said.