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Financial Conduct Authority (FCA), the regulatory body that is tasked with overseeing financial markets in the United Kingdom, has created new comprehensive policies designed to protect the clients of investment firms – be it banks, forex brokers, mutual funds. These policies are to be expanded with a new three-year strategy, which the FCA has recently published.
The article below covers the general aims of the strategy, as well as some of the specific goals within – and we will also discuss how they will affect UK forex brokers and their clients.
Three main aims for the three-year strategy
The FCA has outlined the three main directions of its policy within a recently released 2022-2025 business plan. The regulatory body seeks to reduce and prevent harm to customers, raise the standards on the markets and to promote competition and positive outcomes on the markets. In achieving this, the regulatory body has taken some drastic measures – for example, it has onboarded 80 new employees, on new roles created specifically to reach the first of its goals. According to FCA estimates published in a recent press release, each pound spent towards this would save the small businesses and customers of the UK upwards of £11. Here is how the regulatory body sets out to achieve the first of the goals it has espoused:
FCA to reduce and prevent serious harm to customers
The regulator has set out to make the markets a safer place for all who engage with them. In doing so, it has committed to six main points:
Firstly, the FCA underlines the importance of dealing with what it calls “problem firms”. This includes firms that are not able to comply with the standards that have been set by the regulatory body, or are not willing to do so. These firms will be penalized, as the FCA is committing to wielding the powers granted to it earlier. The regulator also mentions it will do so regardless of the higher risk of legal challenge – and this promise is backed by the several decisive actions the FCA has already begun taking since the middle of 2021 – for example, it has recently waged and won its first lawsuit regarding failure to comply with AML regulation.
The second point on which the FCA wishes to improve is the Compensation scheme that is available to UK clients. This scheme provides redress from damages suffered by companies failing – and the FCA highlights the fact this scheme has been quite slow due to the volume of complaints it has to resolve. In reducing this, the regulator is going to work alongside companies to better help them mitigate omissions so their clients do not have to rely on the Compensation scheme. The FCA notes said scheme is better suited to being a tool of last resort for a client.
Thirdly, the FCA is resolved to reduce the amount of firms that go under. There are many reasons companies do so – among which a lack of preparedness and unexpected market volatility are just two. The UK regulatory framework has applicant companies maintain a certain amount of capital to meet the needs for liquidity and the market fluxes. However, the FCA is interested in possible raising this amount to better meet its goals, as well as working with companies to provide better guidance on how to avoid going under.
Fourthly, the Appointed Representative program will receive better oversight from the FCA. This allows companies to send forth such people that are tasked with conducting regulated activities, instead of getting directly overseen by the regulatory body itself. However, this leads to a much greater risk of clients getting misled and losing money – and so, the FCA is looking to introduce more requirements for Appointed Representatives.
The last two focal points of the new strategy are the uprooting of financial crime and market abuse. Financial crime might include money-laundering, financing of terrorist activities and other activities that are dangerous to society. Market abusers are the various fraudsters and scammers that are infesting the forex and investment markets. The FCA is dedicated to taking firm action against both of these illicit activities.
Higher market standards to be introduced
The second axis on which the FCA will act is the improvement of how firms treat their clients in general. In this regard, the regulatory body has four main points it wishes to focus on:
First, it is resolved to put the needs of its clients first. This will be done via the drafting of a new guideline on the care the companies are expected to take of their clients. This includes them being providing better and more information on their products and improving customer service.
Next, the FCA wishes to make it so the clients can help themselves from losing money. In this regard, the regulatory body has outlined several new standards it will expect of companies – for them to provide clearer information on specific high-risk assets, as well as more information on promotions that can harm the bottom line of the client.
Third, the regulatory body wishes to embolden firms to adopt good environmental and practices, ones that are capable of shifting the UK to a fairer, net-zero economy. It will do so by publishing guidelines on how firms can achieve better results on this front, as well as promote the ones who take these issues seriously.
Lastly, the Covid 19 crisis has shown the need for improved resilience to operational disturances – and the FCA aims to tackle that by introducing more new guidelines for the companies it oversees.
Promoting competition and positive outcomes on the markets
More than being just a regulatory body, the FCA is tasked with also managing the reputation of the UK marker in the eyes of the world. Therefore, it has elected to improving the competitiveness of the markets, as well as to making them more capable of adopting financial innovations in the future. A specific point of attention is the stance the FCA takes on the digital markets. It states they need to be “shaped” to produce better results for the customers. The FCA is committed to looking into the role of AI and into the digitalization of the financial markets. This is not surprising, as the UK has recently committed to becoming a major hub for innovation and the crypto market through its choice of minting government NFTs in the summer of 2022.
How these measures will affect the UK forex market and brokers
The comprehensive policies of the UK regulatory body will have a profound impact on its markets. There are several of them that mention increasing the requirements towards brokers – in particular, we could expect companies to need to comply with higher standards of transparency as it pertains to tackling financial crime and scams. What’s more, the interest the UK regulator has shown in the digital markets could mean a reversal of the UK ban on trading crypto assets and derivatives that took place towards the end of 2020.
Overall, there are a lot of reasons to keep track of the UK capital markets in the coming months, as it seems possible it will become stronger and more resilient than ever.
