Speeches by Andrew Bailey, Chief Executive of the FCA, and Charles Randell, Chair of the FCA, at the FCA's Annual Public Meeting, The Brewery, 17 July 2019
Note: these are the speeches as drafted and may differ from the delivered versions
Andrew Bailey speech
Introduction
Thanks to all of you for being here today.
The FCA is ultimately accountable to the public, which is why I’m pleased you’ve joined us this morning to put your questions and thoughts to us.
We’ll shortly turn to the Q&A section of the session. But first, I’d like to spend a few minutes looking at some of the work we’ve been doing over the last year.
Brexit
First things first – we can’t reflect on the year that’s gone without talking about the B-word.
Brexit continues to occupy a lot of our time and resource.
We have around 320 members of staff who are currently working on Brexit in some capacity. And up until a few months ago, when we were focused on contingency planning to be done by March, the number was even higher – around 450.
We’ve published nearly 2,000 pages of consultation on changes connected to EU withdrawal.
And Parliament has passed 60 statutory instruments (SIs) relevant to the FCA, with another 12 expected before 31 October.
The FCA does not take a position on Brexit per se – that would be inappropriate as a public body.
Instead, our priority has been to ensure that, whatever the time or manner in which it occurs, consumers are protected and markets are prepared as far as possible – so we’ve been undertaking contingency planning for the full range of outcomes.
We’ve also been developing views on what conduct regulation may look like post-Brexit. I’ll return to this theme shortly.
Understanding consumers
But, of course, there is a world beyond Brexit.
The regional visits I’ve been on in the last year, meeting consumers, charities, businesses and many others, have been a pertinent reminder of that.
Recently in Plymouth, for example, I heard from military veterans on the difficulties they face accessing credit.
Along with Financial Lives, our tracking survey of adults and their finances, these visits offer vital insight into consumers’ experiences, and provide a key source of information that underpins our consumer protection work.
High-cost credit
Central to this work is the duty to prevent harm to consumers.
This year, we delivered wide-ranging remedies to prevent the excessive charges associated with high-cost credit, used by some 3 million people.
We introduced a cap on prices and charges in the rent-to-own market, which will save consumers around £23m a year.
We introduced a package of measures to tackle harms in the Buy Now Pay Later market, which we expect will save consumers around £40-60 million a year.
And we also tackled overdrafts, proposing changes to deliver simpler and fairer pricing. We expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence as a result of our changes.
We know that the burden of excessive charges falls disproportionately on vulnerable consumers, with less than 2% of customers currently paying 50% of unarranged overdraft fees. So, this is an area where our interventions can make a real difference.
And of course, we have already made a significant impact in this sector, with our cap on high-cost, short-term credit saving consumers £150m a year.
Pensions
As well as thinking about the risk of harm consumers face now, we’re also looking at where challenges may arise later in their lives.
Demographic shifts and economic trends are remaking the social contract across the generations.
The combination of increasing life expectancies with continued low interest rates and the difficulty of building up savings for older age has the potential to create a serious challenge for consumers’ finances in the next stage of their lives.
Against this complex and evolving backdrop, we’re concentrating our energies on the interventions we believe can have the biggest impact.
We have proposed a package of remedies to address the challenges identified in our Retirement Outcomes Review, including firms offering ‘investment pathways’ to consumers who do not take advice, to support their decision making, and pension investments not being defaulted into cash savings unless the customer expressly wishes it.
We have prioritised pension transfer advice, thoroughly examining the activity of firms in this space and engaging with industry to guard against harm to consumers.
And we’ve published a discussion paper on non-workplace pensions to examine competition in this sector, with a view to publishing a Feedback Statement this summer.
SM&CR and culture
A vital safeguard against consumer harm is a healthy, customer-centric culture at the heart of every firm.
Through the Senior Managers & Certification Regime (SM&CR) we are driving forward a shift in industry, where there are clear lines of accountability between a decision made and the senior manager who made it.
In December, we extended the SM&CR to all 560 insurers and have published near final rules to extend the regime to 47,000 authorised firms not yet covered.
Beyond the SM&CR, culture continues to be an issue of the highest importance for the FCA.
It is a central consideration for our supervisors, who look at drivers of behaviour, staff incentives and governance arrangements in their day-to-day interactions with firms.
Enforcement action
But, of course, sometimes behaviour in our regulated population falls short.
Where we have seen firms violating our rules or not meeting our expectations, we have taken action.
This year, we issued 265 Final Notices, secured 288 outcomes using our enforcement powers and imposed 16 financial penalties totalling £227.3m.
In December, we fined Santander £32.8m for serious failings in its probate and bereavement process.
In April, we fined Standard Chartered £102.2 million for poor AML controls.
And last month, we successfully took two individuals to trial for insider dealing, leading to their conviction and imprisonment.
Register
We also protect consumers through providing information via the Register.
We recognise that there are data quality issues in the 750,000 records it holds and that it needs to be made fit for the now larger remit of the FCA.
That’s why we’ll be investing £5 million in it over the next year.
SME finance
One issue that has caused a lot of frustration for our stakeholders is the question of where we can and can’t take action.
This has been thrown into sharp relief by some of the issues we’ve seen concerning small and medium sized enterprises (SMEs), where our powers to intervene are limited.
This year we increased the limit for complaints to the Financial Ombudsman Service (FOS) to £350,000. This coincides with the extension of the service to SMEs – meaning an additional 210,000 small businesses will now be able to make use of it.
Of course, the issue of protection for SMEs has played out prominently in the case of Royal Bank of Scotland’s (RBS) treatment of customers transferred to its Global Restructuring Group (GRG).
Given the gravity of the issues highlighted in the independent review, it was only right that we launched an investigation to see if there was any action we could take.
Despite the seriousness of the issues at hand, the FCA’s powers to act in such circumstances at the time it happened are extremely limited, as we explained in our final report on GRG last month.
Perimeter
The issue of GRG goes back a long way, and has occupied much thinking over many years – making frequent appearances at these APMs.
But while we must learn the lessons of the past, we must also look forward, and think about what kind of regulator we need to be to meet the challenges and opportunities of the future.
Technology is an important part of this. Innovation offers huge opportunities for consumer good – our Sandbox is testament to that.
But it can also be an enabler of new forms of harm. We often see examples of this taking place today at the blurry edges of the regulatory boundary – where grey areas create opportunities for bad actors.
The question of what sits inside and outside this boundary – also known as the regulatory perimeter – is a matter of great importance for consumers and firms alike.
It matters because it determines where consumers are protected, and where they aren’t; when we can take action, and when we can’t.
In fact, we often find that the perimeter is the common thread that links some of the most challenging issues we deal with – mini bonds, cryptoassets, funeral plans and GRG are all examples of this.
We published our first assessment of the perimeter last month – an exercise we plan to undertake annually.
There is a growing impetus to grapple with this question now, as technology increases the speed of change in financial markets, and we continue to see examples of firms operating at the edges of the perimeter causing harm to consumers.
At the same time, the long-term low interest rate environment has created a market of consumers looking for ways of boosting their savings – in an age where they need to last longer than ever.
In this environment, high-risk investments are increasingly marketed to retail customers.
To be very clear, counteracting this should not be left to consumers alone. There is a responsibility to act in the public interest.
Future of regulation
Against this backdrop, it is right that we now put the future of financial conduct regulation on the table.
A significant part of this debate turns on the issue of outcomes versus rules.
Rules are a crucial mechanism for delivering outcomes, but can also be interpreted so rigidly as to become a box-ticking exercise.
This is a lesson we want to see reflected in firm behaviour – any organisation that prioritises being within the rules over doing the right thing, will not stand up to scrutiny for long.
We view incidents like the Woodford affair as an example of this – where firms are following the letter, but not the spirit, of the rules. It raises questions about the rules themselves.
The UK’s exit from the EU provides important context here.
While the post-Brexit future is unclear, it is fair to say that there are aspects of our regulatory approach that may have developed differently had they done so unilaterally.
So, while the FCA takes no position on the substance of Brexit itself, we are using the opportunity of the UK’s exit to consider the future of conduct regulation – and how best to deliver in the public interest in this changing context.
Conclusion
This has been an exceptionally busy year for the FCA – and the next twelve months promise to be no different.
While we have seen the conclusion of some longstanding issues this year, we must continue to remain vigilant in the face of emerging harms.
As always, we will be guided by our duty to act in the public interest.
Accountability and transparency are crucial components of that.
In the last year alone, we have given oral evidence to parliamentary committees on 15 different occasions. No doubt we’ll be called many times more in the year ahead.
And, of course, we continue to be answerable to the public we’re here to serve.
In that spirit, I look forward to taking your questions shortly.
Thank you.
Charles Randell speech
We’ll shortly be opening the floor for questions but first I’d like to add a few reflections of my own.
This is my second APM as Chair of the FCA.
Since taking on the role in April last year, I’ve had the privilege of travelling all around the UK, meeting consumers, businesses, politicians, charities and many others.
What is striking in these conversations is that the work of the FCA has a real impact on people up and down this country. And it often invites strong feelings.
This is a reflection of the very central role financial services play in consumers’ everyday lives.
This has been brought home to me in some of the visits I’ve done in last few months.
In Belfast, for example, the complex history of the city adds another dimension to financial challenges, such as illegal money lending.
In Stoke I heard about the problem of access to cash as bank branches disappear from the high street.
2019 marks six years since the FCA came into being.
When it began in 2013, the FCA faced a daunting task. Firstly, dealing with the mountain of conduct issues that became evident in the wake of the crisis.
And secondly, taking on the regulation of 34,000 consumer credit firms.
Under Andrew’s leadership and the publication of the Mission in 2017, the FCA began a new phase.
The Mission reaffirmed consumer harm as the guiding principle of all our work, helping us prioritise in the face of a growing remit and an evolving demographic and economic landscape.
In this context, we have been thinking about how we can meet our growing responsibilities with finite resources – how we can deliver the maximum public value.
Part of this is reflecting on our past performance and considering what we can do differently to best deliver on our objectives.
It’s right that we now think about the most effective way of dealing with issues at the boundary of our remit. Not least because bad actors see opportunities to exploit consumers in those grey areas.
Today’s technology is also lending urgency to this question, as new products and services enter the market at speed, with the ability to reach large numbers of consumers.
As Andrew mentioned, we published our first report on the perimeter last month, which considers the challenges it throws up today and where it might lie in the future.
Reviewing our past actions
The issue of our perimeter is of profound significance to the public we’re here to serve – and one that has caused deep frustration in some cases.
I believe that it’s vital that we’re transparent about what we can and can’t do in the confines of our current remit. The perimeter report is an important tool to this end.
But we must also recognise that we don’t get things right every time. And we must strive to constantly improve, in order to keep ahead of a fast-moving, ever-evolving sector.
That’s why we have commissioned an independent review into London Capital & Finance by Dame Elisabeth Gloster, a very senior retired judge. London Capital & Finance was an authorised firm which issued retail mini-bonds. The review will consider our supervision of the firm and the circumstances around its collapse. It’s a very serious case which has had a significant impact on thousands of people.
We’re also proceeding with independent reviews of two cases whose roots lie in the pre-FCA period – the Connaught Income Series 1 Fund and Interest Rate Hedging Products.
Completing the FCA’s transformation
I’ve said that the context in which we work is constantly changing – the burgeoning use of data analytics in financial decision making is one obvious example. Brexit is another – and preparing for the UK’s exit from the EU is clearly an immediate priority.
The financial system throws up many urgent challenges that need to be addressed, many of which can’t be managed by the FCA alone.
Low levels of financial resilience, financial literacy and savings are just the first that pop to mind. And they come at a time when consumers are being expected to take more responsibility for their finances.
These challenges are not solely the concern of the regulator – but they do have an impact on how we carry out our work.
Our Business Plan this year reflects this evolving landscape.
Technology change represents both an opportunity – in terms of the benefits it can offer consumers – and a threat – in the way it creates opportunities for bad actors beyond our perimeter to scam victims.
One of our priorities this year is to turn technology against the criminals to help us tackle financial crime, as well as developing our work on operational resilience to ensure firms have robust systems in place.
As well as taking on the challenges of the present, we’re also looking ahead.
Facing fundamental societal shifts and profound technological change requires us to be the most agile and responsive regulator we can be.
So, guided by the Mission and the duty to deliver public value, we have started a debate on the future of UK regulation.
In this next phase of the FCA, our focus will be on transforming our capabilities, our use of technology and our regulatory framework to put us in the best position to deliver our objectives.
In an uncertain, fast-changing world, the public look to us to provide more protection to consumers, and to provide it faster.
It’s clear that risk warnings alone may not be sufficient.
So, how we manage the threat of high risk, often unregulated, products will be a real focus in the year ahead.
Concluding remarks
Travelling between Stratford, Edinburgh and everywhere in-between reminds me of the breadth of our remit and the many consumers we’re here to serve.
I’d like to thank the consumers, charities, businesses and firms who’ve given up their time this year to share frank and insightful thoughts on the work we do.
I’d also like to take this opportunity to thank you all for being here.
The work we do is subject to the highest scrutiny – rightly – and these public meetings are crucial in maintaining transparency around our work.
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