The initial half-year of the Financial Conduct Authority's strategy of 'encouraging economic expansion'?
The Financial Conduct Authority (FCA) recently published a series of proposals aimed at reducing regulatory barriers and easing the cost of compliance for firms. However, these proposals have been met with scepticism within the financial services sector, as many question whether they will indeed ease regulatory burdens or increase uncertainty and costs.
In June, an invite-only roundtable was held for compliance stakeholders from across the industry to discuss the FCA's first six months of its new agenda. The roundtable aimed to answer questions about whether the FCA's proposals will ease regulatory burdens, increase uncertainty and costs, limit innovation, and undermine the government's policy ambitions.
One of the key areas of concern is the FCA's proposed concept of "targeted support" in pensions and retail investments, as outlined in Consultation Paper CP25/17. The existing regulatory frameworks under the Financial Services and Markets Act 2000 make it difficult for firms to implement these models because targeted support currently falls under the definition of personal recommendations, which involves stringent requirements. The FCA has indicated the need for bespoke conduct standards and a new authorisation gateway to properly regulate this service, and the government is set to consult on amendments to create a new specified activity for targeted support.
Another concern is the FCA's proposals to extend the Code of Conduct Rules to a broader range of firms, bringing approximately 37,000 more regulated firms under stricter scrutiny from September 2026. However, there remain gaps as certain entities without Part 4A permissions, like payment firms and e-money institutions, remain outside this scope. The FCA is seeking feedback on guidance to help firms apply conduct rules and fitness/propriety standards effectively.
Broader financial stability concerns persist, notably linked to the growth of private markets including private equity and private credit. These markets have expanded significantly and support long-term economic growth, but are vulnerable due to high leverage, opacity, conflicts of interest in valuations, and interconnections with riskier credit markets like leveraged loans. The macroeconomic environment of higher interest rates and weaker growth exacerbates risks, leaving private markets largely untested under these conditions.
Optimism was expressed that better industry engagement and a change in culture at the FCA could lead to a better relationship between the regulator and the financial sector. There was a consensus among roundtable attendees that many of the FCA's proposals are perceived as window-dressing or avoiding the largest barriers to innovation and growth.
The roundtable discussions have been held under Chatham House rules, meaning they can be reported but not attributed to any individual or organization. Notably, Emma Reynolds, the City minister, announced plans to overhaul the Financial Ombudsman Service (FOS), possibly giving companies the ability to appeal ombudsman decisions to the FCA.
In a separate development, the High Court rejected a strike-out application in Vanquis Bank Limited v TMS Legal Limited, a case involving a claims management company submitting unmeritorious mass claims to the FOS.
As the FCA continues to publish materials and make proposals, it remains to be seen whether the sector's concerns will be addressed and whether the regulatory burden will be eased, or if uncertainty and costs will continue to rise.
In the context of the roundtable discussion, concerns have been raised about the FCA's proposals regarding targeted support in pensions and retail investments, as they may increase regulatory burdens due to the need for bespoke conduct standards and a new authorization gateway. Furthermore, there is ongoing scepticism about the FCA's plans to extend the Code of Conduct Rules to a broader range of firms, as it may result in increased costs and uncertainty for businesses.
