FCA’s proactive pledge

Is this the dawn of a new era for the Financial Conduct (FCA)? Michael Cotter of Regulatory Legal assesses the FCA’s proposed new proactive approach in light of feedback from firms.

Original news

Firms’ feedback drives FCA action on retrospection in the market, LNB News 22/01/2015 199.

To achieve its aim of becoming more forward-looking, the FCA plans to improve the way in which it identifies issues and problems in the market, allowing it to intervene at an earlier stage. A call by the FCA for examples from firms of the retrospective application of rules has resulted in a variety of feedback, much of which raised wider questions about the FCA’s regulatory role. The FCA has published a report summarising the analysis of the responses it received.

What is the background to this feedback?

The FCA (and formerly the Financial Services Authority (FSA)) became aware of concerns by regulated firms and authorised persons that the regulator had been acting at times in a retrospective fashion. The FCA began to review these concerns in early 2013 conducting an ‘Expectations Gap’ exercise, leading to a call in 2014 for examples as to when firms and authorised persons believed the FCA had applied a more demanding standard than what the rules suggested at the time of the event.

The FCA received 36 responses from firms and authorised persons and the regulator analysed these responses in order to ensure that where necessary its regulatory approach could be revised.

The FCA published their findings on 22 January 2015.

The FCA concluded it was important to be more ‘forward looking’ and intervene earlier where they are able. However, they denied acting retrospectively in the past.

What insight does the feedback give on the FCA/FSA’s retrospective application of the rules?

The FCA wishes to be viewed as a ‘predictable and consistent’ regulator as confirmed in a speech by Martin Wheatley, FCA chief executive, on 14 November 2013. Therefore, any criticism from within the industry was taken very seriously by the regulator.

The 2013 ‘Expectations Gap’ exercise led to the FCA understanding that there were regulated firms and authorised persons who viewed the regulator as acting in a retrospective manner although specific examples were rarely provided. On 21 August 2014 the FCA asked the following via its website:

‘We remain interested to hear from firms about times when they believe the FCA (or the FSA) applied its rules retrospectively. That is, applied a more demanding standard or interpretation of the rules after the event with the