On 18 February 2020, the FCA published a report on its sector views. These sector views set out the FCA’s annual analysis of the way the financial environment is changing and the impact of these changes on consumers and market effectiveness.
The sector views are based on data available at mid-2019. The views are used as a tool for the FCA to keep its priorities under review and focus its resources effectively for its next business plan.
In the report, the FCA describes the common themes across the sectors it regulates, these include:
- the macroeconomic environment. The FCA acknowledges that economic conditions remain challenging these include low interest rates, uncertainty arising from Brexit, and the transition to a carbon neutral economy;
- societal changes such as increased longevity and higher levels of student debt and their impact on the financial needs of different generations; and
- technology developments. This includes open banking and open finance, Big Data and the use of artificial intelligence, and Fintech.
The remaining chapters of the report covers all the markets the FCA regulates. Each chapter looks at potential harms, what is driving change in the sector, how the sector is changing and for retail sectors the FCA considers the consumer perspective.
For the investment management sector the FCA has identified six areas of harm. The regulator has stated it is “most concerned” about two: the pricing and quality of investment management products, and operational resilience. The remaining four are: disorderly markets; market abuse; and pricing and quality of firstly, institutional intermediary services and secondly, custody and investment administration services.
The FCA has also set out its concerns regarding LIBOR transition. It has stated that: “Transition from LIBOR to alternative risk-free rates should, in the long-run, increase market integrity. But we are still concerned that the potential for a disorderly transition could lead to harm. Firms will also need to manage any conduct risks arising from transition.”
“Large numbers of contracts and systems need updating before the end of 2021, after which LIBOR is expected to cease. Some markets have made good progress, but LIBOR is still used heavily, including in new contracts in some markets. We continue to work closely with market participants and other authorities.”