The number of cases the FCA has opened into misconduct in retail financial services has increased by 29% in the last 12 months to 101 cases up from 78 in the previous year (year end March 31).
The focus on misconduct impacting retail investors follows high-profile cases such as London Capital & Finance.
In its annual report, the FCA says that the overall number of enforcement cases it is undertaking is up 31% over the past year to 650, up from 496 open at the beginning of the year.
Matt Hopkins, Head of Fintech in the financial services team at BDO, says: “The FCA is sharply increasing its targeting of illegal, unregulated products and unauthorised firms that target unsophisticated retail investors.”
“Retail investors are being increasingly targeted through social media often with unauthorised firms masquerading as authorised. The FCA is determined to stamp that out. We would expect them to be increasingly proactive in the year ahead.”
There has also been a surge in the number of reports to the FCA’s Unauthorised Business Department (UBD) about potential unauthorised activity up 25% to 16,600 in 2018/19, a record number of reports. Subsequently the FCA was forced to issue 521 warnings about unauthorised firms, up from 328 in the previous year.
Adds Matt Hopkins: “Miss-selling and appropriateness of products for retail customers of regulated firms will also be a major focus of the year ahead. The retail customers’ understanding of innovative products and a sometimes misplaced belief in FSCS protection is the responsibility of the authorised firm to address. The FCA will take a hard line if they think firms are not being clear over what the FSCS will and won’t cover.”
“There remains a positive emphasis at the FCA on supporting innovation and the challenger market, but this does not mean compromise on customer outcomes. Challengers will need to focus and invest heavily in operational infrastructure and resilience – particularly those businesses with rapid growth and customer acquisition strategies. Continued action in the high-cost short-term credit market and reducing potential for customer harm across the retail landscape including peer-to-peer is testament to that.”
“Concerns in respect of the challenger market’s business model resilience remains – if you are a challenger firm, don’t expect the FCA to compromise in the name of innovation.”
“Financial products are increasingly cross-jurisdictional and as such inherently sensitive to enhanced financial crime risks. The challenger market will need to be innovative not just in their product offering but with a control environment that is ahead of the legacy market in response to these risks.”
“The challenger market may feel under pressure from macroeconomic factors and increased regulatory focus. That pressure won’t recede. Partly as a result of more and better data, the market and regulator expectation of the challenger can feel higher than that for legacy regulated businesses.”