In a new report, the National Audit Office has revealed that the Financial Conduct Authority (FCA) has been experiencing significant delays between when it identifies an issue and the following required action.
Depending on the circumstances, a range of barriers have proved to slow the FCA down when it comes to taking action. The UK regulator sometimes requires Parliament to step in and approve legislation before it can impose conduct standards; for example, on Buy Now, Pay Later credit providers.
The National Audit Office also revealed that the FCA did not begin enforcing action against those illegally operating crypto ATMs until February 2023 – despite the fact that it has required crypto-asset firms to comply with anti-money laundering regulations and engaged with unregistered firms since January 2020.
One of the biggest factors in this delay for the FCA against crypto firms is a shortage of crypto skills. This ultimately meant that it took far longer than the FCA had originally planned to register crypto-asset firms under money laundering regulations in 2021, and it still finds it difficult to recruit and retain staff with crypto skills.
The FCA revealed that it had dealt with more than 1,400 cases relating to unauthorised crypto-asset activity. In 2020, more than 3,150 crypto-asset scams were reported, rising to over 6,300 in 2021, and more than 3,900 in the first half of 2022.
Having recognised this issue, the FCA is carrying out significant work adapting to the changes and spent £317million on its change programme between 2020 to 2023. The FCA also increased overall staffing by 16 per cent between August 2020 and August 2023, and recruited to meet high turnover rates between 2021 and 2023.
The FCA’s response
Seven out of 11 senior officials have joined the FCA since September 2020, including filling three new roles. The FCA also identified resourcing as a risk to achieving priority commitments such as reducing and preventing financial crime and preparing financial services for the future.
The NAO also recommends that, by autumn 2024, the FCA should plan changes to provide greater clarity about its performance to stakeholders. This includes potentially developing a core set of performance metrics, and testing their presentation and reporting with stakeholders to ensure the FCA communicates its performance more clearly and transparently. It should also build on current work in developing a long-term workforce plan to ensure it maintains the necessary expertise.
Gareth Davies, head of the National Audit Office, explained: “The FCA is undergoing significant reform, responding to changes in the financial services regulatory framework and making operational changes intended to improve performance. Its work includes a series of measures to reshape the organisation and respond to its new role under the Financial Services and Markets Act.
“The FCA must complete its work on optimising its use of data, assessing whether it is achieving the outcomes it intends and whether it is able to direct resources to where they can have the most impact.
“It must also be clear about which of the long list of activities it is monitoring internally are its priorities. If the FCA can do this, it will be well placed to meet the challenges of the changing environment in which it operates.”