A year into the FCA’s updated strategy: Navigating the regulator’s updated approach to the retail investment sector
The one-year anniversary of the FCA’s 2025 - 2030 strategy is a fitting point to reflect on what the regulator’s updated approach means in practice. Twelve months of supervisory interventions, policy consultations and industry engagements have provided real‑world examples of how the new strategy is translating into real-world regulatory behaviour. The recent publication of the FCA’s regulatory priorities for the retail investment sector is further evidence of what its updated approach means for financial advisers, investment platforms, and wealth managers. In this article, we explore the risks and opportunities linked to the new strategy and the implications for firms.
Roll out of the FCA’s new strategy
The FCA’s latest five-year strategy focuses on four interconnected priorities: becoming a smarter regulator, supporting economic growth, helping consumers navigate their financial lives, and fighting financial crime.
One of the core elements of the regulator’s updated approach is to try to make its interventions more predictable and proportionate. Early evidence of this recalibration can be seen in the reduced volume of thematic reviews, the replacement of detailed portfolio letters with sector priority reports, and more targeted use of enforcement. There are also signs that ‘good firms’ – such as those with sound business models, strong governance, and proactive risk management – are facing less intensive scrutiny when they interact with the regulator, such as applications to the authorisations gateway and supervisory notifications.
The FCA’s focus on supporting economic growth is evident in policy work aimed at trying to reduce the regulatory burden. This includes pruning regulatory reporting requirements, the removal of redundant rules, and interventions to overhaul known problem areas, such as the investment disclosure, client categorisation and prospectus regimes. Wider policy work has also sought to enable innovation and growth that benefits consumers, such as the new regulatory regimes for targeted support and deferred payment credit, and reforms to elements of the investment, mortgage, and insurance requirements.
The regulator’s work on its financial crime priority has been characterised by efforts to detect financial crime faster, disrupt and pursue the firms and individuals involved, and remove fraudsters from the financial system. The FCA’s interventionist approach has been evident in increased scrutiny of financial crime controls at the authorisations gateway; data-led supervision on high-risk and outlier firms, and the assertive use of regulatory tools – such as requirements limiting firms’ activities, skilled person reviews, and enforcement/criminal investigations – in the firms where it identifies issues.
Regulatory priorities for the retail investment sector
The publication of the FCA’s first regulatory priorities reports [this month] has provided an additional lens into how its five-year strategy will play out in each sector. For retail investment firms, the key takeaways are:
Substantial programme of policy work: The FCA is part-way through a programme of ‘enabling’ policy interventions aimed at building a stronger investment culture and increasing consumer access to investments. This includes the roll-out of targeted support and reforms to key elements of its existing handbook, which include the senior managers and certification regime, client categorisation, the communication of investment risk, costs and charges disclosure, and suitability. It will also clarify how the Consumer Duty applies across distribution chains.
Reduced number of supervisory workstreams: Other than the data-led supervision of high-risk and outlier firms, cross-cutting reviews will be limited to model portfolio services and follow-up work on ongoing advisory services.
Significant focus on financial crime: The FCA will continue to direct its resources towards preventing financial crime, including scrutiny of systems and controls at the authorisations gateway, targeted supervision, and decisive action where concerns it identifies, concerns – such as enforcement and criminal investigations.
Ongoing focus on the Consumer Duty: Supervision activity will continue to focus on firms’ compliance with the Consumer Duty obligations, with a specific focus on fair value and the treatment of vulnerable clients.
Opportunities for firms
The FCA’s new strategy offers opportunities for firms that can take advantage of the updated policy and supervisory agenda.
Opportunity | How firms can benefit |
Greater autonomy from reduced regulatory intensity | Firms with the ability to identify the key risks to their businesses, assess their implications and develop their own interventions are likely to have:
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Flexibility from regulatory simplification | The FCA’s approach to Handbook simplification opens the door for firms to:
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More streamlined regulatory engagement | Faster regulatory decisions, quicker case turnaround times and a more stable regulatory environment could materially enhance firms’ ability to plan and innovate. But in order to benefit, firms will need to fully understand the regulator’s updated approach and ensure their internal product governance, risk management and oversight arrangements are aligned to it. |
Risks firms need to manage
But where there is opportunity, there is also risk. The FCA’s new strategy requires firms to make a careful assessment of what is and isn’t in play and adapt their internal frameworks to avoid missteps.
Risk | What firms need to guard against |
Misinterpreting the deregulatory nature of the FCA’s strategy | There is a risk that some firms may misread the FCA’s new strategy as signalling a softening of expectations. This isn’t the case. While the FCA may have reduced the intensity of its regulatory interventions and pared back some elements of its handbook, it has not diluted core standards of conduct. Firms therefore need to ensure they undertake a thorough assessment of regulatory changes and adapt their internal processes, systems and controls appropriately in response. |
Failing to prioritise regulatory hotpots | The FCA is focusing its supervisory resources on a smaller number of priorities. Firms need to ensure their approaches to these areas are robust – especially with data-led supervision increasing the likelihood of interactions with the regulator. These key areas include:
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Failing to adapt to outcomes‑focused regulation | The move to outcome-focused regulation under the Consumer Duty has given firms greater flexibility in how they design and deliver their products and services. However, the absence of more prescriptive rules increases the risk of misconduct, costly redress liabilities and regulatory intervention. Firms without robust product governance arrangements, well‑structured compliance input and robust oversight arrangement may find themselves exposed to regulatory challenge - even though the wider environment is otherwise supportive of innovation. |
Actions firms can take
We recommend firms focus on the following areas to best position themselves to benefit from the FCA’s changing approach.
Update your risk assessment | With the FCA providing fewer portfolio-level indicators and undertaking less thematic work, firms need to ensure their view of regulatory risk remains up to date. This can be achieved through more systematic use of internal insights from across the three lines of defence, improved horizon scanning, and leveraging external data sources. |
Ensure there’s sufficient focus on regulatory hotspots | While the FCA has recalibrated its supervisory strategy, a number of high priority areas are subject to significant ongoing scrutiny. Firms need to ensure they can demonstrate strong oversight of these areas through robust controls, comprehensive MI and targeted compliance monitoring activity. External compliance support is an additional way to validate your approach. |
Strengthen your product governance framework | The move to more outcome-focused regulation increases the importance of strong judgement. Firms should ensure product design and review processes are applied consistently, assessments are meaningful and evidence-based, and outputs are reviewed at fora with appropriate SMCR accountability. |
Ensure your data and MI meet the FCA’s evolving expectations | Firms should review whether their data is complete, accurate, consistent, explainable, and aligned to consumer outcomes. If not, they risk being identified as outliers in the FCA’s data-led supervision work. |
If you would like to discuss what the FCA’s strategy means for your business, our team would be delighted to help.
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