What the FCA’s new secondary objective really means…
24 Jul 2023
3 min read
The FCA has published a statement on its new secondary objective as introduced by the FSMA 2023: to facilitate the international competitiveness of the UK economy and its medium to long-term growth (subject to aligning with relevant international standards).
What does that mean?
International competitiveness is taken to be a measure of how attractive the UK is for businesses, consumers and investors - “It measures how well the UK economy as a whole achieves sustainable, positive economic outcomes, attracts international businesses to the UK, and enables UK-based firms to compete effectively in international markets.”
The emphasis on medium to long-term growth means the FCA is not required to “facilitate short-term economic growth” or “seek to grow the financial services sector where that may not lead to, or may adversely affect, competitiveness and growth of the UK economy in the medium to long-term.”
The FCA outlines the 7 key drivers of productivity that it will use to provide a framework when considering the new objective and the statement discusses in more detail how each driver might contribute to competitiveness and growth. These key drivers are set out in the FCA’s 2023/24 Business Plan and include:
- Trust and reputation – encouraging confidence in the UK as a place to do business;
- Proportionate regulation – ensuring that the cost of regulation is proportionate to the benefit;
- FCA operational efficiency – offering speed, efficiency, high standards and stability;
- International markets – taking a leading role in the development of international standards and increasing the attractiveness of the UK as a place to invest;
- Market stability – protecting investors and consumers and building confidence and stability;
- Effective competition – driving innovation, lowering prices, increasing variety and creating efficiency; and
- Innovation – the key to “productivity, growth and competitiveness”.
The FCA notes that the secondary objective builds on its “existing work to improve the attractiveness and global reach” of the UK’s “wholesale markets, and to provide opportunities for financial services companies to invest, innovate and expand in the UK”, including:
- Progressing priority retained EU law files – facilitating “international competitiveness”;
- Reforming the listing regime – supporting the UK’s “position as a world-leading place to invest and for businesses to raise capital”;
- Promoting innovation through pioneering Sandbox platforms – encouraging innovation;
- The new consumer duty – elevating standards and building trust in the sector;
- ESG Strategy for Positive – building “a more sustainable future”;
- Improving operational efficiency enhancing processes – enhancing speed and efficiency; and
- Launching the new Long Term Asset Fund (LTAF) regime – creating an accessible and efficient investment environmment.
The statement clarifies that the new objective only applies when the FCA is advancing its existing primary objectives (such as “consumer protection, market stability and effective competition”) and to its general functions under the FSMA, which include rule-making, providing general guidance, and determining the approach of general policies. It does not apply to individual firms or to enforcement decisions.
The FCA has already begun reviewing key external documents and internal processes to ensure they reflect the new secondary objective, including reviewing key documents as part of formulating its 2025-28 strategy.
The FCA is subject to transparency and accountability requirements and will report each year on its compliance with the new objective in its annual report and Outcomes and Metrics Webpage as well as publish additional reports providing greater detail on its embedding and advancement of the new objective in each of the first two years after commencement.
While the FCA’s primary objectives clearly remain priority, the FCA’s role in ensuring that the UK remains an attractive market will be welcomed, especially given the increasingly competitive international landscape.
The PRA was given the same secondary objective and it is the intention of the regulators to take a consistent approach “where possible and relevant”.
“Creating the right conditions for firms, both in financial services and the wider economy, to innovate and to invest also helps lead to a more productive, open economy that can compete with other economies for growth opportunities. Improving international competitiveness is also primarily about increasing the productivity of the UK economy. We seek to create a regulatory environment that attracts new firms and consumers to the UK market, while also creating conditions that allow UK-based firms to compete in markets outside the UK."