UK FCA Prioritizes Digital Innovation, Fraud Prevention for 2024

Amid a challenging economic landscape, the U.K.’s Financial Conduct Authority (FCA) has unveiled its Business Plan for the 2024-2025 fiscal year, marking the culmination of its three-year strategic roadmap.

One of the focal points of this plan, particularly from a digital innovation perspective, is the imperative to combat financial crime. PYMNTS Intelligence research has underscored the growing sophistication of illicit activities, helped by the adoption of advanced technologies by bad actors.

In response, the FCA has committed to a data-led approach, which involves an expansion of intelligence-gathering capabilities and analytics to effectively identify and track potentially fraudulent activities. Moreover, the regulator said it is actively working toward mitigating the average financial losses incurred due to scams by utilizing data to pinpoint firms vulnerable to facilitating the laundering of fraudulent proceeds.

This comes on the heels of the U.K. government introducing draft legislation this month that enables payment service providers (PSPs) to delay outbound payments processing by up to four business days in instances of suspected authorized push-payment (APP) fraud.

Also central to these fraud-fighting efforts is the integration of artificial intelligence (AI). The agency has pledged to further harness AI to preempt fraud and scams, thereby enhancing the experiences of both consumers and firms in their interactions with regulatory authorities.

Simultaneously, the FCA said it is evaluating AI’s impact on U.K. markets, weighing its associated risks and benefits: “We will build on our pro-innovation and technology-agnostic approach to ensure that the outcomes for consumers and markets are beneficial, while recognising there are risks and opportunities.”

Notably, the U.K.’s approach to AI regulation diverges from that of its European counterparts. While the European Union has endorsed a risk-based framework outlined in the Artificial Intelligence Act , the U.K. has opted for a “ pro-innovation ” stance, eschewing blanket regulations in favor of a context-based approach rooted in core principles such as safety, fairness and security.

Regulatory Gaps and Concerns

Beyond AI, the FCA’s Business Plan highlights various initiatives aimed at fostering fair competition and innovation in digital markets.

For instance, the agency plans to strengthen collaboration with regulatory counterparts and through the establishment of specialized hubs to drive cooperation and support digital innovators. This includes working with the Bank of England to facilitate the Treasury’s initiative of establishing a Digital Securities Sandbox, set to accept applications in 2024.

However, despite the comprehensive scope of the plan, concerns linger among industry experts regarding its efficacy and clarity. Criticisms center on perceived inadequacies in advancing the understanding and protection of consumers in the digital assets space.

“Consumers aren’t the whole system,” Gilbert Verdian, CEO of Quant, said in a Tuesday (March 26) report by The Banker. “The nature of digital finance has broken down such barriers between different segments of the financial market. As a consumer, you can do securities trading, you can do ETFs. You can do the same things as a firm. The FCA’s remit must be broader than just a consumer focus.”

Questions also arise regarding the enforcement mechanisms surrounding the Consumer Duty rules, which took effect in July.

Per the FCA’s guidance, firms have until July 31 this year to conduct fair value assessments, which will serve as a mechanism to ascertain whether the price consumers pay for a product or service aligns reasonably with the overall benefits they can anticipate.

Here too, industry stakeholders have expressed concerns about the lack of clarity regarding the actions the FCA might take in response to reports of unfair products or services.

“I couldn’t see anything in the plan and nor have I heard about what happens in relation to supervisory powers that the FCA has after [July 31 2024],” Marsili Hale, partner at law firm Fieldfisher, said in the report from The Banker.

In essence, as the FCA’s plan enters into force, the dialogue surrounding its implementation and efficacy will shape the trajectory of financial regulation in the U.K. Balancing innovation with consumer protection will remain paramount as the regulatory landscape continues to evolve in an increasingly digital age.