On the face of it, the latest FCA minutes are more than usually sphinx-like, although I suspect some of this is driven by the subject matter and its dependence on government policy. The regulator is never going to go into any detail around this, so we are necessarily left with a more incomplete picture than normal.

That said, there are also some signs of operational strain, and that the relationship between Board and Executive is becoming more formal. This may or may not be good news…

Board committees: Providing air cover?

Were it a solely internal matter, the report of the Policy & Rules Committee (Item 2.1) might read quite harshly. It’s worth quoting in full: “The Board emphasised that it expects the Executive to carry out the ‘Tranche 3’ work of the ‘Smarter Regulatory Framework’ to a sensible, measured timetable, to make the right long-term decisions.“

Such a mode of working is, of course, part of the essence of what any decent regulator will always be striving for, so the Board’s urging could easily be seen as a rebuke, and an indication of lack of trust.

But, as the Smarter Regulatory Framework it concerns is HM Treasury’s Delivery Plan for assessing and dealing with Retained EU Legislation (REUL), and follows the inevitable and much-predicted crash of the “repeal by end 2024” strategy. So, it feels more likely that the Board’s statement is instead designed to give the Executive an (unobjectionable) basis on which to resist (if necessary) HMT pressure to deregulate in areas that the FCA considers might open up significant risk.

The Tranche 3 referred to covers as yet undefined areas of REUL, “such as the remaining parts of the Markets in Financial Instruments Directive (MiFID), along with other large EU files such as the European Market Infrastructure Regulation.” In this context, it isn’t hard to see why the Board might have decided to provide some air cover against potential future volatility in Government policy. Although there is still the intriguing question of whether the Executive asked or the Board offered.

The Audit Committee report (2.2) focuses on the value for money (VfM) work the National Audit Office (NAO) was due to undertake in October. This bears careful watching as VfM reports can quickly go south unless you have a good story to tell, and you are able to tell it convincingly. This may not be easy for a couple of reasons: (i) the NAO’s late delivery of the Audit Completion Report may mean relations between the two bodies are probably not great; and (ii) as I posted back in July, in relation to the May Board minutes which originally discussed the VfM review, the regulator might be in a weaker position now than it was for previous NAO reports.

The reference to “assurances provided” to the Risk Committee (2.3) could be no more than an increase in routine formality. But it might also be a sign that the Board is sceptical about the effectiveness of the Executive’s management of at least one area of risk, and is putting down a marker that it won’t forget the assurances given if there are major problems in the future.

Consumer investment (CI) strategy: Reset, or potholes to come?

One area the NAO might be looking at is the reality behind the FCA’s rhetoric about its own focus on outcomes and targets, where the regulator seems to be retreating from some of its ambitious earlier commitments. From the Board’s discussion of the CI strategy 2-year update and the CI Vision, this seems to be travelling down a too familiar route that goes roughly as follows:

• Initial explicit targets aren’t met, due to a combination of external events, the impact of which is often grossly underestimated, and excessive optimism about the reach and effectiveness of policy.
• A broader, more general (possibly more realistic) set of metrics is substituted, but brings with it greater challenges around measurement and judgment.
• The picture is complicated by the addition of new initiatives to the strategy – in this case the Advice-Guidance Boundary Review – which make objective evaluation yet harder.

I’ve written several times about the difficulties of working to outcomes, and I suspect the FCA will get deeper into the weeds, not least given the persistence of high interest rates and the cost-of-living crisis. Next year’s Annual Report is unlikely to make happy reading but we are likely to get the NAO’s view before then.

Finance report

Finally, it’s always worth paying attention to significant operational reports, as they have a greater impact on the regulator’s performance than is often appreciated, either externally or internally. Here, there are two items worth noting:

1. The extension of the FCA’s contract with Amazon Web Services (AWS) (8.1) is a major commitment for the regulator. One of the lessons from the FSA was not to become over-committed to a single IT provider, but in this instance the FCA looks to have done all the right due diligence. Hopefully too, the contract is sufficiently flexible to cope with the inevitable sharp changes there will be in the regulator’s needs over the next four years.
2. More immediately worrying is the request to increase spending on contractors (8.2ff). Coming less than halfway through the financial year, it signals either a material under-budgeting and/or a sharp, unanticipated increase in demand. The latter seems more likely and could have multiple causes, but few of them are positive, and having to go back to the Board in this way is usually a bad sign.