The British Financial Conduct Authority's Practitioner Panel conducts an annual survey of regulated firms to gauge their perception of the regulator and the extent to which it is doing its job.

In total, 2,080 firms completed the survey, a response rate of 21% which is lower than in previous years for reasons the FCA has not ascertained. 'Fieldwork' for the survey took place in March and April, a fact that suggests that there might have been some heavy editing in the intervening time.

The regulator believes that the results show that the industry is growing ever more satisfied with its effectiveness, with firms giving it a mark of 7 out of 10 for effectiveness - up from 6.7 last year. They have professed greater overall satisfaction with the regulator as well, rising from a trough of 5.4 out of 10 in 2010 to 7½ now.

The FCA's three operational objectives are:

• to protect consumers from sharp practice and their own lack of knowledge;
• to instil integrity in the country's financial system; and
• to promote competition in the financial markets in the interests of consumers.

The FCA's marks for fulfilling its "competition objective," the newest of its objectives, have always been lower than the others and remain so. This was an objective that the FCA's predecessor, the Financial Services Authority, did not have.

Last year there was concern that in almost every area lower levels of satisfaction were apparent for the long-term savings and pensions sector. The Practitioner Panel encouraged the rest of the FCA to focus on this area in particular, and this year there have been significantly more positive results for this sector. Satisfaction and effectiveness scores have both risen, as has the firms' confidence in the FCA’s ability to meet its objectives. Levels of professed trust in the FCA have also increased in this sector.

One interesting set of figures states that 50% of all firms said that the FCA was bringing the directives of the European Union into British regulation in more detail than was necessary, by so-called 'gold-plating,' as against 43% the previous year; and that only 6% disagreed with this (the same as the year before), with 33% neither agreeing nor disagreeing.

Communications

Most firms do not have their own supervisors but rely on other communication channels. They use the FCA's Regulatory Roundup emails and its website to learn about regulation. The FCA seems pleased with the results here.

Managing regulatory change

The FCA asked firms to state their views on its job during the Brexit process; few thought that it was "communicating effectively on Brexit," whatever that means. The reason for their discontent might be apparent from the FCA's assertion later in the paper that "firms should continue, as far as they can, with business as usual."

Supervisory categories

In the survey the FCA breaks firms up into "fixed portfolio firms" and "flexible portfolio firms." The former are few in number and, because of factors such as size, market presence and "customer footprint," require the highest level of supervisory attention. Every one of these firms is allocated its own supervisor who assesses it continuously. The latter are supervised through a combination of "market-based thematic work" and "programmes of communication, engagement and education activity" that the regulator invents according to the main risks it thinks they pose. These firms, bereft as they are of individual supervisors, use the FCA Customer Contact Centre as their first point of contact. The FCA believes that regulation takes a greater toll on the former than on the latter.

Objectives

As a result, fixed portfolio firms tend to be less satisfied with their regulatory relationship and with the effectiveness of the FCA in general than the others. They do, however, have more confidence in the FCA’s ability to protect consumers and beef up the integrity of the British financial system.

The 2017 results indicate changing priorities for the FCA over the next 12 months. The priorities identified for improvement in 2016 were:

• FCA staff/supervisors knowing enough to understand firms;
• 'transparent' regulation - a term the FCA's paper never defines; and
• forward-looking regulation - another undefined term.

The FCA detects some signs of progress in relation to regulation being "transparent and forward-looking," saying that firms are expressing slightly more positive views than 12 months ago. Nevertheless, discontent with the FCA in this area has grown also, with the "don't knows" falling in number as people's attitudes harden.

Enforcement and trust

Views about enforcement activity have improved slightly in 2017, following a dip in performance in 2016. More firms think that the publication of fines undermines confidence in the industry. The survey has even tried to measure financial firms' 'trust' in the regulator, detecting a slight rise that might be influenced by greater personal contact between firms and FCA staff.

Long-term savings and pensions

In 2016, lower levels of satisfaction were apparent in the long-term savings and pensions sector than in almost any other, but things have improved. The FCA is going to be watching this sector closely in the near future. Perceptions of the effectiveness of the FCA were highest among the wholesale banking and retail lending sectors (7½ and 7.2 out of 10 respectively). More than one-third of these firms thought that the FCA was not doing enough to prevent wrongdoing.

Reasons for thinking the FCA ineffective

Among the firms that thought the FCA ineffective (giving it a score of 1-3) the most common reasons were that:

• it ought to be doing more to prevent wrongdoing (24%);
• it has been concentrating on the wrong activities (13%); and
• it is not 'tailoring' regulation or making it "proportionate to the size of firm/level of risk" (12%).

In 2016 the second most common reason for the FCA's "low effectiveness" score was its deficiency in dealing with large firms.

The restoration of confidence in the industry

The FCA asked all firms how well they felt that it was working to restore consumers' confidence in the industry. Not surprisingly in view of the identity of the questioner, more than three-quarters of them (78%) said that it was working very or fairly well in this area, compared with 73% in 2016. This year only 73% of fixed firms expressed contentment, while 78% of flexible firms did.

Dealing with risks

On the whole, firms did not seem to have much confidence in the FCA’s ability to identify emerging risks well; only 42% of firms said that it did, at least to the regulator's face. By coincidence, the same percentage said that the FCA was targeting the right risks for action. Fixed firms were more likely to 'agree' that the FCA dealt with risks well; 61% of them said so and 60% of them said that it was "prioritising the right risks for action."

Processes

Six in ten firms (60%) said that the FCA's data requests were working effectively, while 12% disagreed. Half of all firms (50%) said that thematic reviews were working effectively - a shockingly low figure - and around 45% of them said that policy consultations, market studies and risk mitigation activities were working effectively. Only a quarter of firms (24%) felt that the "firm systematic framework" (one of the regulator's "three pillars of supervision") was working effectively.

Practitioner panels

Almost two-thirds of all firms were aware of the regulator's practitioner panels before taking part in the survey. Nine in ten fixed firms (90%) and six in ten flexible firms (63%) had heard of them.