FCA sets out research agenda that will shape regulation for the next five years

Sharpening the FCA's understanding of the channels between regulation, financial sector performance and economy-wide growth has become central to its work, particularly under the secondary international competitiveness and growth objective introduced by FSMA 2023. The growth theme is organised around three focus areas: productivity in the financial sector, the international competitiveness of UK financial services, and how the sector supports productivity and growth across the wider economy.  Firms should expect the FCA to use the evidence it commissions to make more granular, data-driven assessments of whether individual regulatory requirements are proportionate, with real consequences for how obligations are calibrated across firm types and activities.

The wholesale markets theme examines the functioning, resilience and integrity of UK wholesale financial markets, which enable firms and investors to raise and allocate capital, manage risk, and support investment and growth. The FCA's research interests focus on three interconnected areas, market microstructure, market resilience and market integrity.  Specific research questions cover how Electronic Liquidity Providers shape market outcomes during stress, what proportion of market liquidity in UK equities is addressable during volatility spikes, and what is driving the decline in Central Limit Order Book activity in equity trading.  Firms active in wholesale markets, particularly those involved in electronic trading, liquidity provision, or equity market-making, should review their market conduct frameworks and stress-testing arrangements against these analytical priorities.

The FCA is asking how AI-driven trading strategies can be identified in transaction reports, and to what extent such strategies contribute to herding and shock amplification in UK equity and corporate bond markets.  Separately, the FCA wants to understand how AI-enabled personalised and algorithmic pricing in retail financial markets affects outcomes and prices across consumer groups, and whether it converges on fair risk-based pricing or exploits information asymmetries.  Firms deploying AI in trading, pricing or customer-facing decisions should ensure robust model governance, auditability and consumer outcome monitoring are in place before the FCA's evidence-building translates into supervisory expectations or rule changes.

The consumer questions explore the extent to which product design, pricing, information, regulation and technological change shape consumer behaviour and distributional outcomes, and how financial shocks, regulatory interventions and market developments influence long-term engagement, confidence and participation.  Of particular note, the FCA is examining which consumer groups face barriers to accessing essential financial products, insurance, pensions, mortgages, deposit and savings accounts, and what mechanisms drive their exclusion.  Consumer-facing firms, particularly those distributing products to potentially vulnerable or excluded groups, should treat this as a signal that Consumer Duty assessments of access and fair value will become increasingly evidence-rich and data-driven.

The FCA wants to understand what costs firms incur to comply with regulatory requirements, including administrative, policy, implementation, legal, lobbying and opportunity costs, and to what extent observed compliance costs reflect meeting requirements versus overcompliance ('gold-plating'), including what factors drive overcompliance such as regulatory uncertainty, enforcement, reputation and incentives.  This signals that the FCA is receptive to evidence that current requirements impose disproportionate burdens, and that firms and trade bodies with clear cost data have a genuine opportunity to engage constructively with the regulator's evidence-gathering process.

The regulation theme examines the effectiveness of different regulatory tools and approaches, including how authorisation, supervision and enforcement work together in practice, and how regulation can continue to deliver strong outcomes as markets and technologies evolve.  Specific questions address how targeted, high-impact enforcement and supervision approaches compare with broader strategies in shaping deterrence, compliance, market integrity and trust, and how the balance between authorisation, supervision and enforcement affects costs and benefits of regulation across products and risks, including the regulatory perimeter.  Firms should assess whether their current engagement model with the FCA, across all three of those functions, is fit for purpose as the FCA considers reforming how it deploys each lever.

The FCA is examining how the adoption of AI, Distributed Ledger Technology (DLT) and tokenisation affects competition and market structure in financial services, including entry, concentration, product variety and switching costs.  On Open Finance specifically, the FCA is asking how the introduction of Open Finance might reshape the structure of the financial services sector, and what implications that could have for its regulatory models.  Firms operating in or moving into these areas should engage actively with the FCA's innovation-focused workstreams and ensure their regulatory strategies account for potential structural rule changes in the medium term.

Collaboration can take many forms, including sharing relevant existing research, evidence or data that speaks to one or more of the FCA's questions; discussing proposals for new research; and participating in workshops, working groups, roundtables or expert interviews.  The scope and form of engagement will inevitably vary by question, timing, feasibility, and the capabilities and resources available, and the FCA recognises that not every form of collaboration will suit every research question.  Firms, particularly those with proprietary data on consumer behaviour, market microstructure, or compliance costs, should consider whether engaging directly with the FCA's research agenda offers a strategic opportunity to shape evidence that will inform future regulation.