We have said our goodbyes to 2023 which was a year in which we spoke lots about the Edinburgh Reforms and Mansion House, where some big names disappeared in a mini-banking crisis, and a previously eminent financial services establishment was forced to close its doors for poor working culture. Central banks waged war on new style inflation using old style toolkits, the “Crypto King” was convicted of fraud and his arch-rival admitted to a series of crypto money laundering and financial sanctions breaches. The cost-of-living crisis rumbled on, huge gaps were revealed in the nation’s level of financial literacy, and inflation and interest rates soared. 

So, what is in store for 2024? Well, we have looked into the crystal ball and are predicting that some things will certainly happen and that there will also be some surprises.

To set the scene, we have not just one but two wars of global significance, and the ongoing “not quite a war” between China and Taiwan. We have general elections to look forward to in both the UK and the US, where the return of the Republican or Labour, could have a significant impact on the financial services industry. Core inflation remains sticky, interest rates are still high relative to what people have become used to, and the statistics suggest that high numbers of people face the need to remortgage in 2024, although looking at the recently started mortgage rate contest, this may prove not to be quite as bad a situation as predicted with some rates already being announced at below 4%. If you read the financial press, some see green shoots and others see grey skies. Heads or tails? It is not yet clear whether dealmaking will pick up, or what methods private equity will create to circumvent the still challenging macroeconomic conditions, but it is likely that agile firms are already raising new funds and searching for the new partnerships that will enable them to stay at the top of the money-making leaderboard and shape a revival of the private capital industry. Similarly, it is not yet clear how the balance will resolve as between the “new” private credit providers and the “old” banks, who, having beat a hasty retreat from the market will certainly look to recover some ground.

Some things though are less of a lottery. We know that the UK will see a flow of changes to financial services regulation as government and the regulators continue to deal with the post-Brexit amendments that they see as essential for the UK to position itself as a world leading global financial services centre. The list of areas in which we will see changes is very long and includes a complete range from the change of control regime, the implementation of Basel 3.1, a “strong and simple” framework for smaller banks, primary markets reforms including changes to the listing regime, consolidated tape implementation and consultations on the derivatives markets, changes to the financial promotions regime, the filling of the advice gap, regulation of crypto and the possible development of thinking on a Central Bank Digital Currency, rules aimed at demystifying sustainable investments, changes to measures around data protection, the regulation of AI, changes to payments propositions, a wide piece on consumer credit (which has not been reviewed since the 1970s!), D&I reporting and disclosure requirements, to the retail disclosure framework, and, the list really does go on….. 

From the huge range of changes in prospect, we have selected some of the ones that we see as key for 2024 starting with the consumer. It is the consumer who stands in centre stage and under the spotlight. Of course, Consumer Duty was introduced last year and so is not new, as such, but the FCA has made clear that the Duty is not something that is going or even fading away and it is worth remembering that from July 2024 it will also apply to closed products and services. We can expect that over the course of this year Consumer Duty will further embed and evolve aiming firmly at the UK’s aspired to gold standard of delivering good consumer outcomes on an ongoing basis. We expect to see the FCA testing firms on their implementation of the Consumer Duty, and we may even see some early FCA enforcement activity in this space. All firms need to stay on the front foot with news and updates from the FCA on this topic as it continues to drive positive change in diverse ways across financial services. 

Next on the list is the advice-guidance boundary where we expect to see lots of change both in the applicable regulatory standards and among the market players. Throughout 2023 many advisor firms were bought and sold with many smaller firms being absorbed into larger ones and it is expected that this consolidation trend will continue into 2024. With this trend, white-label (advisor controlled) platforms will likely gain in popularity with the consolidators looking to develop their own platforms. This could offer economies of scale, both protecting profit margins and enabling reduced costs to filter down to consumers. Several of the bigger players are also developing and enhancing graduate and other training programmes with a view to producing cohorts of top-flight future advisers. This will be an interesting area to watch as the leading firms jostle to make the most of the proposed new advice-guidance regime, offer the highest standards of advice possible and make that advice available to more consumers by reducing the cost of it and breaking down other barriers to the availability of it.  

AI is another “watch this space” hot topic as government and regulator thinking on how to mitigate the risks and channel the advantages of powerful new technologies shape up. As the general approach is pro-innovation it is to be expected that the use of AI will grow as financial services businesses continue to evolve their understanding of how they can use it effectively in their product and service offerings.  It is hoped that the development of functional digital solutions in the financial services space will free up some of the humans from slow, tedious or repetitive processes and paper-based tasks so that they can spend more time with clients achieving good client outcomes. Expect more to come on AI as the FCA evolves its stance on how it can be safely adopted, how questions around lawful use, the need for quality data, data protection, IP, and privacy etc. should be answered, and firms continue with their testing and modelling to ensure that the AI they use is robust, fair, incapable of bias, transparent, safe, responsible, supported by accountability structures, risk management frameworks, and effective governance. 

Moving onto greenwashing which is a key concern for financial services businesses and their clients. The FCA’s rules on greenwashing will be rolled out in 2024 and will apply to all FCA authorised firms. These rules will implement clarity and force some firms to clean up their act by stamping out greenwashing. There are similar drivers here too as the FCA seeks to build an industry in which investors can trust by ensuring clear product labelling and detailed consumer focussed disclosures. Getting ready for these rules, most of which come into force during 2024, will be a focus area for many financial services firms particularly those in the asset management space who are the first in the market to become subject to the disclosure and labelling requirements. It looks likely these requirements will extend out into portfolio management, pensions and to overseas funds in due course. It is also likely that ESG ratings providers will become subject to regulation.

Our final and similarly multi-faceted theme to focus on for 2024 is culture and the need for financial services businesses to have robust operational resilience mechanisms, good governance structures and sound risk strategies. Conduct and culture are high on the FCA’s agenda, and it has encouraged firms to work hard on building good cultures and root out problematic conduct which, as the events of 2023 have shown, can bring a firm down. Good culture is needed not just within firms, it also relates to how firms behave in their relationships with consumers, and it affects the wider industry. The “Sexism in the City” inquiry continues to investigate the barriers that women face in the financial services industry and the FCA is also consulting in relation to proposed new guidance on non-financial misconduct more generally.

Although we have looked primarily through a domestic lens here, many of the initiatives mentioned link inextricably to the government’s agenda to bolster the UK’s position in the global financial services markets. With many parallel initiatives in the EU, US and elsewhere, and despite divergences, the need for international co-operation will be critical to ensure a degree of alignment, consistency and collaboration to ensure that divergences do not become impediments. 

Let’s hope for some positive developments in 2024 with good outcomes for consumers who get to receive the advice that they need when they need it and for fair value; increased and responsible digitisation bringing advantages to many; clearer, cleaner and greener financial services; and some all-round improvements in healthy culture.