Communicating supervisory priorities

June 2025

The FCA has announced that it is changing the way it will communicate its supervisory priorities to firms. With “portfolio letters” having been the norm for several years, they have been scrapped and will be replaced with a smaller number of annual “market reports”.

This development forms part of a broader picture of how UK financial services regulators are evolving their communications with regulated firms and other stakeholders. This is at least partially driven by the regulators’ secondary international competitiveness and growth objective and the current push to ”regulate for growth not just risk” (see an overview of wider related developments here).

But what will these changes mean in practice? KPMG in the UK explores the potential implications for FCA-regulated firms below, alongside some perspectives on the PRA’s approach.

For several years, the FCA has been experimenting with how best to communicate its priorities to firms. While the FCA’s overarching strategy has always been set out in a single document, this has been complemented by other publications.

Starting in 2017, and led by the FCA’s Strategy and Competition Division, the FCA began publishing annual “Sector Views” – dividing the industry into seven sectors. These documents described each sector, its purpose, the issues and developments the FCA was seeing and the impact of change. The purpose of the Sector Views was not always immediately obvious, as they played back to industry participants’ data and perspectives with which they were already largely familiar.

In more recent years, the introduction of portfolio letters has largely been helpful for firms – particularly smaller firms that are supervised on a flexible basis and that do not have a dedicated supervisor.

Amidst the thousands of rules and pieces of guidance, portfolio letters are generally perceived to be a useful steer on where firms and their supervisors should concentrate their efforts. They have been instrumental in informing the deployment of firms’ resources and plans, notwithstanding that firms with activities across multiple portfolios have had to digest several letters where often the same messages are repeated across publications.

The FCA’s announcement in its new growth-focused strategy that it will no longer be publishing portfolio letters, and subsequent detail, will have come as a surprise for some.

In future, the FCA will streamline its approach by publishing a small number of market reports annually, detailing the risks and opportunities that it observes. Future portfolio communications will be embedded in these reports and will share insights from the FCA’s supervisory work, but the precise format is unclear.

Assuming the market reports will be less granular than portfolio letters and will group together several different portfolios, there are likely to be mixed reactions across the industry. Some will view this as a positive move, removing duplication between actual rules and guidance, and additional layers of communication. Others may feel there is less transparency around what is front of mind for supervisors, and that they are less able to plan and prioritise their annual approach to compliance effectively as a result.

Industry feedback suggests the following would be useful in informing the FCA’s new approach:

• A return to the ‘Sector View’ approach should be avoided. Industry does not require data or a teach-in for points that are already well known.
• Consistency and predictability will be key. Gradual iterations in supervisory priorities will be preferred to unpredictable chopping and changing.
• Adopting a clear publication cycle and established frequency will be vital for providing certainty and to ensure that firms can plan ahead.
• Publication frequency requires careful calibration – publishing infrequently risks the FCA’s priorities becoming stale, whilst publishing too often risks reports that are lacking in new content and unnecessarily take up firms’ time and resources. On that basis, the FCA’s proposal for annual market reports is a reasonable starting point.
• The market reports should be designed so that they dovetail clearly with wider FCA publications such as Dear CEO letters and the Regulatory Initiatives Grid. Although the Grid was a welcome introduction, it has often been delayed as well as the publications referenced within it – so more predictability and consistency would be welcome across the board.

The PRA publishes annual letters detailing its supervisory priorities for UK Deposit Takers, International Banks and Insurers, a practice not expected to change.

These are supplemented by the PRA business plan, the wider Regulatory Initiatives Grid, outputs from Periodic Summary Meetings (PSMs) and more targeted Dear CEO, Dear CFO, Dear CRO and Dear Chief Actuary letters.

Over the years, the PRA has increasingly used the more targeted letters not just to deliver feedback or to reiterate supervisory priorities, but also to set new requirements for firms to implement. For example, SS3/19 and the related 2020 Dear CEO letter together created a full set of expectations around climate-related risk. There are clear benefits for the regulator to this approach as these letters sit outside the formal consultation process and can therefore potentially be implemented in a relatively short timeframe. However, the absence of industry input raises the question of whether they are appropriate vehicles for setting out expectations that have the similar force as formal policy.

Financial services authorities can support UK competitiveness and growth by delivering predictable, proportionate and consistent supervision – facilitated by effective messaging (for more, see a recent joint KPMG in the UK report with PIMFA and UK Finance). The FCA’s first market reports will be a key test of this in practice.

For now, regardless of the precise format of regulatory communications, it remains imperative that firms have in place an approach to regulatory change that enables them to identify, triage and act on regulatory developments effectively – with clear ownership and accountability across the business.

Beyond their approaches to communication, the UK regulators are embracing their growth and competitiveness objectives in a number of areas, for example through simplifying rules for insurers and smaller UK deposit takers, streamlining assessment of value disclosures for fund managers, and adopting a proportionate approach to enforcement communications. The government’s Mansion House speech and financial services growth and competitiveness strategy – due to be published on 15 July – will provide further indicators on the future direction of travel.