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2018 in review: Regulation rears its head again

The past 12 months have seen a swathe of new rules and guidance hit the advice space. Here, Money Marketing’s experts sift through the noise to provide their key takeaways.

Crunch time for culture issues

Vicky Pearce, director at B-Compliant

As the year draws to a close, looking back over 2018 one of the key regulatory themes emphasised throughout has been culture.

Back in March, the FCA issued a discussion paper entitled Transforming Culture in Financial Services. The aim of the paper was to better-equip firms to foster a culture which supports the spirit of regulation in preventing harm to consumers and markets.

The collection of essays within the report was a novel approach by the FCA to try to educate firms that culture is not a one-size-fits-all model, nor should it be something committed to paper, or another durable medium which is spoken about at a few meetings and then consigned to a filing cabinet or folder on the PC. Culture needs to be more personal to the business. The responsibility for embedment lies with the owners, directors and managers of the company, and needs to be brought to life by the same individuals. All staff need not only to understand the culture, but also to accept this is the way their employer wishes to conduct its business on an ongoing basis.

Perhaps on its own, this would not be enough for all firms to embrace an appropriate culture. However, in a little under 12 months’ time, all FCA-regulated firms will be required to have prepared and delivered statements of responsibility for their senior management functions.

They must also have delivered appropriate conduct training to all senior managers and certified staff, and made plans to deliver conduct training to all staff during the following year and annually thereafter.

Under the Senior Managers and Certification Regime, the conduct rules will apply to almost all staff in the same way. Perhaps in the lull between Christmas and the new year, you may wish to consider how you will best demonstrate that your firm and your actions reflect the culture of your organisation.

DB transfers top the agenda

Caroline Bradley, risk and regulatory director at Tenet

Pensions advice, and in particular defined benefit scheme advice, has been firmly under the spotlight in 2018, and we don’t see this changing.

Issues with poor practice, highlighted in particular with regards to advice to British Steel scheme members, led the FCA to publish two policy statements. Central to these were the changes it made to try to improve the quality of pension transfer advice, with the replacement of the transfer value analysis in favour of a requirement to undertake an appropriate pension transfer analysis, including a prescribed transfer value comparator.

It appears, however, that things have not improved enough, based on the latest findings of its multi-firm supervisory work in this area, with fewer than half the 154 transfers reviewed found to be suitable.

Key messages include ensuring advisers understand the regulatory perimeter of triage, which cannot factor in personal circumstances and should provide only information and guidance. The FCA’s position remains that most people should stay in their DB scheme, however, making it difficult to deliver effective triage in an interactive situation.

The regulator is also underlining that in order to make suitable recommendations, advisers need more information than in other scenarios to demonstrate “know your client” understanding.

Advisers must ensure they have explored income and expenditure needs in retirement and have a good understanding of what a client’s retirement will look like to inform the capacity-for-loss assessment. Advisers also need to consider alternative solutions.

The bottom line is that firms active in this market can expect to be involved in the FCA’s work in 2019, with the regulator stating that it will use the information gathered from its supervisory work to start a wide-ranging programme of activity for businesses.

‘Commercial’ advice is no longer a dirty word

Phil Deeks, advisory director at TCC

We are now less than 12 months from the extension of the SMCR. This year, we have seen some firms really turn the corner here and they are, quite rightly, setting their sights firmly and squarely on commerciality. It is refreshing and rewarding to see that some firms have now reached a stage where culture demonstrably drives, and keeps in check, how the business operates.

Rather than seeing culture as a destination in and of itself, it is great to be able to speak to firms about bringing back the commercial focus. For too long commerciality has, with the initial advent of Treating Customers Fairly and latterly conduct risk, felt like a dirty word, with the FCA talking consistently about putting the customer at the heart of all a firm does. A firm that has developed a customer-centric culture can now feel empowered to remove some of the overly robust and over-engineered compliance controls that were necessary before.

We have been working with a couple of firms that are reducing the depth and breadth of quality assurance checks, stepping back from some of the onerous pre-sales checks and taking this cost out of the business by being more commercially focused.

If a firm has a good culture, clear advice proposition and an appropriately segmented target market, supported by robust and objective product governance and delivered in line with customer needs, it can take a commercial focus, as its culture, model and processes are pre-designed to generate good customer outcomes, rather than being left to chance.

In essence, with the right culture, a firm can place the pendulum perfectly in the middle of a customer’s interests and the commercial interests of the firm itself. A Christmas wish for some, but already a practical reality for others.


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