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Carl Wallis: Why advisers should be thankful for the FCA

Troubles in Australia just go to show how far the relationship has come between UK firms and their regulator

It is always interesting to compare our experience in the UK financial services market with those overseas, which is why I have been following developments in Australia’s Financial Services Royal Commission with interest.

The commission, the highest form of public inquiry in Australia, came about due to revelations of extreme levels of misconduct in the sector.

Two elements of this inquiry catch the attention. Firstly, some of the misconduct serves as an uncomfortable reminder of the UK’s experiences in the not-too-distant past. For example, the $500bn (£283bn) worth of so-called “liar loans” identified by the commission (where mortgages were obtained using false, misleading or inaccurate information about the borrower) echoed our issues in the 2000s with self-cert and sub-prime lending.

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Other misconduct related to inappropriate advice on transferring pension schemes, pension unlocking and charging of ongoing advice fees for customers where no such service was being delivered.

The second element is that regulation of the financial system in Australia is strikingly similar to that of the UK, with a “twin peaks” model that sees two bodies focus on prudential and conduct matters.

The rules applying to advisers in both countries are also very alike. For example, the Australian version of the RDR introduced similar impositions as the UK version.

Client best-interest rules, conflict of interest and TCF obligations all feature under both regimes, as do similar disclosure and suitability obligations. The key difference between the current state of play in the two countries is regulatory approach and the regulator’s willingness to act.

Australia’s conduct regulator, the Australian Securities and Investments Commission, already held serious concerns about standards of advice before the commission began.

In one investment advice market study, it found 75 per cent of advice to be inappropriate and not in the customer’s best interests, yet it failed to take any meaningful deterrent action. Asic has been criticised by the commission for failing to take action against banks and other large financial institutions. When it did, fines were low and public censure minimal.

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In the UK, following the financial crisis, the FCA’s predecessor came under fire for allowing an environment of poor conduct to permeate. This probably goes a long way towards explaining some of the rhetoric surrounding the inception of the FCA, such as former chief executive Martin Wheatley’s “shoot first, ask questions later” quote.

While this thankfully never quite materialised, it is unquestionable the conduct bar has been raised.

The most obvious advantage is to the consumer, but less is made of the benefits high standards bring about between firms and their regulators. If a regulator is more confident about the standards demonstrated by the firms it regulates, it is much more likely to listen to their needs and more readily consider the impact regulatory changes may have. I believe we have a regulator that is prepared to listen and is more willing to take the advice sector’s views into account.

Opinions on this will undoubtedly vary but we only need to look at the different directions the regulator has recently taken on, for example, changes to the Financial Services Compensation Scheme (in terms of charging protection firms for pension misselling) and the removal of the Financial Services Register. In both cases, the FCA’s original intentions were challenged by advisers and it amended its stance.

Also, its focus on competition in the mortgage, investment and insurance sectors may be indicative of it feeling that consumer protection and standards are now where they should be following widescale reviews in these areas.

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It would be almost impossible for Asic to pursue a similar agenda at the moment, given its conduct environment. This is not to suggest UK advisers will always get the outcomes they want from FCA regulatory change, but they can at least be confident their views will be listened to and taken into account.

Nor have we achieved some sort of conduct panacea where things will not occasionally go wrong. There are always likely to be areas of concern and, where things do go wrong, the regulator will act.

But, importantly, the overall standard of conduct within the UK advice industry is giving the sector a better platform upon which to liaise with the FCA and to promote market integrity to consumers.

Carl Wallis is head of group compliance policy & technical at Bankhall



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Of course there are always likely to be areas of concern, but the huge problem here in the UK is that so often, when things do go wrong, despite constantly gathering tons of data and warnings of impending disaster having been drawn to its attention from various sources (a classic example being Connaught), the FCA is found to have failed to take action to prevent them. And that’s not just me having a pop at the FCA, it’s what MP’s are saying and have been saying for years. Yet, in response to these accusations, all the FCA ever seems to say is that lessons have been learned and we’ll try to better going forward but, in practice, nothing actually seems to change.

  2. Nicholas Pleasure 28th November 2018 at 12:19 pm

    On the same email there is a story about a £69m FSCS due to DB Transfers and unregulated SIPP investments, both of which could be seen coming for some time. The FCA is slowly waking up on DB transfers but seems asleep on SIPPs again.

    Not too much to be grateful for here I think.

    • I agree with you, we have been saying as an industry, don’t put us on the same train track as those doing DB transfer and SIPP “advice” (I use the word losley)becuase we are not the vehicles on the track and yet we are getting caught up in the crash/wreckage as the driver is jumping off often before while teh guard (FCA) is too bust looking at us waiving at them and telling them “nothing to see here, but I’d just like to come over and make sure you’ve done all the buttons up on your jacket so you don’t get cold”… forgetting that when we then crash in to the wreckage you they took their eyes off, we’re all going to be a lot colder (dead) and it doesn’t matter then whether our buttons were done up or not (PROD)

  3. I wish we had an FCA for which we could be thankful.

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