Advisers are in danger of consultation fatigue, having seen so many discussion papers, market studies and the like over the last few years. But it seems that, despite the abundance of government and regulatory requests for input on various issues, there is scepticism as to whether feedback from firms and their trade associations actually results in any real change.
Under new chief executive Andrew Bailey, however, the FCA seems to be in genuine listening mode, perhaps in an attempt to fend off increasing Parliamentary scrutiny. This is particularly apparent in its recently published Mission paper.
This paper aims to clarify the reasoning behind the FCA’s work and explain how it chooses the tools it uses to do it. This should help regulated firms and others understand the FCA’s remit and approach, and better hold it to account.
The paper is short and asks some fundamental questions about the role of a financial regulator. Our initial thinking can be summarised as follows:
- There must be clarity about what is expected of consumers. There is room for firms to make it easier for consumers to engage with decision-making but there must be clarification regarding their level of responsibility – for example, that they must read the relevant disclosures and suitability report when it comes to obtaining advice.
- The paper acknowledges regulatory costs feed through to consumer fees. If the FCA is serious about reducing the cost of advice to consumers, it needs to use vehicles like the Financial Advice Market Review and its Sustainable Regulation agenda to reduce the burden placed on advisers.
- The Handbook needs to be pruned. In its current form, its length and complexity deters new entrants and constitutes a significant regulatory cost. And then there are the continual changes, additions and updates. The forthcoming review is welcome but must be undertaken systematically and thoroughly.
- The significant and increasing costs of the Financial Services Compensation Scheme, as well as the high number of complaints to the Financial Ombudsman Service, are an indication that earlier regulatory systems and processes (i.e. authorisation, conduct rules and supervision) are failing. The FCA’s focus should be on getting these earlier steps right and reducing reliance on the complaints and redress system for consumer protection.
- The paper discusses the need to identify appropriate metrics to measure performance. Chief among these must be the FSCS levies and volume of complaints to the FOS as an indication that the conduct rules and supervision system are not working. These statistics should be included alongside data on the number of new entrants and levels of switching between providers.
- Any changes to the Handbook or FCA rules must be communicated to the FOS and it is vital to ensure these changes are understood by the ombudsman at all levels – from management to investigators.
The FCA was set up in a relatively short space of time and such a high level review is both welcome and necessary. Advisers – particularly those who have expressed concern about the fundamentals of the framework – should make sure they take the time to consider this very short paper and respond either directly or through their membership associations. The FCA is listening and the adviser community needs to make sure it is heard.
Caroline Escott is senior policy adviser at Apfa