The Financial Advice Market Review has clearly identified that both the Government and the FCA see technology as having a huge role to play in making advice more affordable and accessible. Increasing numbers of adviser firms are recognising this and moving to embrace some form of automated service as part of their offering.
The recently published review of progress in implementing FAMR recommendations shows a positive picture overall. However, there continues to be one area where progress in terms of technology and innovation significantly lags behind the rest of the market: the Financial Ombudsman Service.
To give credit where it is due, the recommendations from the review have been implemented. The FOS has been holding best practice roundtables around the country, both individually and with the FCA. It has also been publishing more data about uphold rates and examples of decisions it has taken.
The difficulty is that FAMR was not bold enough in its prescription for the FOS. The recommendations were 20th century solutions to a 21st century problem.
The speed of innovation in the digital age is such that the traditional regulatory approaches of publishing rules and subsequent policing of them is no longer fit for purpose. Regulatory structures need to be proactive and seek to understand and engage with the emerging digital economy.
The FCA has been rightly lauded for its proactive approach with Project Innovate, the Advice Unit and the regulatory sandbox. These initiatives are frequently identified as key reasons why the UK remains a great place for innovators to build new businesses.
But all of this could be undone if the Ombudsman cannot also evolve. Where are the parallel initiatives from Exchange Tower?
I often hear the inconsistency of traditional advice actually highlighted as a benefit over digital because there is less risk from the Ombudsman. Some firms accept their human advisers will fail to meet regulatory requirements a certain percentage of the time and can provide for that in their reserves.
A digital solution delivering consistent results is seen as a greater risk. If the Ombudsman works to find fault with one case this could potentially create a compensation liability for everything that has been produced. Ironically, consistency here is seen as a systemic risk.
If parts of that argument seem a little absurd, that is because they are. However, the absurdity does not dilute the risk to our financial technology economy.
Even post-Brexit, we will be ideally placed to be the world leader in automated advice based on our rigourous suitability regime and the positive aforementioned steps being taken by the FCA.
This has huge potential to create a vibrant sector that will benefit UK consumers and work as a global export. So serious reform of the FOS is now in the national interest. An Ombudsman that can only look backwards is no longer fit for purpose.
In a 15-page section on risk outlook in the FCA’s document, no fewer than eight pages reference technology and its impact. I cannot find a single mention of the subject in the FOS’ business plan, which speaks volumes about its approach.
I have long believed that, due to its failure to adopt a more supportive and collaborative operational approach, the FOS is the biggest barrier to consumers getting the advice and guidance they need at a price they can afford. It is certainly the largest single factor in constraining automated advice solutions.
In a world where we will soon need export opportunities more than ever, the Ombudsman must start to deliver the level of cooperation now seen regularly from the Treasury and the FCA. It should recognise the need for change and embrace it by following the FCA’s great examples.
Ian McKenna is director of the Finance & Technology Research Centre
He will be joining us at Money Marketing Interactive as a speaker on May 18th.