When conduct replaced the word services in the name of our chief regulator just over a year ago, many expected that, in the words of Pete Townsend, it would be a case of “meet the new boss, same as the old boss”.
It quickly became apparent that this was not the case. Although the vast majority of staff had transferred across from the old organisation to the new, the senior management were driving a very different and far more positive culture. The FCA is far less a respecter of the status quo, as can be seen by its actions in areas like the legacy product review.
Just how far the organisation has come in such a short time can be seen by last week’s announcement of Project Innovate. FCA chief Martin Wheatley says: “Innovative firms, particularly smaller start-ups, will be offered the chance to work with the FCA while they develop new technologies and approaches to ensure they are compliant with regulations from the moment they go live”.
Have we ever seen such an offer of proactive engagement from any regulator in the UK at any point in the 25-plus years of financial regulation?
Who could have imagined an organisation run by “head in the sand” Hector Sants coming up with such an empowering initiative? It has the potential not only to help drive practical and pragmatic regulation but also provide strong support for start-up businesses that can serve UK consumers and put Britain in a strong position to be a leading exporter in the rapidly emerging global market for financial advice technology.
Our financial advice regulation is the toughest anywhere in the world. This is recognised by regulators in many other countries which are watching the RDR and wider developments in the UK advice market closely when planning the evolution of their own equivalent rules.
If a business can supply technology that can meet UK advice regulation standards, they should be in a very strong position to supply advice businesses anywhere in the world. That the FCA is prepared to work with such firms to help guide them must be recognised as a positive benefit for both UK consumers and the whole economy. I cannot imagine myself being able to write such words about anything the FSA did which is a clear indication of how far the FCA has come in such a short time.
Project Innovate is not all about digital financial advice – the FCA statement makes clear the remit will include a wide range of other services such as payments, money transfer, mobile banking and digital security. But Wheatley and others have repeatedly made it clear that they see digital advice as a major part of the solution to the post-RDR advice gap.
Creating affordable digital advice is an enormous opportunity, especially for small entrepreneurial advisers who understand the market. As I outlined two weeks ago, most of the first generation of digital advice start-ups in the UK are quickly being snapped up by organisations with deep pockets. This is creating a gap for more entrants and Project Innovate presents a further compelling reason for building such solutions.
While this unprecedented level of regulatory support for innovation is very welcome, enthusiasm must be tinged with an element of reality in that whatever the FCA comes up with, without significant reform of the Financial Ombudsman Service, the full benefits of such activity can never become a reality.
I outlined my rationale for this view on these pages on 10 March under the heading, FOS is standing in the way of digital advice take-up.
So far there appears no progress on this crucial reform, yet the benefits of digital advice are potentially so large for consumers, UK exports and, most of all, the Treasury that the FOS must not be allowed to derail an initiative that can bring so many benefits.
Assuming the FCA walks the walk rather than just talking the talk, this work can become the hallmark of regulatory innovation and it deserves widespread support.
Ian McKenna is director of the Finance & Technology Research Centre