Advice firms and the wider profession have called on the FCA to provide more insight into what it does with regulatory returns as questions are raised about whether the data is an effective part of the supervision process.
The FCA’s reporting system Gabriel, which stands for “gathering better regulatory information electronically,” is intended to do just that: act as a central hub of data for the FCA to churn through and flag up potential issues on the horizon.
With input ranging from profit and loss data to capital adequacy, professional indemnity insurance and qualifications, the regulator has a potential goldmine of information to draw on. But how much is too much data, and is the system set up to get the best possible overview of the
Most of the time the retail mediation activities return – the part of Gabriel filled out by advisers – flies under the radar. Most advisers will only have to enter their business data twice a year, though capital adequacy directive-exempt and Mifid firms do theirs quarterly.
Each of the 55,000 firms the FCA oversees has to submit data. Firms that do not file on time are fined an administrative fee of £250 or can find themselves subject to enforcement action. In January the FCA cancelled the permissions of advice firm Nineveh Advisory for failing to submit its regulatory returns.
Last month a widespread IT outage at the FCA shut down the reporting system for several hours after a “physical incident” at a Fujitsu datacentre.
Gabriel will be offline again this weekend, this time for scheduled maintenance, but the system has been hit by technical problems before. It suffered slowdowns and performance problems last January amid high traffic volumes, and failed to send out its regular reminder to advisers about their deadlines last November.
Last week a mortgage broker who had his permissions cancelled because he allegedly misled the FCA over his capital adequacy in his regulatory returns took his case to the Upper Tribunal. This case hits on a significant – and mostly unavoidable – weakness in the Gabriel system: the bulk of what it collects is self-reported data.
“The consensus is the data is not used in any meaningful way by the FCA, which frustrates advisers given the time and effort of completion”
Jumping to action
Advisers and regulatory experts say it is not clear to them exactly how and why the FCA chooses to act on the information it receives. The need for good data to police the market is self-evident, but at what point does a set of numbers turn into a red flag for the FCA?
The FCA has declined to comment on how it uses regulatory returns.
Personal Finance Society chief executive Keith Richards says: “The general consensus is the data is not used in any meaningful way by the FCA, which frustrates many advisers given the time and effort involved in the completion.
“That is not to say that many advisers do not see some tangible benefit in collecting and reviewing key performance indicators as part of their own awareness and governance, which has value in its own right. But they would equally like to see greater transparency of the purpose and whether there are better ways to achieve the true objective.
“The regulator should be well placed to review the data provided, create benchmark metrics and feed back good practice to help firms evolve where appropriate.
“Being forced to collate key performance indicators every six months does have some benefits but it is time that the regulator addressed the concerns expressed by the advice profession regarding purpose.”
Threesixty compliance director Russell Facer agrees. He says: “I would encourage the regulator to provide a bit more feedback on what it does with this data. They need to have it, but feedback should be more on that information and what they’ve learned.”
Getting to grips with Gabriel
What is it and why does it exist?
“Gathering better regulatory information electronically”, or Gabriel, is the online system for collecting and storing regulatory data from financial services firms. Its purpose is to enable the FCA to ensure firms meet various threshold conditions and can get a wider view of the market.
What is in it?
There are 10 sections in the retail mediation activities return, including profit and loss data, data that allows regulatory fees to be calculated, core business lines, and training and competence of staff.
There are also questions about the FCA’s ability to aggregate the data it receives.
In the Gabriel section on professional indemnity insurance, advice firms are required to list their provider, the length of their policy, how much they are paying for it and what exemption applies. A recent Freedom of Information Act asked for an overview of the market drawn from these submissions. But because firms’ reporting dates differ the FCA said it could not provide an accurate snapshot.
The regulator was however able to provide aggregate data on adviser complaints from Gabriel inputs.
Whether or not the FCA has the right processes in place to act on the data it receives, it is in the interests of both the regulator and advisers to make sure the right data – and the right amount of it – is collected.
For some advisers the process of completing their regulatory returns can be time consuming and costly.
First Wealth partner Claire Phillips is glad that network Best Practice’s back office system automates Gabriel entries at the firm.
Phillips says: “It’s a pain to do it but it’s life. If that’s what the FCA wants, it’s what the FCA gets. It’s like your tax returns; you don’t like doing it because it’s going to cost you money but it’s a necessary evil and you get on with it.
“The problem is when advisers haven’t fully embraced technology. If you partly embrace it but your back office doesn’t get it in the right format, that would be a pain as well.”
She adds the problems of not having a back office system that links well with regulatory reporting can escalate as the firm grows.
Phillips says: “It’s more of an issue if you are a bigger firm, trying to keep track of what everyone has done must be a nightmare.”
In terms of volume, the amount of data the FCA and firms will need to track down is only likely to increase in the coming years. Mifid II rules, which include new product appropriateness and call recording requirements, certainly will not make matters easier for the regulator, which is spending £45m on getting its reporting systems ready for the new legislation.
The regulator still requests other data from some firms outside the Gabriel return, to be submitted in a paper form, which will have to be worked in. This includes some product sales data and details of authorised entities within a firm’s group of businesses.
Yet despite all the objections there is an argument that the FCA is still not collecting enough information on firms’ activity.
Facer points out that phoenixing, where advisers deliberately fold a firm to avoid paying future redress liabilities, will not be easily discovered through the current regulatory reporting process, making other forms of supervisory activity necessary.
He says: “Phoenixing is not something you can really do a return on. The most effective thing on that is the FCA register data, but by asking you to fill in additional boxes, what’s that going to tell you as a regulator? What they don’t have necessarily is who is active in certain parts of the market, like non-standard investments, the typical areas picked up by the Financial Services Compensation Scheme.
“Something like defined benefit transfer activity, understanding the level and actual quality of that work, won’t come through in Gabriel returns, it is more likely to be a thematic review.”
Managing the data mountain
The FCA’s data strategy, which was set out in 2013, aims for a streamlined approach but also one that collaborates with the industry.
In an update on the programme posted this year, FCA head of data and analysis Jo Hill says one of the main pillars of its data strategy is “to focus on engagement with firms and suppliers of data to ensure we are listening to their needs and weren’t being over burdensome in requests we ask of them.”
The regulator has also set up an information governance committee, subordinate to its executive committee, that is charged with keeping watch on how the FCA fulfils its data strategy.
The plus side of a system such as Gabriel in general is that making firms collect management information will force some to tighten up their own systems and take a harder look at the numbers behind the business.
Kingmakers consultancy founder Rob Stevenson says: “A lot of the firms I have to deal with in the M&A space still have flaws, but they are better than 10 years ago. The general responsibility to get it right has had a positive impact. The management information has come a long way – it’s still got a long way to go, but it’s definitely had a positive effect.”
Data collected needs overhaul
Regular regulatory reporting plays an important role for the FCA in building up a picture of a firm’s business model, financial position and adherence to threshold requirements. It therefore acts as a method by which firms can positively affirm that they are adhering to minimum requirements.
Reporting periods are frequent enough, particularly for capital adequacy directive-exempt firms that have to report quarterly instead of six monthly. But the data being collected should be overhauled, given that in some areas it is fairly detailed – for example, the profit and loss and balance sheet – yet in others it does not provide for a meaningful understanding of the firm.
Despite all the data that is being gathered, it does not tell the FCA whether a firm is active in higher-risk areas, nor does it provide data on fees and levies for CAD-exempt firms, meaning a manual return has to be completed in addition to Gabriel returns. The requirement on CAD-exempt firms to submit their annual report and accounts within four months of the financial year end is at odds with Companies House requirements and therefore puts unnecessary pressure on firms to have their accounts prepared in time.
If the Financial Services Compensation Scheme funding model review is going to seriously consider a risk-based approach, Gabriel is likely to be the vehicle by which that data is gathered and therefore an overhaul will have to be prioritised.
Without doubt, there is duplication of data and in some instances antiquated methods of collecting data for different divisions. For example, the quarterly professional standards data returns should be captured through Gabriel. The requirement for a manual return must be creating many challenges for the FCA and I question what is then happening with the data given that is readily available on the FCA register and from the professional bodies.
My understanding is the data is measured against acceptable parameters and where those parameters are not met, a query is triggered if it is deemed necessary, such as a late professional indemnity renewal, an incorrect capital adequacy calculation or if financials have not been reported on a cumulative basis throughout the year.
There is a much wider, macro use for the data which is building up a profile of each firm that is then potentially used for other supervisory work.
Julie Hepworth is group regulatory director at Perspective