In the FCA’s Business Plan and risk outlook for 2016/17, there is a small paragraph – somewhat lost among the information and proposals on pensions and the Financial Advice Market Review – about “sustainable regulation”.
In it, the FCA commits to reviewing whether any of its rules are outdated and, if so, to removing or redrafting them. This is in the context of the Enterprise Bill, currently going through Parliament, which may mean the FCA has to have the costs of any changes to its regulation verified by the independent Regulatory Policy Committee.
We are aware of the significant levels of adviser frustration with the complexity of regulation. Of course, regulation is necessary to ensure consumers are protected and weed out those giving poor or misleading advice. That said, there are some rules that provide little additional consumer protection but place a disproportionate burden on advisers. And they keep coming. To name just a few new ones:
- Extra duties placed on advisers in terms of collating information on complaints and providing data contextualisation information for the FCA
- The unnecessary ongoing reporting on individuals providing investment advice (in the context of preventing financial crime)
- Telephone recording under Mifid II
- The new Mifid II requirements on product governance
We have already submitted these examples to the FCA and hope they will be looked at as part of its commitment to reviewing regulation.
Meanwhile, we are just about to release our third annual costs of regulation survey. Every year we ask advisers to tot up the amount they pay for regulation. This includes both direct costs, such as fees for the Financial Ombudsman Service, the Financial Services Compensation Scheme and the Money Advice Service, as well as indirect costs in terms of management time spent on keeping up with regulation, internal and external compliance costs. Last year, we found the average advice firm spends 12 per cent of its revenue on the cost of regulation alone.
I have spoken to some advisers who hope Brexit will lead to a regulatory bonfire. It is certainly the case that when certain issues have been brought up with the FCA it has said its hands are tied by EU directives or similar. Depending on government policy, the FCA may have greater flexibility in the rules it decides to set. However, it is unclear whether it would use this. If the UK financial services sector wants access to the single market, the trade-off is likely going to be accepting market harmonisation rules.
In the meantime, once Article 50 is triggered – and all the prime ministerial candidates have said it will not be done so before the end of the year – the UK has two years to negotiate a deal with the EU. Until then, the EU framework will continue to apply and the obligation to implement new rules deriving from directives such as the IDD, MiFID II and Priips will remain.
There is a great deal of uncertainty in the sector as advisers and their clients try to figure out, and deal with, the fallout post-Brexit. While we will continue to seek further clarification from the FCA, we know nothing quite beats the opportunity to raise the issues you are concerned about directly.
With this in mind, we will be holding two half-day conferences in the autumn as part of our Financial Services Forum series. Speakers will include regulators, policymakers, industry experts and leading adviser figures, and there will be plenty of time for networking and sharing stories with peers. Now is the time for the advice community to shout loudly about the regulations that are not working for them.
Caroline Escott is senior policy adviser at Apfa