A few years ago we had a visit from the Financial Services Authority. It was only the second time in our long and relatively happy life as a regulated business that the FSA had come knocking, the first being a thematic review on income drawdown which quickly turned into a technical knowledge contest. No prizes for guessing who won.
Visit number two also had a thematic flavour, but this time looked at the subject of regulatory reporting. Two friendly people from the regulator arrived at our office that morning; an older man and a younger lady.
It was hard not to draw a few parallels to The Rule of Two from Star Wars – there are always two, a master and an apprentice. Perhaps this is more appropriate than making reference to The Exorcist, with an old priest and young priest, although a few heads were left spinning.
Regulatory reporting is one of those things that we all do and probably all question why we do it. Some of the questions asked are entirely reasonable and make sense from a regulatory perspective. Others cause the mind to boggle.
A better approach to regulatory reporting for smaller firms, say with turnover under £5m, would be to send in a copy of the audited annual accounts each year along with the PI insurance certificate and statements of professional standing for each approved person, perhaps a copy of the complaints and high risk business registers.
A small team at the FCA could sift through each of these, identify those firms which posed the greatest risk to consumers and the wider sector, and ask some additional questions. They might even send a Sith master and apprentice along for a half day visit, just for fun.
Our own experience of a thematic review on regulatory reporting mostly consisted of questions about inconsistencies between the accounts we submitted to Companies House and the figures we submitted in the retail mediation activities return. The numbers were slightly different and we had a good explanation for this. Or so we thought.
As a small business, we use cash accounting for our in-house bookkeeping, and then employ a chartered accountant to take these figures and turn them into ‘proper’ accounts for Companies House and HMRC. Based on my simple understanding of accounting (I failed this module at least once during my business degree), this turns it from ‘cash’ to ‘accruals’ accounting. Different deadlines for different reporting requirements invariably means adjustments are made to these figures.
The switch from the FSA to the FCA in April resulted in some commentators quoting lines by The Who; what is starting to transpire in practice is a more pragmatic and considerate regulator. Its latest missive on regulatory reporting admits a failure to provide sufficient support and that it is open to allowing reporting on a cash basis for relevant firms.
We should applaud the role of trade bodies, particularly Apfa and IFA Centre, in pushing the FCA for this. I spent a day earlier this year completing the new RMAR Section K for the first time and it was not a walk in the park, despite the help and guidance notes available from the regulator and our compliance consultants. Anything which is open to interpretation is complicated, particularly for this failed student of accountancy.
Hopefully the next time the FCA comes a calling to have a cosy chat about regulatory reporting, we will be working with a system which fits the reality of small business accounting, with joined up thinking between Canary Wharf, Cardiff and Whitehall.
Less times spent on regulatory reporting means more time spent on ensuring an excellent client outcome, maybe even working towards filling that pesky advice gap.
Martin Bamford is managing director of Informed Choice