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Martin Bamford: Our FCA visit and why a better reporting approach is needed

An encounter with the FCA shows why adviser firms, particularly smaller firms, need streamlined approach to regulatory reporting.


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



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. A while ago I attended the ivory tower to “meet the FSA and hear first hand what we think about regulatory reporting.” One of the middle ranking FSA guys there said in words of one syllable, we are not worried about minor inconsistencies, we are only interested in ball park figures. You can imagine this caused some debate as at the time GABRIEL was covered in warnings of summary execution for any error. I suppose they are doing a thematic review to try and get a handle on how their system works – as we all know – it does not, but as the RMAR requires accruals reporting on adviser charge and cash accounting on commission by definition it will always be at odds with financial accounts as the law requires firms to use a consistent approach when reporting to companies house – unlike FCA!

  2. @Martin – Thank you for writing down exactly what i was thinking 🙂

  3. Hey Martin, I was at a BRAW event (Business Risk Awareness Workshop) with lots of others yesterday. It was a good session and the regulator made it clear that they would look at any discrepancies between accounts at Co. House and RMAR figures.

    I would certainly welcome easier and more appropriate regulatory reporting, but frankly this is a very difficult task for the regulator to get right. In essence they look for the obvious – sales and viability. Frankly this is the best place to start isn’t it? It would be good to have something that wasn’t so focussed on sales (after all advice to repay debt, to join an employers scheme etc) are not reflected in the returns. However this sort of stuff would require even more time…but provide a context and flavour of culture, governance…TCF etc

    My main gripe is that surely how we are remunerated (section K) is not such a big deal, but that the client fully understands how and how much. There does surely need to be some acknowledgement that past poor advice has probably been a result of failings in governance, culture and controls and the pressures on a firm (financial, economic, competition and regulatory).

    My understanding is that every firm is to undergo a Stage 2 BRA review either in person, online or over the phone. However anxiety inducing, (I’m sure every firm has things it could improve) this must be a good thing – to help firms become “safer” which strengthens the industry and of course makes each business a better proposition for a potential buyer. The concern is the good cop/bad cop or “headteacher” approach, where the impression given in the past is that heavy sanctions await those that fail a 100% passmark. I am hopeful that a more adult relationship of helpful partner will evolve.

  4. Good piece Martin. I think there are those within the FCA who share your views – let’s just hope their voices (and yours) are heard.

    When I sold my business I had to move from cash accounting to accruals accounting. I have never understood the economics of my business as well since the days when it was cash-based accounting and , at the end of every day, Id log into to internet banking and look at what had gone in, and what had come out. Simples! hey ho….

  5. They are using revenue data in section K to work out if you are Independent or Restricted or both. Why not just ask the question?
    They are also using the revenue data to work out how you are implementing adviser charging – all other things being equal you would see pre-RDR commission income fall and post-RDR AC income increasing – or maybe you wouldn’t because they created a system in which if all your clients were in investment bonds and pensions and you rarely took on new clients there’d be no change at all …
    And they are going to check accounts submitted now (assuming you are a firm that DOES submit accounts to Companies House) because changing the fee tariff measures from individuals to revenue has given firms a huge incentive to under report income to FCA when compared to “true” income.
    Unintended consequences my foot …

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