The Spring Budget arrived with more of a whimper than a bang. Beyond the National Insurance hike (which was swiftly U-turned on just one week later) there were few significant developments. It seems the Treasury is keeping things on a steady footing until we are closer to Brexit.
The world of regulation, however, has got off to a much more rousing start. With lots going on at the FCA during the first few months of the year, it is on a much more positive and practical trajectory than previously.
Clearly, the urgent reform of the Financial Services Compensation Scheme funding is of high priority to every adviser firm. However, equally important is reducing its overall liabilities. This is why I have been keeping a close eye on the Senior Managers Regime and its extension to all advice firms.
Holding the bad guys to account
The regime means those managing key aspects of an advice business will be personally liable for bad behaviour. This is going to have major implications for all advisers but none more so than the careless, reckless and criminal.
When these regulations were first introduced last year, they were targeted at banks in response to the abysmal way they had behaved with things like payment protection insurance and price fixing and in the run-up to the credit crisis. The bad behaviour was acknowledged by the banks and the damage to consumers self-evident.
However, it was virtually impossible for the regulator to identify individuals as personally liable for the failings. This meant that, although the banks were fined massive amounts, the management – the real culprits – got away pretty much scot-free.
The Senior Managers Regime rectifies this by ensuring every significant task and process within a financial services business will have to have a named person directly responsible for it. No longer will it be possible to keep passing the buck on to others.
This will be a real plus for the advice sector, as the vast majority of conscientious and honest firms are, quite rightly, utterly fed up with paying ever-increasing FSCS fees and seeing the reputation of advice tarnished. Thankfully, the firms capable of such tarnishing are a tiny minority, but the reputational and financial damage they cause to the rest of the sector is huge.
Whether these individuals are careless when arranging pension transfers, reckless when dealing with SSASs or criminally running scams, their time is running out. What is more, no longer will they be able to walk away from their responsibilities, free to “phoenix” and simply re-emerge under a new guise.
“The SMR is going to have major implications for all advisers but none more so than the careless, reckless and criminal.”
A financial services firm is not an abstract collection of desks, computers and faceless individuals but the sum of its parts. It is the people within the firm that decide its actions, risks and direction.
So while we hope the current consultation on the FSCS levy will dramatically reduce the proportion of costs falling on the sector, the Senior Managers Regime will undoubtedly help this further. Making named individuals responsible for their actions will result in much less irresponsible and reckless activity from badly behaved advisers.
Both reputationally and financially, the new rules will significantly benefit the responsible and caring advisers that strive to serve their clients with professionalism and integrity.
Ken Davy is chairman of The SimplyBiz Group