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Support dysfunction

Instructing the wrong compliance support provider can create more problems than it solves

Nick Kelly Sesame 200

Nick Kelly, managing director, Sesame Bankhall Group

Most people would never contemplate using a gas engineer not registered on the Gas Safe Register as the consequences could be disastrous, so is it not time for financial advisers to obtain the same assurances when using compliance support services providers?

With the seismic shift in regulation next year, it is impractical for busy adviser firms to keep tabs on everything the FSA is doing. That is why most directly regulated firms seek guidance from a compliance support services provider, which can alleviate the pressure by helping firms understand emerging risks and teaching them how to manage them confidently.

Over the past few years we have seen more firms and ­individuals entering the ­compliance consultancy support services arena, offering guidance to regulated firms.

The FSA does not require compliance consultancy firms to be authorised, although it provides useful guidance in its fact sheet ‘Using a Compliance Consultant’ to remind firms what they should consider when using consultants.

It is essential firms undertake meaningful due ­diligence in their selection process. The FSA expects to see such due diligence held on file, along with an assessment of the business risks associated with such an appointment. These include not only the reputational risk, but also the commercial and advice risks to an adviser firm.

Regulated firms are required to have professional indemnity (PI) insurance in place to compensate clients for unsuitable advice. If it transpires that an adviser has been advised incorrectly by a compliance consultant, would they expect to obtain compensation from them? Do advisers even know if their compliance ­consultants have PI?

We have seen examples where firms have been advised by compliance consultants, only for this to result in enforcement action by the FSA. This includes s166 reports as well as past business reviews, creating a huge distraction for advisers and principals, and in some cases leading to redress payments being made to customers.

We applaud the work of the Association of Professional Compliance Consultants and the requirement for firms that join it to comply with its code of ethics. We also recognise and welcome the APCC’s working relationship with the FSA and the fact that it is a recognised trade body.

Some commentators have questioned whether compliance consultants should be regulated and held accountable for the advice provided to firms, along with a requirement to hold relevant industry qualifications.

There are currently only a few professional compliance consultancies that are authorised by the FSA. These firms are demonstrating their commitment towards the same ­regulatory standards as the firms they advise. It can be viewed as a badge of excellence, demonstrating a level of professionalism and commitment not only in understanding the FSA rules but also implementing and meeting them within daily business activities.

Bankhall’s compliance teams have training and competency schemes in place. Team members hold industry qualifications, many to higher than Level 4 standard. We continuously undertake quality assessment on the services we deliver in order to maintain standards and identify areas where we can improve those services.

Firms offering support and guidance should be required to meet certain minimum standards. After all, financial advisers and their firms have to adhere to relevant FSA requirements, so why shouldn’t those they are taking advice from?

Although it is the IFA that is responsible for meeting these requirements, why should a compliance consultant not be expected to demonstrate initial and ongoing competency; awareness of regulatory changes and rules; to have ­completed the relevant industry qualifications; and demonstrate ongoing development?

The reality is that working with professional compliance consultants helps to manage and mitigate risk, avoiding the potential for out-of-date practices to turn into consumer detriment, compensation claims or regulator sanction.

Just as importantly, choosing the right partner and having robust systems and controls in place will also enable advisers to realise the full embedded value of their business when the time comes to sell or retire from the profession.

Choosing a compliance consultant

  • Regulatory credibility: Can the consultancy demonstrate strong governance in its business? What is the size and depth of its regulatory, technical and research teams?
  • Expertise: What level of qualifications and practical guidance do the consultants have? What ongoing development takes place to ensure they are up to date with regulatory and product changes?
  • Experience: How sure are you that they will be able to deliver the service required and the benefits they have promised? Do they employ their team? Do they have a structure and leadership team with a strong industry track record?
  • Commercial leverage: Can the service provider help advisers increase revenue and embed value? Can it negotiate preferential and exclusive deals for the advisory firm across a whole range of product areas?
  • Partnership: Does it understand the ­regulatory challenges advisers face, while staying mindful of the commercial realities of running a business and the need for an entrepreneurial outlook?


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