Tag Archives: FAMR

FCA business plan 2018/19

FCA: Business Plan 2018/19

If you read nothing else that the FCA publishes, one document is worth reading – and it’s the FCA Business Plan for 2018/19. Anyone who is involved in running a business – as a senior manager or as a supervisor – needs to identify the future risks the firm might face and create a culture where the interests of clients are foremost in the thoughts of staff. The FCA Business Plan 2018/19  provides a useful insight on what you need to focus on.

Click here to download the FCA Business Plan 2018/19

What’s on the FCA radar?

It’s perhaps worth just asking yourself why you think that the FCA goes to the effort of publishing its business plan every year? There is a simple answer. If you are aware of what the FCA sees as a major concern, you’ll do something about it within your own firm before the FCA potentially forces you to. It is designed to gives you an insight into what the FCA will be looking at so there shouldn’t be any surprises.

At a high level, there’s a sense of veja vu with the FCA Business Plan 2018/18. There have been two recurring themes that have run through the last two FCA Business Plans.  These are ‘culture’ and ‘value for money’.  They are pretty prominent again in this year’s Business Plan so clearly, there is no intention that these will go away anytime soon.

The FCA ‘cross-sector priorities’

Some of the FCA priorities potentially apply to all of the 58,000 or so regulated firms. These cross-sector priorities include:

  • Firms’ culture and governance, e.g. the role-out of SM&CR to a wider audience and remuneration arrangements. To quote the FCA: ‘We do not attempt to measure or assess culture; instead we seek to form judgements as to whether the drivers of behaviour we are interested in as a regulator are driving appropriate behaviours that are unlikely to cause harm’.
  • Financial crime, e.g. AML, raising awareness of frauds and scams.
  • Data security, resilience and outsourcing, e.g. cyber attack, due diligence on out-sourcing arrangements.
  • Technological resilience and innovation, e.g. how well is new technology improving competition and benefiting clients?
  • Treatment of existing customers, i.e don’t treat them as second class citizens and don’t use them to cross-subsidise acquiring new clients

Part of the FCA’s approach to culture and governance involves identifying and managing conduct risk.  What proactive steps do you take as a firm to identify the conduct risks inherent within your business?  Click here for further details of suggested approaches to answer this using five key questions. The FCA content refers to the banks but elements will apply to most firms and it provides lot’s of ideas about the actions you can take to manage conduct risk.

There are also other areas that apply to a particular sector. They are also issues which the FCA sees as being deep seated, i.e. they aren’t going away anytime soon. There are six of these:

Sector specific risks

The FCA Business Plan 2018/19 identifies seven sectors. Three of these will be of most interest to most people reading this – pensions and retirement income, investment management and retail investment management.

Pensions and retirement income

Key issues highlighted by the FCA that impact on adviser firms include:

  • Reducing costs (advice and product charges) to offset potential future reductions in investment returns. To quote the FCA, they want firms that ‘offer products and services that are better value for money for consumers, and actively and honestly compete to keep them’.
  • Concerns about people taking drawdown without advice. Some will not want to pay for advice but others would if they felt more able to access it/trusted it more/understood the costs and benefits more clearly.
  • The complexity of pensions makes it hard for consumers to understand. How can the information we provide as a profession enable clients to make better informed decisions?

The FCA’s Retirement Outcomes Review provides some interesting data on the pensions market.  Click here for further details.

Investment management (institutional investors and DFM)

Key issues highlighted by the FCA that impact on adviser firms include:

  • Firms are able to demonstrate that they act in the customers’ interests at all times. This includes transparency of charges (such as all-in fees), and increasing understanding by reducing complexity.
  • It also includes value for money. The FCA questions whether there is sufficient competition and whether firms are able to demonstrate ‘added value’. This may involve firms looking at their advice models – and potentially moving them away from achieving returns of x% above benchmark and more towards providing a broader scope of advice that more clearly demonstrates value for money.
  • The ‘hunt for yield’ may drive dysfunctional behaviours.
  • Weak governance may lead to poor product design, weak oversight of portfolios and poorly managed conflict of interests.

Retail investment management

Key issues highlighted by the FCA that impact on adviser firms include:

  • The Financial Advice Market Review (FAMR), e.g. automated advice and streamlined advice.
  • Clients who enter into high-risk and complex investments, e.g. strengthening authorisations.
  • The impact of platforms on prices and competition.

The FCA’s Financial Advice Market Review (FAMR) provides some interesting information about how the current regulatory environment could be simplified.  Click here for further details.

Read our blog on SM&CR. who it applies to and what to do to prepare for it, click here.

To quote the FCA: ‘…we have prioritised areas where we consider both that the risks of harm to consumers, market integrity or competition are greatest and where we assess our intervention will have the most impact’.

With best wishes

Ian Patterson