Tag Archives: FCA

FCA T&C supervisor

FCA T&C Supervisor: what you need to know

This article answers the five key questions we get asked about being a FCA T&C supervisor.

Rules on Training and Competence (T&C) have been around since 1993 – over 25 years ago – so there isn’t anything particularly new about T&C. That said, there are still plenty of myths and misunderstandings about what it is, and why is it important.

Before I start, let me just share with you something I was told many years ago by a regulator. They said: “T&C is only as good as it’s supervisors”. To this day, nothing could be more true.

1. Who needs to be FCA T&C supervisor?

First of all, let’s accept that the term ‘supervisor’ is widely used everywhere as a generic description for a people manager. Under the FCA T&C rules, however, this is a specific regulatory expression which has specific FCA rules that need to be met (see the next section).

In simple terms, anyone who provides advice needs to be supervised. So a retail investment adviser, mortgage adviser or general insurance adviser (e.g. those that advise on protection policies) must have a supervisor under FCA T&C rules. If you don’t supervise these three roles (or some specific back-office roles that you’ll usually only fine in a product provider or fund manager), then you aren’t a ‘supervisor’ under FCA T&C rules. Simple.

But what about anyone who ‘manages’ para-planners? They are not a T&C supervisor but under the Senior Managers and Certification Regime (SM&CR), anyone performing a ‘significant harm function’ does need to be supervised. If your business defines a para-planner as a ‘significant harm function’, then they must have a supervisor. Similarly for MiFID firms, roles like para-planners will be classed as ‘information givers’.  They also need to be appropriately supervised unless classified as competent.

As a result, the population that needs to be ‘supervised’ under various FCA requirements is a lot bigger than just those that are subject to T&C. Many firms will also use the FCA T&C supervisor rules (see next section) as best practice for people who supervise these other roles, even if they don’t strictly need to.

Competence v compliance. Read more about why competence is now a firm-wide issue.

2. What are the FCA rules that apply to FCA T&C supervisors?

Under FCA rule 2.1.4, there are four things that a T&C supervisor must be able to do and be able to prove:

  1. Coaching skills. This isn’t defined anywhere so this could also include feedback skills. Click here for more information of what this might look like.
  2. Assessment skills. The ‘C’ in T&C stands for ‘Competence’ so this rule expects the supervisor to assess (or contribute to the assessment) of an individual’s competence.
  3. [Relevant] Technical knowledge. It’s difficult to assess what someone is saying is correct if you know nothing about the subject. As a result, supervisors are expected to have technical knowledge so they can identify inaccurate or misleading information.
  4. Level 4 Qualification. This is required where ‘trainees’ are being supervised. If the supervisor has a team of competent advisers, then this isn’t required under T&C rules, but is obviously desirable in many cases.

3. How do you prove a T&C supervisor is competent?

Most people will have heard the expression ‘if it isn’t written down, it didn’t happen’. So how do you prove that a T&C supervisor is competent?

Firstly, you need to know that the FCA rarely accepts the principle of ‘grandfathering’. If you are relying solely on 25 years of experience as a manager as your evidence that you are a competent T&C supervisor, then think again. Have you worked for a wide range of businesses in a leadership role? Nah, that won’t cut mustard either. You might have great skills and experience, but these in isolation can’t prove you are competent T&C supervisor.

So what do you have to do? I’ll look at this from two perspectives:

  1. On appointment as a FCA T&C supervisor. I’ve already looked at what the FCA rules require you to demonstrate. The difficulty for most is demonstrating the two skills – assessing and coaching. These could be evidenced in the workplace or by attending our in-house workshop – which is designed to do just that. It should be possible to evidence relevant technical knowledge easily enough using CPD and a level 4 qualification will be straightforward in that you either have it, or you don’t.
  2. Ongoing competence. If the FCA have gone to the effort of identifying two specific skills they expect supervisors to demonstrate before they supervise, sensibly the process would be repeated every 2-3 years to make sure these are still current. In my experience, however, rarely does this happen. There should be documentary evidence of the supervisors activities , e.g. observation aids, development plans etc and this helps to demonstrate their competence. In addition, CPD should include evidence of ongoing supervisory development. Some people will also take the CII’s J07 exam for supervisors. In short, a range of sensible CPD activities that relate to supervision should do the trick, along with a periodic re-assessment of skills.

4. What should T&C supervision look like?

Supervision is likely to include a blend of different measures which include:

  • observations in the workplace
  • monitoring indirect evidence such as KPIs (key performance indicators)
  • file reviews
  • 1-2-1 meetings
  • agreeing CPD and activities which support and help develop staff

Click here for more details.

5. Does everyone need to be supervised the same way?

The short answer is ‘no’. In fact, it would be strange if they were. Different people need different levels of supervision. New advisers, or people who are inexperienced in a particular area, will need more support than more experienced colleagues who are familiar with their roles.

So an experienced adviser may only need supervising at a high level. For example, one client observation a year, quarterly reviews of KPIs, a 10% sample of standard advice files, and perhaps quarterly 1-2-1’s.

Effective T&C supervision, like any effective people management, is about following a process and treating everyone differently based upon their needs. Ask yourself ‘how can I most add value?’ and you shouldn’t go to far wrong.

Click here for more detail on T&C best practice.

I hope this provides some useful insights.

Ian Patterson (Author of the CII’s J07 study text, Supervision in a Regulated Environment)

For details of our in-house supervisor training, email me at info@pstgroup.co.uk

T&C supervision

T&C supervision: giving feedback

T&C supervision requires effective people skills. If you were passing your manager’s office and they said “do you have a moment, I’ve got some feedback for you”, how would you feel?  Not great eh?  That’s probably because people’s experience of feedback is so poor. In many ways it should be a straightforward skill, but clearly from the workshops I’ve run over 25 years, effective feedback is not that common in the workplace. 

This point is reinforced by a survey by the pollsters Gallup. The figures suggest that only 8% of British full-time workers consider themselves to be  ‘engaged at work’. An alarming 73% are classed as ‘not engaged’ and 19% are classed as ‘actively disengaged’.

So this got me thinking. What would Pep Guardiola do in this situation? As he’s probably the best football coach in the world, I’d like to think that he has fantastic people-management skills. When providing T&C supervision, let me try and think like Pep would and explore what these might look like.

Feedback: have a process

Most of you will have heard of the ‘feedback sandwich’ or ‘kiss-kick-kiss’ approaches to providing feedback. They are well-known and some aspects – such as providing a balance of good stuff and bad stuff – should feature within effective feedback. That said, surely there must be a better way of providing feedback than these.

Feedback can be made more effective if a structure is followed.  This can be abridged for simple and straightforward feedback especially where the relationship between the parties is strong.

But if the feedback could be sensitive or the relationship isn’t strong, then here are the four main stages of providing feedback that I’d like to think that Pep would recommend. It could be used in any people-management scenario but for the examples, I’ll work on a typical area for T&C supervision when a supervisor provides feedback to an adviser following an observed client meeting.

A four step approach

  • Step 1 – Confirm the purpose of feedback.  At the start of the feedback session, it would be sensible to just check that both people understand the purpose of the meeting and what is expected from each party. Set the expectation that the meeting will last no more than 5 -10 minutes.

Tip: Ask the adviser what they would like to get from the meeting (or what their agenda is). This encourages them to contribute to the agenda and increases their buy-in. Give it a try, you’ll be surprised just how shocked they are when asked!

  • Step 2 – Encourage the individual to self-assess.  This enables the supervisor to establish not only the adviser’s recollection of events, but also perhaps some understanding behind the reasons for it.  Self-assessment also gives the supervisor something to build their own feedback on, especially if the adviser recognises some negative points.  It is always preferable to build on negative points that have been raised by the individual and to then focus on possible solutions.
Multiple realities
People can see the same thing and draw very different conclusions. For example, have you ever left a meeting where some attendees thought it was very useful whilst others thought it was a waste of time?! 

In other words, don’t just assume that because you saw something, the other person will see it the same way. By asking the individual to self-appraise prior to providing your own observations, you can establish how the other person saw it first.

Tip: Get the adviser talking first. Ask questions like: “what do you think were your three strengths?” and “if you were to do it again, what would you do differently?”. Don’t be afraid to ask follow–up questions to probe. Remember, this is their time to talk – so listen.

  • Step 3 – Provide your observations.  In this stage, the supervisor can provide input into the discussion by stating what they observed.  If the previous stage has gone well, this might simply be a case of agreeing with relevant areas raised by the adviser and ensuring any outstanding important areas are raised. To be effective, this should be specific and preferably refer to actual quotes or examples from what was observed.  It is important to stick to facts and not offer opinions, which may be subjective and open to disagreement. 

Tip: Describe what you heard or saw, e.g. “what I heard you say….” or “when you said xyz, I noticed that the client…”. If you describe rather than judge, you can raise even quite sensitive areas without the adviser necessarily becoming defensive.

  • Step 4 –Plan and agree next steps. Effective feedback isn’t about just having a nice conversation. The positives should be reinforced and any development areas need to be worked on. The adviser should be encouraged to identify not only the development areas that need to be addressed as a priority, but also the potential solutions.  The agreed action needs to be documented along with the time scale and responsibility for future action agreed.

Tip: This is the point where supervisors often go into ‘tell mode’ because the focus is now on finding appropriate solutions. Don’t, unless the adviser is genuinely struggling to know what to do next. Instead, ask questions like “what do you see as the key priority?” and “what’s the best way to take that forward?”.  The adviser will only do any future actions if they buy-in to the process (which is unlikely if they’re told what to do).

Whether you are responsible for T&C supervision, or – like Pep, manage a high-performing team – feedback is just one of those skills that any people-manager needs to get right.

Is it the most important people-manager skill? Probably….

For further details on our supervisor training, click here

Ian Patterson

Founder, The Patterson Group.

FCA T&C supervisor

FCA Business Plan 2019/2020

The FCA has just published it’s Business Plan for 2019/20. 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 2019/20  provides a useful insight on what you need to focus on.

Click here to download the FCA Business Plan 2019/20

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 give you an insight into what the FCA will be looking at so there shouldn’t be any surprises.

There’s a sense of veja vu with the FCA Business Plan 2019/20. There have been two recurring themes that have run through the last three 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 59,000 or so regulated firms. There are eight cross-sector priorities but those that will have the greatest impact on adviser firms are:

  • Firms’ culture and accountability, e.g. the role-out of SM&CR to a wider audience and remuneration arrangements. To quote the FCA: ‘We want firms to have the leadership capability to create and maintain healthy cultures. We believe that a healthy culture is good for business as well as for consumers and for markets as a whole’.
  • 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 differently or as second class citizens, and don’t use income from them to cross-subsidise acquiring new clients.

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.

Sector specific risks

Here is our brief analysis of the areas that are of most interest to people in advice firms. These key issues include the following:

  • 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’.
  • Protecting the needs of vulnerable customers. There is likely to be a huge emphasis on this going forward as FCA figures suggest that most of your clients will be vulnerable at some stage of their life. How do you define vulnerable clients – particularly those with temporary vulnerability such as depression, rather than their characteristics, e.g. deaf, or those with some serious illness? What does your training, processes and oversight look like? In other words, how would you know?
  • Defined benefit pension transfers – not a huge surprise.
  • High-risk investments. The FCA hasn’t defined what these are but I guess you will be able to make an educated guess. These will continue to be a FCA priority in their supervision work. Again, there are potential implications for your firms training and oversight in this area.
  • The suitability of advice. Despite finding that 93% of advice was suitable in 2017, the FCA still has concerns over charges and how these are explained to clients. Don’t regard this as being in the ‘sorted’ file.
  • Transparency of features risks and charges (especially ongoing charges).
  • Scams in retail investments, particularly in discretionary portfolios, pension scams, and poor conduct from wealth managers who make unsuitable investments in high risk assets for their clients.

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

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’. (2017/18 Business Plan)

With best wishes

Ian Patterson

AF exam

SM&CR: the countdown begins

The Senior Management and Certification Regime (or SM&CR) will become part of everyday life for thousands of smaller regulated firms on the 10th December 2019. So, what’s it all about?  What is the impact of this likely to be? Read on to understand more about this important change; what it is and how you might be affected.

What is SM&CR?

After the dust settled on the Financial Crisis in 2008, the Government looked long and hard about what caused it to understand how such a melt-down could be avoided in the future. They concluded that the primary fault didn’t lie with regulation, but in a failure of the culture within authorised firms. In some cases, the actions and messages being communicated by senior managers undermined, rather than supported, good regulation and good business practice.

The result is SM&CR, also increasingly (and accurately) referred to as the ‘accountability regime’. This is designed to make the people who run authorised firms – of all types – personally responsible for their actions and for failings that lead to significant customer detriment. The intention is to put individual responsibility at the heart of how regulated firms conduct themselves. The banks and insurers have been subject to these requirements for over 2 1/2 years and on the 10th December 2019, it will also apply to all solo-regulated firms, i.e. FCA-only regulated firms.

The new rules will replace and expand the current approved persons regime. There are 3 key parts to the SM&CR:

  1. the Senior Managers Regime
  2. the Certification Regime
  3. Conduct Rules

Earlier this year, the Patterson Group conducted a survey that asked those preparing for SM&CR for their views. The results of this are shared with you to identify some of the likely key issues. It should also enable you to better understand what other smaller firms are thinking and how of people perceive the potential impact of SM&CR.

Click here and here for further details of SM&CR from the FCA website

Click here for the very useful CII SM&CR resource hub

Prepared for SM&CR?

This article was written on the 11th December 2018 so we know that SM&CR will be extended to all authorised firms in a years time. The next few months will be crucial in planning the implementation of this.  A year sounds like a long time but not when you look more deeply at what it entails.

SM&CR will apply to firms irrespective of size. 76% of those who responded worked for larger firms, 24% for medium sized firms and, interestingly, there were no responses from small firms.  This could  possibly indicate that their awareness of SM&CR is lower and they felt less able to comment on it.

Reassuringly, the survey found that most respondents felt senior management understood the key issues. A respectable 82% of respondents agreed or strongly agreed that management grasped the key issues; only 18% of respondents did not.  Many appeared to already be making plans for the introduction of SM&CR.

What will SM&CR cost?

We asked about the perceived expense of meeting SM&CR. Significantly, 65% believe that SM&CR will represent a significant cost to their business. This is broadly in line with what the existing banks and insurers have found. That said, these larger organisations already have many of the processes that are necessary such as performance management systems and appropriate record keeping. The costs for smaller firms – in terms of time and expense – may well be higher.

Finally, we asked respondents what they thought the three main challenges would be in introducing SM&CR in their firm.  Four key areas stood out:

  1. How to define the competence of people within the business and evidence this
  2. Communicating and educating staff about SM&CR
  3. Allocating prescribed responsibilities
  4. Defining who is covered by the ‘significant harm’ function

It was slightly surprising that record keeping and the lack of money or resource didn’t feature more highly. Whether this turns out to be the  case (or misplaced optimism), we’ll have to wait and see.

Conclusions

SM&CR is intended to strengthening consumer protection by increasing the personal accountability of staff across the organisation and through strengthened governance processes.  Whatever the potential benefits, it’s clear that many firms expect SM&CR to come at a cost. The research flags up four areas that are most likely to challenge firms. Overall, the research suggests a generally positive picture but with work still to do.   Time will tell.

Click here for details of our services.

Ian Patterson

Founder of The Patterson Group and author of the CII’s AF6 study text on Senior Management and Supervision, and J07 study text Supervision in a Regulated Environment.

supervisor training

FCA Supervisor training

This blog looks at how effective FCA Supervisor training can help your business. This isn’t a topic that excites many people – but it should! If you want to get the best out of your people and your business, then read on. This is something you need to get right.

Client best interests

The FCA will review the post-RDR advice process in 2020.  This is all about evidencing whether the FCA’s objectives have been met and identifying any gaps that are still work in progress.  To date, comments from the FCA have been largely supportive of the changes introduced by RDR. But as ever, regulation continues to evolve its thinking.

To date, the FCA has shown little appetite to operate as a ‘price regulator’. It has the power to impose a price cap but, with a few exceptions, it’s chosen largely not to do so. That said, expressions such as “costs” and “value for money” are increasingly being used by the FCA.  Importantly, it has indicated that costs will also form part of next year’s post-RDR review.

And it’s not just the regulator. Many advisory firms will also have first hand experience of clients who query what their services cost them. Perhaps MiFID has contributed to this or maybe some clients are just becoming more curious about how businesses earn their fees.

Either way, the writing appears to be on the wall.  Some fund managers have reduced their costs whilst advice charges appear, overall, to have steadily risen across the market over the last few years.  Advice firms may come under pressure to reduce their fees, offer clients more, or become better at demonstrating the value of what they provide to clients.  Most businesses would probably prefer the latter, but how?

Effective supervisor training

There are a number of ways to communicate ‘value’ to a client. In this article, I’ll focus on the role that supervision can play. Forget about just giving a ‘tick in the box’, I mean proper effective supervision. This starts with having meaningful processes and documentation as part of a T&C scheme.

Many firms I work with use documentation that  first saw the light of day 10 or 20 years ago. It might have moved on a little – the odd tweak here or there – but the trained eye can still spot bits that were first introduced by the PIA!  For example, it hasn’t been a regulatory requirement for retail investment advisers to hand over a business card to new clients for over 10 years now. So why do I still often see this as a mandatory area that advisers are expected to demonstrate? A clearer focus on what is actually relevant for a business would be beneficial.

Let me give you another example. Does the observation aid you use focus on monitoring the process that the adviser follows, or the experience the client receives? There’s probably a 99% chance it’s the former. In reality, most observation forms set out the process the adviser must follow so that the FCA Conduct of Business rules can be evidenced. This is very understandable from a compliance point of view, but it doesn’t help to embed the relationship-focused adviser skills that clients increasingly expect.

Supervision can only add value if:

  1. The tools we use, i.e. observation aids, are fit for purpose and reflect what we are trying to achieve, and
  2.  Our people managers (or supervisors) are able to use them skilfully.

It’s all about the relationship

So to summarise, many firms use a T&C observation form that is out of date and is little more than a compliance check list.  I started this article by suggesting that ‘value for money’ will come under greater scrutiny from both the FCA and clients who increasingly expect more. The question is whether our processes (such as observation aids) and our supervisors are up to the task of delivering what the client will increasingly expect from us in the future. From what I see, the profession does provide a great service to clients; its a matter of how much the client values and recognises this. The key element of this is the relationship the adviser has with the client.

Developing the relationship skills of our client-facing staff should be a business priority. How we communicate the value we provide should be a priority. Developing the skills of our supervisors should be a priority. If we do this, ‘cost’ becomes less of an issue because our value to our clients is clear for all to see.

Click here to access a 21st Century T&C coaching tool

Click here for details of our in-house supervisor training

Click here for the CityWire report

 

 

 

 

T&C

IDD and T&C

To those people who provide advice on general insurance products such as critical illness, life assurance and insurance-based investment products, the forthcoming changes to T&C requirements are something that you need to be aware of.

From the Insurance Mediation Directive (IMD) to the Insurance Distribution Directive (IDD)

Acronyms abound! The IMD will be replaced by the IDD from 1st October 2018. This introduces an updated EU-wide ‘level playing field’ for insurance distribution. This applies to all regulated firms: insurers, aggregators and importantly, anyone who provides advice on ‘insurance’.

In simple terms, ‘insurance’ is anything that is covered under the FCA ICOBS rules. As I mentioned earlier, this includes the likes of critical illness, term, mortgage protection, and income protection insurance. Any retail investment adviser who advises on protection from time to time, will also fall under these rules.

What are the changes?

The IDD introduces a number changes covering disclosure requirements, inducements, advised and non-advised sale standards and complaints. These extend the current ICOBS requirements.  They also introduce changes to the current T&C regime: anyone who advises on insurance products will need to meet them.

T&C changes

Under IDD, all staff involved in insurance distribution must have the appropriate knowledge and ability to perform their duties.  This is, of course, something that we are all familiar with within financial services. Note that this says all staff so this includes those who are already subject to T&C requirements because they provide advice, and others who aren’t currently covered by T&C because they don’t. This will also impact on those who supervise those that provide advice on insurance.

Specifically, the IDD requires the completion of at least 15 hours of relevant CPD.  This can be structured or unstructured.

For those in Financial Services, three specific areas must be covered by the CPD;
1. the insurance market, laws, new products, taxation and state benefits;
2. claims handling, complaints handling, assessing customer needs, appropriate financial competency; and
3. business ethics standards/conflict of interest management.

In each area, the CPD content should cover generic core knowledge, product-specific knowledge, and terms and conditions.

There has been relatively little coverage of this topic.  For a link to what the CII offer via their Insurance Assess site, click here.

What are the implications?

  1. Anyone who is already required to complete 35 hours of CPD will  need to ensure that part of this time (i.e. not in addition) is devoted to meeting the new IDD requirements.  This would apply to CF30 investment advisers, mortgage advisers and any qualified member of the CII that are involved in the distribution of insurance.
  2. The IDD requirements are there to ensure a minimum level of competence. Staff who are affected by these requirements should be able to demonstrate they are IDD competent no later than the 1st October 2018. 
  3. The supervisors of those that distribute insurance will also need to undertake appropriate CPD to meets the IDD requirements.
  4. Anyone who just advises on insurance products may have to complete 15 hours CPD as a minimum for the first time under T&C rules.
  5. T&C procedures need to be amended and there needs to be appropriate oversight of the changes.
  6. Record keeping requirements must be amended so they demonstrate that these requirements have been met.

Click here for details of our T&C services

Ian Patterson

12th September 2018

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

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