In 2012, the United Kingdom Financial Conduct Authority (FCA) put new rules in place to change the way UK advisors were qualified and paid for their services. The UK became a trailblazer in the regulation of the financial services industry and has kept financial firms and advisors in its jurisdiction on their toes ever since.
The FCA’s Current Regulation Efforts
Now five years later, the FCA is still intensely regulating these rules, which include a focus on cost disclosures and a ban on commissions to end bias. Even so, firms continue to fall short on their disclosure requirements while others try to sidestep the commissions ban.
Investment suitability is another priority for the FCA, since it’s a big problem in the UK despite many years of intensified regulations. Paul Caccavale, Senior Manager for Risk Advisory at Deloitte UK, states in WealthBriefing’s study, Global and Compliance Innovation Trends in Wealth Management, that this is “largely attributable to inadequate record-keeping and ensuring sufficient information is retained to demonstrate suitability […].”
The FCA is making no bones about its mission to guarantee efficient markets and value for consumers. In June 2017, it made this clear in its “Asset Management Market Study,” determining that to escalate competition, safeguard investors’ best interests, and enhance intermediaries’ effectiveness, drastic changes need to be made to the fund management sector. The FCA has also recommended extending the Senior Managers and Certification Regime to nearly all regulated firms in 2018, which would mean many wealth managers would be under regulatory scrutiny for the first time. On top of this, MiFID II’s 2018 implementation will also affect UK firms, regardless of Brexit.
The FCA’s Current Innovation Efforts
While it’s clear that the FCA is a world leader in financial regulations, it’s also a recognized international leader on innovation. The regulator founded Project Innovate in 2014, which, according to Suchitra Nair, Director of Risk Advisory at Deloitte UK, has “provided a blueprint for regulators internationally.” In 2016, Project Innovate created the first ‘regulatory sandbox’ (there are now 20 more in development throughout the world) as well as Advice Unit, to help disruptor firms better understand the regulatory landscape and get the required authorizations. As Nair puts it, “Firms describe the FCA’s approach as a game-changer in their journey to authorization, praising the FCA’s open and frank dialogue with innovators.”
When it comes to managing tasks manually, the financial services industry is at a point of no return, which means it's no longer a viable choice moving forward. Caccavale says, “More often we are seeing sophisticated systems, rather than manual processes, being used to collate management information which can then be analyzed to drive discussion, debate, and challenge within the governance fora.” Because regulatory authorities now expect individual accountability from firms and their advisors, it’s in every firm’s best interest to stay compliant with the FCA. The fact is that only a digital approach will allow the necessary level of efficiency and productivity that’s needed to meet these expectations.