Articles - A year of regulation in financial services with more to come

 By Tony Collins, Chairman, OPAL
 This year, the financial services industry has been hit with what seems like a long steady stream of new regulation to deal with. With the FSA trying to re-instil consumer confidence this is not surprising as a course of action, but will require a huge amount of change and investment in the industry over the next couple of years. PPI was a wake up call for the industry that not only do products have to be designed properly and with the customer in mind, but the marketing material must not be misleading. RDR will come into force in 2013 which will also fundamentally alter the way that advisers conduct their business, with an increased focus on transparency of charging. Financial services firms have a lot to take on board and change in the New Year and we think that they will look to outsourcing to deal with some of these worries. With this in mind, 2012 should be a good year for outsourcing firms who can offer a complete end-to-end solution.

 The resolve of many investors has been shaken in recent years, which means that new financial products will need to be carefully planned and executed in order to attract new customers and avoid costly mistakes. Product design, in particular, will have a vital role to play in any post-recession financial products with the Financial Services Authority (FSA) and the Office of Fair Trading (OFT) publishing new guidelines this month for any financial services firms that are planning to design new structured products. Amongst its other recommendations, this guidance stresses that firms need to ensure that these products reflect their customers’ needs more closely, and that they ultimately have investors’ best interests at heart. Likewise, the OFT has urged firms to make sure that their consumers are clear about the nature, price and implications of any structured products being sold.

 The design of financial services products that meet these criteria will require a significant amount of forethought, planning and strategic vision – which is precisely why many financial services firms outsource this process to companies that specialise in this area. Not only is outsourcing a much faster way to launch a new product, but it also makes it much easier to comply with the latest regulations in areas like Treating Customers Fairly (TCF), Conduct of Business (COB) rules, the Data Protection Act (DPA) and many more.

 The Retail Distribution Review (RDR) serves to make all charge and fees from advisers transparent and easy to understand. Products and services must also have clear pricing models that can be evidenced to the customer in an unbundled manner. Fees for service must be separate from those of the product itself. We expect the RDR to increasing demand for outsourcing in financial services. The range of financial products on offer to the market is now so extensive that third party administrators have an increasingly important role to play in terms of providing compliance and regulation support. Outsourcers can also help providers bring new ‘RDR-friendly’ products to market much more quickly.

 Here at OPAL, we’re doing just that - supporting product providers in the evolution of outsourced product design and administration technology to ensure product propositions are fit for purpose under RDR.

 Providers can help solve these types of problems and deliver the right products to market before the competition through outsourcing. A new way of thinking, as well as new and innovative tools to help them manage the challenges is crucial. If a provider can outsource and put the power of product development in the hands of integrated, strategically-minded teams, what can be achieved is a much greater degree of control over product launches.

 In spite of the economic downturn, outsourcers have actually fared quite well this year, especially the small, specialist outsourcing companies in financial services. We think one reason for this is due to the fact that the independent expertise of an outsourcer has become even more valuable in the banking sector, as the established banks face opposition from new competitors such as Metro - the first new high street bank to be set up for a hundred years – as well as the likes of Tesco and Virgin, who have grown by using their reputation in other areas to enter the financial services market. Outsourcing has become key to not only regulatory compliance but also to staying ahead of competitors and new entrants to market.

 Across the industry and across different geographical boundaries, providers are facing heightened pressure to create and bring new types of products to the market. Changes in the needs of consumers and new types of sales channels, along with regulations, mean that financial services providers - and the outsourcers and technology providers that support them - need to revolutionise the way that they deliver their offerings into the marketplace. Most importantly, the heightened competition in the industry post-crunch means that speed to market is now, more than ever of the essence.

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