By Fiona Tait, Technival Director, Intelligent Pensions
Top of the list is managing the EU withdrawal, there is so much uncertainty in this area that the FCA has the laudable aim of minimising disruption while at the same time retaining their influence over global regulation.
A cultural revolution
Reading the cross-sector priorities it becomes clear that the FCA is looking to achieve a wholesale change to the culture of financial services. This goes much further than just the delivery of advice but encompasses the way in which businesses are managed and includes a huge increase in personal accountability for the directors and senior managers of individual firms.
The FCA have made noises about self-regulation in the industry before, however this time there are concrete proposals with the Senior Managers & Certification Requirement regime (SM&CR). These rules were first implemented in the banking sector to prevent influential individuals avoiding penalty by hiding behind a corporate screen and will now be expanded to apply to all of their regulated firms.
SM&CR hinges on a combination of Conduct Rules and “Senior Management Functions” (SMFs), with a revised certification regime for anyone carrying out prescribed functions which could impact consumer outcomes.
The Conduct Rules include the requirement to act with integrity, use due care and diligence and treat customers fairly, and the senior managers are responsible for their application by the people within their business. This means that where the required standards are not met sanctions or penalty could be applied to the individual manager and not just the firm.
The senior managers must also certify, on an ongoing basis, that their staff are competent to carry out certain activities, effectively transferring this function from the FCA to the firm itself. It is the firm who must carry out regulatory reference checks during recruitment, identify knowledge or skills gaps and oversee appropriate personal development. The regulator will of course expect to see evidence of this and it will force firms to be more prescriptive about who does what in their organisation, what the management structure looks like and how staff are recruited and trained.
There is an upside to this. For some firms it might be the first time such things have been officially decided and the result should be better managed businesses and improved “operational resilience” when things go wrong. Along the way it should also deliver more motivated staff who know what their role in the business is and have a clear view of how they can develop and progress.
It will however also make it possible for the regulator to intervene not just in the advice process but also in the running of the business.
Business as usual
Things are much more business as usual in the retirement sector, where the regulator’s focus is unsurprisingly still on defined benefits transfers and high-risk investments. The FCA promises more “intensified work” to improve consumer outcomes in these areas and further action against firms who fail to meet their standards.
This focus is required, and it is in everyone’s interests if the standard of advice improves, however the intense scrutiny has already impacted the availability of advice in this area as a result of the increased cost of professional indemnity insurance.
The FCA also want to progress their proposed remedies to the problems identified in the Retirement Outcomes Review (ROR). Since 2015 more and more scheme members are opting to use income drawdown without taking financial advice, which might help them to make more informed decisions. The ROR has already resulted in instructions to providers to improve pre- and post-retirement communications and proposes the introduction of default retirement pathways.
The pathways have attracted mixed feedback. Any default is by definition not going to cater to individual member needs but are surely better than no help at all. In this respect they clearly reflect the overall function of the FCA – to provide a balance between ensuring scheme members are protected against making bad decisions while at the same time supporting the availability of trustworthy professional support when required.
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