Compliance – not regulated – really? Compliance expert, Tony Catt, considers the issues.

by | Sep 25, 2017

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Advisers operate in a world where regulation is king, but should the compliance function be regulated too? With the Senior Managers and Certification Regime (SMCR) coming into force for IFAs next year, Tony Catt considers some of the issues.

Unfortunately, many advisers are almost paranoid about providing the necessary evidence in respect of complying with regulatory requirements when doing the right thing for their clients.

Of course, all professional advisers are subject to compliance with regulatory standards and, as a result, are in regular contact with a compliance practitioner of some description. These practitioners can range from “tick-box” merchants through to “light-touch” practitioners. There is room in the UK for all types of compliance consultant, however choosing the approach which suits you best is dependent on the needs of your firm and the preferences that the principals will have.


Does size matter?

The networks have whole departments covering the various elements of compliance – file checking, pre-approval of business, training, management information etc. However, in many ways this cast of thousands has still not made them any stronger than individual practitioners.  Networks will often be quite prescriptive about the type of business that advisers can undertake and simply not allow some types of business to be transacted. Most recently, many have tried to force IFAs to operate on a restricted adviser basis. This is a lack of understanding of the true value of independent advice.

I worked with a network which introduced a new fact find document for use by mortgage advisers. The document was rather lazily constructed, as it was obviously two documents stuck together, to the extent that about half way through, the questions reverted to basic information that had previously been covered. The network then made this form mandatory. This showed a complete ignorance of the FCA stance that a fact find document is not a mandatory requirement. The mandatory requirement is to “know your customer”. Yes, the easiest way of collecting information is with a set of pre-set questions, ie. a fact find, but if, as an adviser, you can evidence that you know your client, then this evidence can be collected in whatever format you like.


An FCA registered compliance consultant?

Here’s an interesting example. I recently had some conversations with a prospective client about signing-off financial promotions. They had been advised that the financial promotions which they intended to carry out needed to be signed off by an FCA registered compliance consultant. I checked this situation with the FCA as I wanted to be sure.

The guidance that I received from them was that the financial promotion would be covered by the client’s FCA permissions granted to their firm. So, if they are a fund manager for example, they would register with the FCA and then they can undertake all the controlled functions and the permission that has been authorised by the FCA. Anybody helping them would simply be providing guidance that they are staying within the boundaries of their permission.


I proceeded to discuss with the FCA about registering myself with them as a compliance consultant. There is no registration is this respect. I would need to set up a firm to provide regulated services, eg advice or fund management. Since I would not actually be carrying out any business of that nature, my application would not be accepted as the FCA would have no business figures upon which it could base its fee structure.

So, the answer I had to give to that potential client was that they had been misled about the regulation of compliance practitioners. The firm that was offering compliance services to them was actually registered with the FCA because it undertook other regulated business and the authorisation had nothing to do with the compliance service that they offered, (at a considerable cost).

Putting clients first


It is surprising that compliance is not a regulated activity as if it is not done correctly, then a lot of damage can be suffered in consequence by adviser firms. Most advisers do not question the guidance that is received from compliance people and will act upon it. Therefore, advisers can be misled in the same way that you then can, in turn, mislead clients.

At the other end of that scale, a good compliance practitioner can really help an adviser by enabling you to do the very best job you can for your client. This can include being able to do great quality business in what are often regarding as high-risk business types. The question to the compliance consultant changes from “can I do this?” to “how can I do this?” Thus, it can help you to provide good outcomes for your clients in types of business that may not even be allowed by the networks.

The arrival of SMCR


The new Senior Managers and Certification Regime (SMCR) may go some way to compliance becoming a regulated activity in the future. The SMCR breaks down various aspects of business management and allots duties and accountability to the managers that are appointed. This could easily be extended to the compliance functions.

The SMCR is being introduced for IFA firms in 2018. It has been running for banks and larger organisations for a while. It will be interesting to see whether this leads to better customer and client protection in the future.

About Tony Catt


Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers.





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