Lee Werrell, CEO of ComplianceConsultant.org, Says Advisers Need to Sharpen Up Their Technology Compliance


Getting Your Tech  Into Line

Almost imperceptibly, we sometimes fail to observe how rapidly the technological age continues to advance. As we investigate and probe with our Google Glasses and watch Facebook videos on our Samsung, HTC or iPhone 6s, technology clearly serves for making our chosen lifestyle more informed and potentially efficient but, by using it brings new challenges.


The control over operational and conduct risk within financial advisory firms is still running dangerously slow, including many IT Compliance Consultant Logoinfrastructure and security checks that remain undone.

Simple things can be great tell-tales of your culture. Are your Google Glasses locked away in their cases? Are all your client files backed up in the event of a dreaded IT failure, server blow out or hacking?

“In financial technology specifically, global investment more than tripled over the five years to 2013 – up to $2.97bn. The UK and Ireland were the fastest growing incubators in the world here, developing at an annualized rate of some 74% since 2008 – set against 23% in Silicon Valley.” (Speech by Martin Wheatley, Chief Executive, the FCA, at Bloomberg, London May 2014. (http://www.fca.org.uk/news/making-innovation-work)


Where financial services firms are concerned, the importance and increased usage of financial technology has rightfully become more mainstream, as reliance on digital connectivity has increased. This burgeoning adoption of the technological world means rapid, efficient, simple, and cheaper interactions with consumers, as well as providing the means for consumers themselves having the capacity to source products, advice and information with growing ease.

This welcome trend might make markets more efficient. It also enables new, more innovative entrants into the market, thus benefiting competition. But, while all of this comes across as very exciting and pioneering, how does it impact on you as a provider of these facilities? How do you identify and sustain fairness, efficiency and ultimately compliance in the tech age?

The Regulator’s Perspective

The FCA places substantial importance on firms’ IT systems assisting to deliver fair customer outcomes. IT infrastructure is also on the list of seven forward-looking areas of focus highlighted in the FCA’s 2014 Risk Outlook:


“Financial firms and consumers are becoming increasingly reliant on technological systems and are more exposed to their disruptive capabilities (in the form of abuse, misunderstanding or operational challenges arising from the increased complexity of, and reliance on, these systems).”

Then again, let’s consider a speech by Martin Wheatley, the FCA’s CEO, at Lansons, London June 2014. “A key objective, as many will already know, is to make sure positive developments by which I mean the ones that genuinely promise to improve the lives of consumers or clients – are supported by the regulatory environment.”

The FCA issued a paper in July 2014 highlighting areas that firms should evaluate when outsourcing IT arrangements. Although aimed at new bank start-ups, the overall message was emphasising that specifically: “a regulated firm should be clear that it retains full accountability for discharging all of its regulatory responsibilities. It cannot delegate any part of its responsibility to a third party.”

Trouble in ‘Techyland’

Any form of inefficiency in your firm’s IT infrastructure could have consequences for both your company as well as your customers. Technology failure or mis-management in your firm could result in poor customer outcomes, and as such then be a breach of conduct risk.

QUOTE: “One of our aims was to put conduct in the board room – to ensure that firms put consumers and the integrity of the markets at the heart of their business.  For too long, managing conduct risks has been seen as a function for compliance and not the responsibility of the business.

There had been too little attention paid by senior management to the incentives they put in place for their staff, the culture that actually operated within the business and the outcomes that produced for consumers and the markets.  That is changing.”

Tracey McDermott, Director of Enforcement and Financial Crime, the FCA, at the Thomson Reuters Compliance & Risk Summit, London July 2014. (http://www.fca.org.uk/news/speeches/sustainability)

Key IT questions to ask

It is imperative for your firm to assess, understand and take action on the conduct and other risks that can crystallise through you having an inadequate or untested IT infrastructure. You may wish to consider the following questions to help you cover as many angles as possible:

  • When did you last assess the IT infrastructure at your firm?
  • How do you satisfy yourself that the IT infrastructure at your firm is robust?
  • What emergency plans are in place if there is an IT incident at your firm?
  • Where your firm has outsourced its IT arrangements to a third party, how do you satisfy yourself that the third party has sufficient skills, knowledge and expertise?
  • How do you assess the performance of the third party, and how frequently do you do this?

Don’t forget, the regulator will want to see evidence of the answer to these questions, along with regular updates and reports to senior management on the status and performance of tests, checks and monitoring. IT is central to all our working today, and if the systems, procedures and processes are flawed or misused, inefficient or ineffective, ultimately the consumer will pay.

As technology in the world in general develops, robust conduct risk management including your IT infrastructures, with evidence of relevant and pertinent regular reviews, clearly helps your firm commercially and demonstrates that you have the customers at the heart of your business.

“So what does this new world mean for the financial community — firms and regulators? First, for firms it means encouraging a more consumer-centric approach to business. Placing far more emphasis on the culture of the firm at every level and at every stage: from chief exec to frontline staff, from product design to sale.” (Martin Wheatley, chief executive of the UK FCA, “The Fairness Challenge” at Mansion House, London, October 2013. (http://www.fca.org.uk/news/the-fairness-challenge)



Policy Statement 14/13: Changes to Regulatory Reporting: Adviser Charging and Product Sales Data

The FCA has published its Policy Statement on changes to reporting, specifically on adviser charging (Section K) and product sales data (http://tinyurl.com/oy5dk8j)

Section K

Based on the responses the FCA have received to the Consultation Paper CP14/5, they are introducing a number of changes:

  • Improving Handbook guidance on RMA-K by incorporating their previously published interim technical note;
  • Reducing the reporting frequency of RMA-K from six-monthly to annual; and
  • Allowing firms to report RMA-K on a cash or accruals basis

In addition to the FCA’s initial proposals, the feedback received is suggesting that a breakdown of charges facilitated by providers and platforms was overly burdensome. Firms will only be required to report a breakdown of adviser charges by those paid by client and those facilitated by a product or platform provider (one field).

These changes are enforced from 31st December 2014.

Product sales data (PSD)

Previously firms were not required to complete their PSD return through GABRIEL if there were no relevant sales.  The FCA will now be requiring firms to submit a nil return.

These changes will take effect in two stages: the first from 1 October 2014 reflecting the policy changes pre-MMR implementation and the second from 1 January 2015 reflecting the changes post-MMR implementation.

Section L

The FCA will be implementing their proposal to remove the requirement for firms to report detailed consultancy charging data.

For details of how to manage your risks or any other regulatory issues, contact Compliance Consultant at info@complianceconsultant.org or your qualified compliance professional.



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