The rise in professional standards and quality of advice

July 14, 2021

Fanfare for the FAMR

The next element of regulation to come in was the Financial Advice Market Review (FAMR). FAMR was launched jointly with HM Treasury in 2015 and built on the work and improvements of the RDR, raising the standards of professionalism across the financial advice market.

Both were significant milestones which sought to improve standards in the distribution of retail financial services products to clients. A few years ago, we committed to review their impact on the market for support for consumers seeking to invest, and to test whether they delivered their desired outcomes.

The recommendations outlined in the report were aimed at:

providing affordable advice to consumers
increasing the accessibility of advice
addressing industry concerns relating to future liabilities and redress, without watering down levels of consumer protection.

The government and the FCA Board welcomed the report on 16 March 2016 and accepted the recommendations directed at the Treasury and the FCA respectively. The report also made recommendations directed towards employers, service providers and consumer groups.

The recommendations fell into 3 key areas: affordability, accessibility, and liabilities and consumer redress.

Matters of MiFID 2

In 2016, we saw the introduction of Markets in Financial Instruments Directive 2 (MiFID2).

UK legislation and rules regulating markets in financial instruments (UK MiFID framework) cover firms that provide services to clients linked to ‘financial instruments’ (generally: shares, bonds, units in collective investment schemes and financial and commodity derivatives), and the venues where those instruments are traded.

For investment firms that undertake investment services and activities, the UK MiFID framework sets requirements in a number of broad areas including:

conditions and procedures for authorisation
organisational requirements, including rules on handling of client assets
conduct of business requirements
pre- and post-trade transparency requirements when dealing over-the-counter in financial instruments
transaction reporting

Fortunately for advisers, MiFID 2 was more about fund managers and had little effect on firms except on the reporting of investments.

Step forward the SM&CR

In late 2019, we had the introduction of the Senior Managers and Certification Regime (SM&CR) for all firms. This was a further attempt by the FCA to get the industry to provide customers with better outcomes.

The Certification Regime involved the evolution of the FCA register to include mortgage advisers. The onus was put back on firms to authorise advisers and to monitor the activities of those advisers so that they could be signed off as “fit and proper” to advise clients.

The SM&CR brought in scope of responsibility for directors and senior managers.

Codes of conduct were brought in to remind people of the behaviours which were expected by the regulator. The Conduct Rules set standards of personal conduct against which we can hold people to account. They apply to all employees of solo-regulated firms, except for certain ancillary staff who are specifically excluded.

First Tier – Individual Conduct Rules

You must act with integrity
You must act with due care, skill and diligence
You must be open and cooperative with the FCA, the PRA and other regulators
You must pay due regard to the interests of customers and treat them fairly
You must observe proper standards of market conduct

Second Tier – Senior Manager Conduct Rules

SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively
SC2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

Once again, The FCA intends that this is to create a culture running through organisations, rather than a bit of training to tick a box.

Work in progress?

After so many regulatory efforts over these past ten years, it seems that the FCA is still looking for the silver bullet to ensure that good outcomes for customers are a certainty rather than a prospect. Whilst many adviser firms have welcomed the change and transformed the basis upon which they operate for the benefit of clients, the work goes on to ensure that this applies across the board.