To better comprehend how financial advice professionals understand the detail of personal compliance and how this plays out within the advice business, IFA Magazine recently carried out a reader survey in conjunction with specialist T&C and People Compliance platform, HRComply.
In this, the first article in a two-part series, we outline the key learnings from the survey with regard to how advisers and advice businesses are keeping up to date with the various regulatory initiatives and rule changes introduced over the years. Of course, we’ll also be zooming in to look at the implications for advice firms ahead of the FCA’s new Consumer Duty rules which are set to take effect this summer.
As advisers will know only too well, the requirements of regulation and compliance across financial services are changing constantly. Keeping up to date with all the detail and making sure that you are on the right side of the regulatory fence can be challenging to say the least.
We were therefore very keen to find out readers’ attitudes to all the ongoing regulatory changes which have occurred over the last ten years or so. We were also interested to find out if there were certain areas where advisers’ systems may not be as robust as they perhaps need to be – as there is still just about time for any gaps to be addressed before the Consumer Duty rules come into force.
To help us discover these details, our survey, which was conducted with IFA Magazine readers in March 2023* and in collaboration with T&C and People Compliance specialists, HRComply, was designed to find out exactly what’s going on with advisers’ attitudes and actions when it comes to personal compliance. But what did our readers tell us? Before we delve into the detail, we’d like to say a great big shout out and give our thanks to all those IFA Magazine readers who took the time to share their views with us on this very important subject. Your input is very much appreciated.
Are you ready for Consumer Duty?
It’ll be no surprise to IFA Magazine readers that the FCA’s Consumer Duty rules are coming into force from July 31st this year. These new requirements set high and clear standards of consumer protection across financial services in order to improve the standard of care that all customers receive. However, back in January, a statement from the FCA highlighted its concern that the industry is running behind schedule in terms of preparation for the new Consumer Duty rules.
Advice firms will already be grappling with the new expectations and working hard to ensure that they are integrating all relevant details into their systems and processes ahead of the rules changing.
When it came to our survey respondents, we were encouraged to see that the vast majority said they stay up to date with all the latest Consumer Duty detail to some degree. Approximately 45% of readers surveyed claimed their knowledge is ‘always up-to-date’, while an equal amount answered that they refresh their knowledge of consumer duty changes on a ‘semi-regular basis’. Just 9% don’t follow the latest on Consumer Duty – but admit that they ‘need to carry out further research’. It is certainly something to prioritise rather urgently for those 9% we would suggest as this is not a time for confusion and inactivity. Time is short and must be used effectively in order to ensure that all systems are compliant and fit for purpose.
But what about SM&CR?
Let us just reflect for a moment on the FCA’s Senior Managers and Certification Regime (SM&CR). It was initially introduced in 2015 on certain financial firms – notably banks and building societies. Subsequently, the SM&CR regime was extended to apply to more and more types of financial firms, finally including all solo-regulated firms except benchmark administrators, in December 2020.
The FCA’s aim of SM&CR was to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. Its rules were far-reaching for the advice profession. But how easy is it for advisers to keep up to date with all the changing requirements that SM&CR places upon them in the workplace today?
When compared to Consumer Duty, our survey found a sharp decrease in the number of respondents who are consistently in tune with SM&CR. 31% said their knowledge is ‘always up to date’, while 41% sporadically follow the changes, keeping up to date on a ‘semi-regular basis’. Worryingly, 13% of respondents admitted that their knowledge of SM&CR is not really up to date and that they ‘need to carry out further research’ on it.
Ten years on but don’t forget about the RDR
Although it is now more than ten years since the FCA’s landmark Retail Distribution Review (RDR) which changed the face of professional financial advice so dramatically, keeping up to date with the latest RDR detail is no less important for advisers now, than it was back then.
When it came to our survey, a similar number of respondents as we discovered with the SM&CR rules admitted they need to undertake more research into the changes in RDR, with 14% stating their knowledge is insufficient. Encouragingly, 83% of respondents said that they are either ‘always’ keeping their knowledge up to date or that this is done on a ‘semi-regular basis’ when it comes to the RDR requirements.
Is MiFiD II being muffled?
MiFid II, the legislative framework instigated by the European Union (EU) to regulate financial markets in the EU and improve protections for investors, was rolled out in 2018. Of all the regulatory initiatives we enquired about in the survey, it seems that MiFiD II receives the least ongoing attention from respondents. Almost one in five – 19% – said that they are unaware of MiFiD II changes and need to carry out further research. More encouragingly, 73% of respondents said that their knowledge is either ‘always’ or on a ‘semi-regular basis’, kept up to date when it comes to MiFid II.
What does all this tell us so far?
These survey responses indicate that action is needed as compliance fatigue may well be having an adverse effect on many advice businesses in the UK. Added to this, the operational/people risk to each advice business in terms of overall Management functions with responsibility for Compliance and People/Operational risk is an area which also needs to be recognised and addressed.
We explore these matters again in part two of our summary of the survey findings. However, with advisers indicating that they are worried about non-compliance, that the increasing compliance burden appears to be having a really negative impact on those individuals involved with the advice profession, it is clear that action is needed if businesses are to survive let alone thrive.
This is where an automated system, such as the HRComply platform, which is not only easy for advisers to access and use but also very easy to be on top of, with clear audit trails and records, can really deliver results – as well as the peace of mind which is so crucial.
ABOUT THE SURVEY
The HRComply survey was titled ‘Understanding personal compliance’ and received 108 total responses from IFA Magazine readers. The survey was run online from the 16th – 21st March 2023.
For more information about how your advice business can streamline People Compliance, Certification and T&C whilst reducing the worry and burden of keeping up to date, contact HRComply at mail@hrcomply.co.uk, 020 3176 7859, or visit their website: www.hrcomply.co.uk
