The FCA today (31 March) published its business plan for the upcoming financial year, alongside a risk outlook and a consultation on fees and levies.
It reiterated a number of points but also threw in a few surprises, mainly that it will be consulting on a long-stop. Here we review the five key announcements contained in the three documents for advisers.
1) Long-stop will finally be ‘re-evaluated’
The FCA confirmed it will consult on prudential requirements for personal investment firms and that includes “considering the case” for a 15-year time limit on complaints to the Financial Ombudsman Service.
While this is welcome news - and I hate to rain on your parade - I strongly suspect nothing will come of this.
First off the language is extremely equivocal, and second the FCA does not have the power to make a change but merely suggest it. It would require the regulator to convince the government of the value in making a legislative amendment.
While most believe the lack of a long-stop is undoubtedly unfair, consumer groups are set against introducing one because it doesn’t benefit consumers. Until it can be proved that a long-stop can benefit consumers, this will go nowhere.
Maybe I’m wrong; maybe this industry has made me cynical. Judging by the comments below the original story, I am not alone.
2) The FCA loves a review
While we’re on reviews, there are plenty coming up - including one into “long-standing life insurance” sales that have caused such a stir since a pre-announcement in the The Telegraph prompted markets to go into fresh meltdown on Friday.
In terms of other new reviews, among others we will have probes into:
• due diligence conducted by retail investment advisers;
• sales practices relating to customers approaching retirement;
• governance of with-profits funds;
• use of in-house funds at wealth management firms;
• risks with ‘contracts for difference’ derivative products;
• post-Mortgage Market Review implementation testing; and
• protection of client money by small protection firms.
And that it is in addition to whole reams of work into retail banking, general insurance, mortgage lending and ‘cross-sector’ issues such as fighting cyber crime. It’s also set to publish the results of ongoing work into dealing commissions in asset management and other remuneration practices.
The FCA also said the Budget announcements may encourage innovation in pension ‘decumulation’ products and that it would refocus its attention on this area in the future to meet changing consumer needs.
The regulator is very good at publishing and reviewing the market, but it needs to ensure it actually gets around to catalysing real change. It’s recent annuities review, for example, revealed little that the industry didn’t know and was rendered utterly redundant shortly thereafter.
3) Where is the RDR cost analysis?
The FCA will carry out research throughout 2014/2015 using regulatory data, publicly available data and commissioned industry and consumer research to assess the effect of the Retail Distribution Review against stated objectives.
The FCA says its ‘value for money’ strategy’ covers all its activity and has been agreed and endorsed by the board. What about looking at whether the RDR has been value for money?
A cost benefit analysis is not mentioned and, really, that is what we all want to know - and what I thought had been promised to the Treasury Select Committee. Some £3bn is often touted as the RDR cost and we need to see a true total and the benefits such vast cost has achieved.
4) Your fees are coming down
While the FCA has proposed a higher budget of £452m for 2014/2015, with higher fees of £403m to be collected, financial advisers are actually set to see almost a 20 per cent reduction in the next financial year’s fees and levies.
Most adviser firms will now fall under the fee-block A13, the FCA confirmed, following the removal of the A12 block and move of all advisers, arrangers, dealers and brokers, regardless of whether they are holding client money, assets or both, into A13.
Those in the A13 fee-block will see a 18.7 per cent drop in the fees and levies payable in the next 2014 to 2015 financial year to £68m from the current £83.6m.
5) More focus on whistleblowing
The FCA wants to promote a culture where people are prepared to speak up about wrongdoing within a firm, as it is then the FCA can investigate an issue that may only emerge once wrongdoing has been committed.
In 2013, there was a 65 per cent increase in the number of actionable pieces of intelligence we received from whistleblowers.
In 2014/15, the FCA said it we will consider whistleblowing trends and identify under-represented sectors where we can direct an outreach programme to encourage whistleblowers to come forward.
