Regulation 

How does technology help advisers meet regulatory requirements?

This article is part of
Guide to how advisers are using technology

How does technology help advisers meet regulatory requirements?

Advisers are well aware of their regulatory obligations, but in recent years new regulation has come thick and fast.

May 25 2018 saw the introduction of General Data Protection Regulation (GDPR), an EU-wide data privacy legislation that replaced the Data Protection Act of 1998.

Meanwhile, Mifid II came into effect on 3 January 2018 and is also applicable across the EU.

According to the European Securities and Markets Authority: "This new legislative framework will strengthen investor protection and improve the functioning of financial markets making them more efficient, resilient and transparent.”

From January this year, Mifid II requires advisers to disclose the exact costs and charges of their investments, as opposed to giving estimates to clients.

So can technology help advice firms to comply with myriad regulatory changes?

Stuart Wilson, corporate marketing director at more2life, thinks so: “Technology enables advisers to document the advice process in a clearly auditable way, which makes it much easier to demonstrate compliance.  

“If advisers need to provide evidence of their approach, it will be much simpler to locate and authenticate this information using technology and online systems, rather than using paper processes.”

Niral Parekh, head of retail wealth and asset management at Capco, agrees that technology makes advice auditable, referenceable and transparent, and insists “this is a win-win for the clients, advisers and the regulator”.

“The right technology not only helps the advice process massively, but can also ensure compliance with regulatory requirements,” says Conor Murphy, chief executive of Smartr365. 

“After all, the fundamental purpose of this technology is to protect clients and make the lives of advisers easier.” 

Testing the water

He believes the Financial Conduct Authority (FCA) is very supportive of new technology and innovation within the sector, although he suggests it is always possible to do more.

The financial services industry has not always been at the forefront of technological change and innovation, held back as it so often is by legacy technology.

However, the regulator has been seeking to change that.

The FCA has been pressing ahead with its regulatory sandbox initiative, “which provides a restricted environment in which businesses can test innovative fintech propositions in a live environment”, explains Steve Bryan, director of distribution and marketing at The Exeter.

The FCA accepted its fourth cohort in July last year, with the sandbox open to both authorised and unauthorised firms.

For many in the advice industry, this has been a positive move by the regulator since its launch in November 2015.

Mr Parekh suggests: “[The] FCA’s sandbox is generally a useful way for firms and fintechs to drive innovation in wealth management. 

“Often this method is used by firms to assess the risk of a new offering, product or a platform solution, when traditional compliance teams don’t have the answers or need a second pair of eyes.