RegulationJul 26 2017

FCA rule change to cost industry at least £550m

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FCA rule change to cost industry at least £550m

The roll-out of the senior managers regime to the entire financial services industry, designed to strengthen accountability in the sector, will cost all firms at least £547m, the Financial Conduct Authority has said.

This morning (26 July) the FCA published a consultation paper into how it plans to roll-out the regime, which currently only applies to banks, across firms including advisers and asset managers.

As well as the one-off costs of establishing the regime, which the FCA has stated could reach up to £552.3m, the regulator put the ongoing cost at up to £190.5m.

In addition, the FCA will itself incur an estimated cost of £13.4m over four years as the new regime is implemented.

These costs are to cover FCA staff costs, training for FCA staff, communication to the industry and consultancy costs and developing its IT infrastructure.

But the FCA has stated that despite these costs, the industry could benefit from the regime’s expansion.

 “A robust individual accountability regime can reinforce acceptable standards of behaviour and be a critical factor for deterring misconduct.

“Culture and standards will be driven up through increased accountability at the senior level, supported by a new ‘duty of responsibility’ on senior managers, senior conduct rules and the certification regime.

“Better culture throughout the firm should improve outcomes for consumers by reducing exploitative behaviour.”

The FCA has calculated that in lower redress which will be paid out as compensation alone, the industry as a whole could save £1.4bn a year.

When fines and administration costs are taking into account, the regime could save the industry £1.6bn.

The FCA has also claimed that the regime could make it easier for firms to hire staff since they will no longer have to gain pre-approval for some roles.

It has also predicted that customers will experience lower prices and better products as decision making is improved across the financial services sector.

Under the regime, anyone who holds a senior management function at an advice firm will need to be approved by the FCA and every senior manager will need to fill out a statement of responsibilities explaining what they are responsible for.

But the FCA will introduce a tiered approach, with sole-traders subject to fewer requirements and larger firms subject to more.

Grant Lee, financial services risk and regulation partner at PwC said: “Firms are already flat-out tackling other regulatory issues such as Mifid II, the Insurance Distribution Directive, Priips and the General Data Protection Regulation, let alone managing the uncertainty of Brexit so the FCA must be pragmatic in its approach, expectations and deadlines. 

“Firms shouldn't underestimate the implications of this initiative on their people. Discussing the nature, scope and accountability of roles in an organisation is highly emotive, so communicating with staff both immediately, and throughout implementation exercises is vital.”

damian.fantato@ft.com