From a crackdown on advisers selling risky exotic investments, to a whole lot more rules on everything from platforms to passives, here is your run down of what advisers need to be prepared for from the regulator this year.
It is a fairly hefty 62 pages, so here are the highlights for advisers.
High-risk and complex investments
The FCA describes high-risk investments as unusual, speculative or complex product structures, investment strategies or terms and features. As consumers look for better returns, some are buying products which are unlikely to meet their savings or investment needs.
In 2018/19 the FCA will carry out a programme of work to tackle incidences of consumers entering into high-risk investments which are unsuitable for their needs to identify problems.
It will also strengthen its authorisations gateway and supervision for firms that provide advice on high-risk and complex investments. This will ensure they improve their disclosure and reduce the risks of harm to retail investors.
Investment platforms market study
Assets administered by investment platforms continue to grow at a significant rate - currently direct-to-consumer (D2C) platforms and share dealing services administer £170bn of assets. Assets under administration in both the D2C and adviser platform market grew rapidly in 2016, by 15 per cent and 18 per cent respectively.
The FCA’s market study is looking at how platforms compete and their impact on the overall charges investors pay for their retail investment products.
It will publish its interim report in summer 2018, setting out any problems it sees in the market and any action it intends to take to tackle them.
The report will cover:
- the tools that platforms use to help consumers make informed investment decisions and evaluate the value for money of investing through a platform
- the ‘model’ portfolios and diagnose whether consumers can understand what these portfolios offer
- how platforms promote the products they offer and how this affects consumer choice. We will also assess what impact these relationships are having on competition.
Pensions strategy
This year the FCA’s focus is on producing a clear strategy that makes it easier for stakeholders to understand its role in the pensions sector. It is working closely with The Pensions Regulator to produce a joint Pensions Strategy which will set out how they will work together to tackle the key regulatory risks facing the pensions sector in the next 5-10 years.
The FCA will jointly host a series of stakeholder events and a webinar with The Pensions Regulator to ensure that all relevant issues are covered.
Impact of passive investment
Given the rapid growth in the proportion of investor wealth managed passively, the FCA wants to understand the economic implications of this development on both individual investors and UK financial markets generally.
By the end of 2018/19, the FCA plans to publish research that will look at the rise of passive management in the UK and will explore the impact on core aspects of financial market performance such as corporate governance, market efficiency and financial stability.
Asset management
In 2018/19 the FCA will issue a further Policy Statement on the final rules and guidance outlined in its recently published consultation paper, in which it ordered fund managers to be more explicit in justifying their charges, among other measures.
The FCA will also issue a second consultation paper on how to ensure investors receive clear, comprehensive and consistent information.
Reviewing firms’ use of data
The FCA will further develop its relationship with the Information Commissioner’s Office as the General Data Protection Regulation (GDPR) comes into force in May 2018. It will then publish an updated Memorandum of Understanding setting out how they will work together in future.
Establishing a public register
In July 2017, the published proposals to extend the Senior Managers Regime to all FSMA firms.
Under these proposals, only senior managers will appear on the Financial Services Register. The FCA has received substantial feedback on this and will consult by summer 2018 on policy proposals to introduce a public register.
The mortgage market
The FCA’s Mortgage Market Study has looked at whether available tools, including advice, help mortgage consumers make effective decisions. It has also examined whether commercial arrangements between lenders, brokers and other players cause harm to consumers.
The FCA will publish its interim report in Q2 of 2018, setting out its findings and inviting views on any potential remedies. It will consider feedback received before publishing its final findings, a summary of the feedback and its next steps later in 2018/19.
Regulatory sandbox
The FCA’s regulatory sandbox gives businesses of every size the opportunity to test the commercial and regulatory viability of their innovative concepts before they invest more heavily in them, while providing safeguards for consumers.
The sandbox also gives us an understanding of the opportunities and risks of harm that innovation can create.
Over the coming year the FCA will undertake work that uses lessons its has learned since the sandbox was created in 2016, with the aim to further reduce unnecessary barriers to entry for innovative firms.
