Your IndustryAug 7 2018

Global regulators look to UK's RDR

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Global regulators look to UK's RDR

Global financial regulators are looking to implement a form of the UK's Retail Distribution Review (RDR) as their markets evolve. 

Countries across Africa and Asia are all considering a form of RDR in a bid to improve standards, restore trust and resolve any conflicts of interest around remuneration and commission.

Keith Richards, chief executive of the Personal Finance Society, said the UK model would not be adopted wholesale because each jurisdiction was different and had different needs, but would be adapted for each domestic market. 

He told FTAdviser: "We have found regulatory regimes are focused on the raising of standards across the board, addressing some of the conflicts of interest that prevail, especially around remuneration and commission.

"There are also trust issues that need to be resolved. In some parts of the world, financial advisers are not as trusted as they should be, and so there are similar comparisons to draw with the UK experience.

"Also, more countries, such as in Africa and Asia, are moving away from the old, traditional insurance-based savings products, and this evolution will speed up as they adopt open architecture."

While the UK RDR brought in QCF Level 4 as a mandatory minimum requirement for investment advisers, without which they cannot get the statement of professional standing (SPS) needed to operate, Mr Richards said not all countries would necessarily bring in such stringent measures on advisers.

That said, there would be an "inevitable raising of standards", following a form of mandatory qualification and, depending on the individual regulatory regime, some countries might adopt a higher standard similar to the UK.

I think that RDR is a great concept, to a point, but if it spreads as a standard, some countries and continents will need to overcome corruption first. Derek Bradley

For example, Australia's regulators are currently exploring proposals to bring advisory standards up to a level four equivalence as a minimum.

But Mr Richards was quick to dismiss suggestions other countries' advice provision was lacking. He said: "Some people have described other countries' advisory regimes as a Wild West but I have not found this to be the case. In many parts of the world, for example in Asia, advisers are degree holders and many are chartered.

"Even though some countries only require a simple licence to trade, and there is no mandatory requirement to the same degree that is required under the UK's RDR regime, there is a form of licensing and testing that is to at least level three standards.

"But the common issues around conflicts of interest, opaque charging structures and a lack of confidence among consumers that the market puts their interests first - these are being discussed and regulators are looking at the way the UK implemented the RDR as a means of resolving these issues."

Last week, Mr Richards was in Johannesburg, South Africa, taking part in the African Experience Exchange (Insurance and Financial Planning across the Continent).

He said a key topic of debate was focused on the raising of standards and resolving conflicts of interest. "There is nothing sensationally different about what African regulators are discussing and what the UK experience has been, and many things we discussed are just as relevant to the UK today."

Mr Richards said there was no set timeline, however, for bringing RDR-style regimes into place, although "it is on every regulator's agenda".

He explained: "In some countries, the regulators are an extension of the government, and this can cause potential conflicts as politics can get in the way of reform, while in other regions, there is more of a separation so you are likely to see quicker moves to implement RDR-style change in jurisdictions where the regulators operate independently of government."

Derek Bradley, founder of advice community PanaceaAdviser, said: "I think that RDR is a great concept, to a point, but if it spreads as a standard, some countries and continents will need to overcome corruption first. I suspect that will be impossible in the short term. 

"For example, some countries on the African continent are rife with political corruption, and I think there may be some bigger issues to deal with first. And I suspect the scammer mails from places such Nigeria will not be stopped by a little bit of RDR-ness.

"I understand there can be a bit of a 'Project Fear' about commission based advice - after all it is sales, is it not?" But he warned when RDR got rid of commission as a means of paying for investment advice in the UK, the market has seen access to advice drop hugely.

Mr Bradley said this has been problematic for many people, adding: "The man from the Pru model in the 50s and 60s saw savings and protection covered and boosted without any sense of mis-selling."

Moreover, he said the RDR has not built up the 'six pillars' outlined by former Financial Services Authority chairman Callum McCarthy’s when he gave his introduction to RDR speech at Gleneagles in September 2006.

The so-called pillars on which RDR was to be founded were:

1.    an industry that engages with consumers in a way that delivers more clarity for them on products and services;

2.    a market which allows more consumers to have their needs and wants addressed;

3.    remuneration arrangements that allow competitive forces to work in favour of consumers;

4.    standards of professionalism that inspire consumer confidence and build trust;

5.    an industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly; 

6.    a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers. 

But Mr Bradley said: "In the UK only one of the six pillars seems to stand - number four. And as we all know you cannot build any sustainable structure on just one pillar. It just falls down.

"The regulator has ensured that the other five cannot be built as the ground beneath it has been destroyed by too much regulatory firepower."

simoney.kyriakou@ft.com