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Guide to regulation
RegulationSep 26 2019

Using technology can help with regulatory compliance

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Using technology can help with regulatory compliance

Every financial adviser has a weighty regulatory burden to comply with, and much of it has increased over the past few years.

There is now Mifid II to contend with and its reporting requirements; General Data Protection Regulation, with its demand for keeping client data up to date and secure; as well as the forthcoming Senior Managers and Certification Regime, which is forcing those in senior positions in financial services to be more accountable for what happens in their company.

And there is the ever present system under Gabriel (Gathering Better Regulatory Information Electronically), the Financial Conduct Authority’s online system for storing regulatory information where financial advisers have to submit detailed information on the recommendations they are making and the charges they are levying.

In many respects, technological reporting systems have been upgraded and are now capable of being used in many of these contexts to make life a lot easier. For example, back-office systems are not simply a way of managing client assets or recording transactions, they have become part of running an adviser’s business.

Nick Eatock, chief executive of back-office provider, Intelliflo says: “From an FCA perspective, the legal requirements of GDPR is a huge responsibility on businesses to manage their data.”

He adds that there is an impetus with Mifid II: “One of the new issues is the ongoing servicing, where there’s an ongoing advice fee, which is how most advisers offer their services.

“There should be an ongoing service in terms of Mifid II and ongoing suitability assessment, which means that advice they may have given five years ago should be reassessed to see if it is still suitable.

“This means you need to find a good way to understand if anything has changed in your client’s circumstances.”

Evolving tech

Mr Eatock says that back-office systems that advisers have been using have evolved to become key parts of adapting to this process.

Key points

  • Technology can help advisers meet regulatory requirements
  • The regulator often uses technology to help with its compliance
  • Technology can record conversations and then analyse them

He says: “Back office provides a really good way to allow your clients to ensure that their data is updated, so when things do come down the line we already have that data to make that assessment.”

The main back-office systems available can provide a white-labelled client portal, through a secure connection, that will let a customer update their details as and when they change.

This can be, for example, getting a divorce, taking on debt, or any other circumstances or life change. 

Having access to their data via a secure portal also increases engagement with their adviser, and the financial process as a whole, as they can also see the whole of their portfolio at the same time.

Systems are also able to assist advisers with their Retail Mediation Activities return submissions, which is part of the Gabriel reporting regime.

These requirements seek to make clear to the FCA what advice is going on and the result of that advice, whether it is a recommendation to purchase a product or do nothing.

Some of the information that this generates will then identify whether an adviser is receiving a fee (pensions or investments) or a commission (mortgage or insurance).

Much of the consequences of that advice is available automatically for download through advisers’ back-office systems, available simply by using the software.

There is not yet a system available to automatically upload this information direct to the FCA’s website, and there is some data that back-office systems do not provide, such as accounting information from the company’s balance sheet.

Symbiotic relationship

Ian McKenna, director of the Financial Technology Research Centre, says: “There’s a symbiotic relationship between regulation and technology.

“Much of the regulation that’s mandatory would be virtually impossible without adviser technology.

“Those firms that are trying to do their Mifid reporting without using technology are making their lives a lot harder.

“What happens is the regulator comes up with new requirements, and sees the technology and says, ‘They can help us do this’, and that has been the process for the last 30 years.”

Quite often a tool might have been developed for one purpose and it turns into something else, due to regulatory requirements, or something that was barely used by anyone suddenly becomes popular, simply because it has become interwoven into the fabric of regulation.

Cash flow modelling tools have, for example, become almost universal since the FCA criticised advisers’ cash flow modelling when considering defined benefit transfers.

There are also situations when things do go awry. Despite all the efforts to provide good advice, sometimes complaints arise and the records will be pored over to see where something may have gone wrong.

Time-consuming records

Many advisers record their meetings, either through voice recordings or a contemporaneous written note.

Clearly if one has a stash of voice recordings relating to clients it may take a long time to go through to determine where a mistake or a misinterpretation could have been made.

This has become apparent in Australia, under the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which examined past decades of financial mis-selling by banks, pension providers, and financial advisers.

This has resulted in 3m hours of voice recordings, which in turn would take even longer to examine, to find the right point at which an adviser made a mistake.

Compliance consultant TCC, through its sister company founded in 2012, Recordsure, has developed software that uses machine learning to make that process much easier.

Mike Park, chief executive of TCC, says: “If you’re an adviser and you’re having a conversation with your client, that conversation may have been recorded in the past.

“But it’s very hard for someone to come in after the event and review that conversation without that technology – if it’s a proper conversation that will take two or three times to review it.

“As a result, most organisations are constrained to reviewing a small part of that conversation.”

He says, for example, identifying the difference in when someone answers confidently or weakly, ‘Yes’, 

“You’ve got technology that can take that recorded conversation and analyse not just what was spoken about, such as fees and charges, but can do more subtle things; it can analyse conversations and then do a wider range, not just analyse the things we would want to be covered.”

Melanie Tringham is features editor of Financial Adviser and FTAdviser.com