Using technology can help with regulatory compliance

This article is part of
Guide to regulation

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.