At the time, the regulator said: “We stand ready to take any steps necessary to ensure customers are protected and markets continue to function well.” Since then it has rolled out measure after measure, but has it gone as far as it can?
Keith Richards, chief executive of the Personal Finance Society, says: “The FCA has been actively engaged since the start of lockdown and continues to encourage and listen to input.
“The suspension of the 10 per cent Mifid reporting requirement and the clarification on client verification will make a genuine difference for advisers, and in turn free them up to focus on clients. The measures the FCA have taken are unprecedented, and demonstrate that it is taking the effects on consumers and the sector seriously.”
Mark Turner, managing director in Duff & Phelps’ compliance and regulatory consulting practice, says: “The government itself through the Treasury is looking to support the economy and individuals who are under a massive shock with something that has happened without warning and is more far-reaching than we have ever experienced.
“The FCA is also seeking to ensure that those government measures are implemented and accessible, because time to market is critical, and for some institutions something that might be happening in two or three months may well be too late.”
Key points
- The FCA has taken steps to ensure customers are protected
- These include helping advisers conduct their work in a challenging environment
- There are requests to extend this understanding to advisers without PI cover
The list of measures so far has been long and wide ranging. They include mortgage payment holidays, allowing advisers to take a flexible approach on the 10 per cent depreciation, and flexibility on capital adequacy for advisers.
A raft of consultations and investigations have also been delayed. These include the vulnerability guidance and vulnerability research, investment platforms exit fees remedy, pension transfer advice, contingent charging and other proposed changes, and prudential requirement for Mifid investment companies.
As the lockdown continues, the FCA is poised to respond to the changes.
Simon Thomas, regulatory consultant at Quilter, says: “With a vast number of measures coming from all sides, advisers and consumers may feel a bit underwater. It would be useful if the FCA found another medium to present its guidance, such as infographics, video and audio content.”
Managing conflicts
Mr Turner adds: “It is important the FCA remains nimble as this crisis unfolds. We are potentially at the beginning of something that could have quite far-reaching consequences.”
“Having said all that, I don’t think the FCA has the resource to manage every issue a company has. Firms have to manage themselves.”
He also notes the regulator has a job to do to manage occasions where conflicts could arise between what is in the best interest of the consumer, the companies that service the consumer and the economy as it rolls out measures.
Echoing his words, Mr Thomas adds: “The FCA does have a competition objective, and so its actions have to walk the tightrope ensuring that the market both operates effectively and in the interests of consumers.
“Too much regulation can be as harmful to its competition objective, as can too little. Its competition powers, however, do enable the FCA to intervene where it sees there is harm or potential for harm to consumers.”
Back in July 2013, in ‘The FCA’s approach to advancing its objective’ it said it would target resources on the areas that it considers carry the greatest potential consumer harm, and where it believes it can intervene and help consumers most.
Martin Bamford, director of client education at Informed Choice, says: “The FCA’s crisis response to date has been reasonably good, but it could go further. I know many IFAs are hurting financially already, with relatively few able to access the small business grant scheme or salary support in furlough.
“The FCA was slow to issue its guidance around the 10 per cent drop letters, taking nearly a week after advisers were forced to start working from home to communicate their measures.
“Advisers are doing their very best during these trying times. We need the FCA to show strong leadership, fully relaxing capital adequacy requirements until the crisis is resolved.
“There’s no sense in companies holding capital unless they can access that money in a genuine emergency, and then have the time to rebuild reserves when things improve.”
Following a Dear CEO letter from the FCA at the end of March outlining temporary changes within the regulatory framework, such as the 10 per cent depreciation notification, this was welcomed by adviser trade body Pimfa.
Chief executive Liz Field says she was “greatly encouraged” by the response from the FCA in the letter.
She adds: “It also shows the FCA has not only been in ‘listening mode’, but has also taken the concerns of our members seriously and has been willing to act and show the regulatory forbearance our members need to continue to serve their customers in these extraordinary times.
“To have done so at a time when the FCA’s resources are being stretched and it is being inundated with queries from companies is to its credit.”
Pimfa has written to the FCA extensively about issues it is concerned about. For example, companies are nervous about the potential impact on the Financial Services Compensation Scheme if they have insufficient financial resources during this period.
Companies assume that the regulator will be closely monitoring this issue, specifically in relation to any business whose financial position is already known to be precarious.
Difficulties may also be encountered where a client needs to produce original documentation for ID verification purposes. The nature of the documentation required is such that many individuals would not be willing to post them.
Feedback from companies is that they will verify as much as they can, but may have to seek sight of original documentation retrospectively.
When it comes to Cass audit reports, Pimfa says that given they do not have a materiality threshold, advisers were unclear whether the FCA would be hit with pages of qualifications if daily reconciliations have to move to weekly reconciliations.
On the subject of cass audits, the FCA has answered questions around audits, cheques and physical asset reconciliations.
Sector needs more support
Likewise, the PFS is in regular contact with the FCA on other issues that could arise as the crisis continues.
Mr Richards adds: “We think the FCA has responded quickly on most of the things it can do at short notice, but there is more support the sector needs from its regulator in respect of alleviating unnecessary reporting such as retail mediation activities return, the potential challenges of PII renewal breaches, and some consumer key messaging.”
Although a pre-existing issue, concerns over advisers struggling to get professional indemnity insurance have been further exacerbated, but the FCA has remained resolute, warning the crisis is no excuse for advisers not to renew their cover in a timely manner.
Mr Richards says while a wider proposed solution has been put forward to the government, the PFS has asked the Treasury in the short term to consider underwriting temporary cover for companies that are struggling to renew their policies in the current environment, or the FCA could allow these companies to continue to practice without PI insurance for a limited period to allow advice to be given during this crucial time for clients.
Ima Jackson-Obot is deputy features editor of Financial Adviser and FTAdviser
