The Financial Conduct Authority’s pulse survey into wealth managers and advisers’ operational resilience through Covid-19 has long-term implications for the industry.
Along with its recent speech on its own response to Covid-19, the FCA highlights its key areas of focus.
Operational and financial resilience to maintain the protection of client assets and money is top of the list.
Companies should not be surprised by this survey landing on their desk. It is a classic part of any regulator’s crisis playbook.
After a difficult start for some, the consensus is that the investment management industry has responded well to Covid-19 to date.
Companies that have gathered good feedback from their clients by testing their remote experience as well as their reaction to market volatility will be well placed for the assessment and any ultimate evaluation.
That being said, there is still room for improvement across the industry.
Going digital
This crisis has shown that the most resilient companies are those who have invested in digitisation and have been able to reduce their reliance on manual processes and provide a more agile client experience.
Advisers already managing relationships remotely are better placed than many of the digital laggards.
The same cannot be said for all companies however, due to the industry’s digital divide.
One outcome of the FCA’s survey will likely be increased pressure to digitise, with remote ‘know your customer’ checks and transfers being early examples of this trend.
Companies must examine how they can offer the same level of service while improving the client experience and meet new demand for digitised services across the board.
Asking the right questions
The FCA could not have been clearer with its expectation that Covid-19 will mean that we may see some companies fail.
What companies need to understand, with the FCA’s help, is how operational resilience is impacting financial resilience.
The survey demonstrates that the FCA wants companies to think about factoring in their Covid-19 experiences to their capital and operational risk planning now, and not wait until 2021.
Now is the time for companies to use the Covid-19 experience to proactively re-examine areas of potential weakness or under-investment and to have discussions with areas of the business that were slow to react to managing the risks that emerged.
For example, did brokers experience technology issues as a result of increased trading volumes?
Identify your vulnerabilities and how those could be made safe, including issues with third parties: how well did they perform and how did they communicate when there were issues?
Operational risk teams should also work alongside finance teams who are both well placed to add significant value to companies’ forward-looking resilience planning and help preparations to improve outcomes. How can these teams better work together?
The practice run
Companies have experienced the real life stress test that will support forward planning and the ability to build operational resilience to enable continuity of service.
Companies must consider expectations from their regulators in their forward-looking plans.
Legislators will trust organisations to identify and maintain their vital business services in the event of all major incidents.
Covid-19 is arguably the practice run.
Regulators across EMEA have been quick to recognise the significant strain on companies as they focus on business continuity, while preserving health and safety measures for the benefit of staff.
This is an opportunity to move on from daily monitoring of operational risk and instead use the practical experience of Covid-19 to assess what worked well and what was a struggle.
The survey should be less about simply complying with the FCA’s request, but embracing regulatory change before it happens.
The FCA’s shift to outcomes-focused supervision is in motion and irrespective of the regulatory fragmentation the UK might see post-Brexit, the intense scrutiny on operational and financial resilience is here to stay.
Linda Gibson is a director, head of regulatory change at BNY Mellon’s Pershing
