What the regulator will focus on during the pandemic

What the regulator will focus on during the pandemic

Remember Brexit? This time last year the UK’s departure from the EU dominated the regulatory agenda at the Stratford head office of the Financial Conduct Authority.

But since it swept the globe in March, the coronavirus pandemic has topped the to-do list at the City watchdog, with the regulator repeatedly warning this year the crisis could force some advice companies to fold and leave the market. 

The FCA pressed pause on certain “non-critical” aspects of its regulatory timeline in March as it scrambled to support businesses in focusing on clients as the pandemic took hold.

Key Points

  • The FCA has delayed non-critical work
  • Financial resilience is a hot topic for the FCA
  • The regulator has adapted to 'virtual' visits

But while the delay to non-critical work is temporary, certain aspects of the regulatory landscape in the financial services sector are expected to face permanent change in the wake of the crisis. 

Governance and oversight 

The extra pressures of the pandemic will be no excuse for senior managers and certified persons to take their eyes off the ball, with the FCA warning earlier this year it would still take action over misconduct during the pandemic.

Frank Brown, managing consultant and head of risk and transformation at Bovill, said governance would remain key in the coming months. 

He said: “For firms operating under the Senior Managers and Certification Regime, those holding a senior management function and certified functions should ensure that their actions and behaviours during the pandemic were in line with regulations.

“Senior managers in particular should ensure they can evidence and justify the ‘reasonable steps’ they have taken. 

“This is something we believe the regulator will be hot on as the crisis winds down, so firms should take a proactive approach.” 

Multiple warning bells have already been sounded by experts this year urging advisers not to put their requirements under the SMCR “on the back burner”, despite an extension to the regulatory deadline.

Monique Melis, managing director and global head of compliance and regulatory consulting at Duff & Phelps, agreed the FCA would use the SMCR to enforce its expectations that companies should have acted in the best interests of clients amid the crisis.  

Ms Melis said: “The regulator already has the tools to attack this in many ways, using the guiding principles already in place and which now have a much stronger overlay with the SMCR rules.

“The sector hasn’t seen very intrusive supervision over the past couple of years because there have been other things that have taken up the attention of the regulator. But I think that will change.” 

Lessons learnt from 2008

Ms Melis also urged the wealth management and advice industry to heed lessons learnt from the financial crash of 2008.

She said: “What we found at that time in the industry was the advice was very fragmented and did not always act in the best interest of the customer, which of course is an FCA principle.

“Where they let themselves down was [that] very often they didn’t understand that their client’s circumstances had changed.