Financial Conduct Authority  

SMCR one year on: What impact has the regime had on advice?

They are asking constructive questions about their own companies: asking if their documentation is fit for purpose, for example, or what they can learn from customer complaints or poor customer outcomes. This questioning and the process of continuous improvement are exactly what the SMCR is supposed to encourage.

We are also aware that when companies have identified employees who have failed to meet the standard for certification, action has been taken to address this, including additional technical training and training related to conduct and culture. If the SMCR did not exist, I am not altogether sure these additional actions would have happened.

Further evidence of the SMCR having a positive impact may be visible in data related to FCA investigations into defined benefit pension transfer advice.

This data, obtained by Duff & Phelps via a freedom of information request, shows the number of such cases opened by the FCA has risen in 2020, while the number of complaints being upheld in the customer’s favour has fallen slightly over the same period.

That suggests FCA action is having an impact, although further data will need to be studied to verify that this is the case.

Potential pitfalls

Yet there are also still some potential problems and risks related to the SMCR that advisers must take care to avoid. Some companies have taken the view that the need to comply with this and other regulation means the amount of documentation the business produces – around the suitability of advice, affordability and background information – should increase dramatically.

Good documentation is vital, but companies must guard against the risk of a tick-box mentality emerging, where the sheer volume of data being collected can end up obscuring analysis of that data.

We are suggesting to some of the advisers we work with that sometimes less is more: sometimes concise, clear documentation setting out the facts is more effective. This applies to both internal documentation and the documents they are asking their clients to read and complete.

The other important risk of which both advisers and the FCA should be aware of is the danger that the resources required to ensure compliance with regulation make it too difficult to offer advice in a cost-effective way.

There is a risk that if the bar is set too high, this will mean that obtaining independent financial advice becomes more difficult for those people who are most in need of it.

But overall, despite the difficult operational conditions created by the pandemic, there have certainly been some notable positive developments during the past 12 months.