Death by 1,000 papercuts: simplified advice and all the rest

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Death by 1,000 papercuts: simplified advice and all the rest
Photo: Andrea Piacquadio via Pexels

Well, well well (three holes in the ground), the FCA has been busy, hasn't it?

As if it has waited all year to open up the doors on its regulatory advent calendar, the financial services industry has been treated to a flurry of paperwork this week. 

Barely had the industry had time to read through the final policy statement: Consumer redress scheme for unsuitable advice to transfer out of the British Steel Pension Scheme, on November 28, when the FCA published a 'Dear CEO' letter to professional indemnity insurers the same day.

In this, the FCA outlined its expectations of these firms in relation to the BSPS redress scheme.

While getting our heads around this, along came the regulatory fees and levies: policy proposals for 2023-24 document, published on November 29. 

Out come the proposals on simplified advice. What a day to be alive.

The 35-page consultation paper sets out the FCA's proposed policy changes to the way it will raise FCA fees from 2023-24. 

According to the paper, the City watchdog has put forward a £5,000 application fee as an appropriate contribution towards the costs of processing applications to add new financial promotions products.

Simplified advice

Just as advisers were getting their heads around that, the FCA published its £18mn or so fine for Julius Baer International, "for failing to conduct its business with integrity, failing to take reasonable care to organise and control its affairs and failing to be open and cooperative with the FCA".

And the same day, out come the proposals on simplified advice. What a day to be alive. 

It is something that trade bodies such as Pimfa have been discussing with the FCA for months, if not years, but few people seem to have expected the regulator to issue its paper so soon. 

But when it published its whopping 117-page long paper on November 30, it seems to have been an early Christmas surprise for some.

One industry stalwart told me: "It took us by surprise. Nobody expected [the FCA] to move so quickly."

Indeed, advisers who have flagged things to the City watchdog in the past have come to expect a more leisurely pace.

Put it this way: I remember the first simplified advice paper I ever read from the FCA. It was 27 pages, and I was young, but not old enough to remember those which had gone before. 

So why has the FCA issued its Broadening access to financial advice for mainstream investments paper now?

Who knows? Maybe to get in before the government carry out their planned overhaul of the financial services regime?

There are obviously more questions to be asked of this CP

Anyway, among the proposals is the relaxation of the independent and restricted adviser definition

The FCA stated it would introduce an additional rule in COBS 6.2B where “advice under the core investment advice regime is capable of constituting independent advice, despite the firm not considering a full range of financial instruments”.

Pretty sure advisers have been saying this from the start, but there we go.

The idea, as advisers speaking to FTAdviser said, is laudable.

The FCA has rightfully concluded that certain savers are not currently served as effectively as the could be by the traditional advice market, often with the bulk or all of their savings in cash accounts or cash Isas. 

Financial literacy is low, and the advice market has not been capturing the four million or so people whom the regulator has identified as a good target market for simplified advice. So, why not provide "core investment advice?"

But the question still remains of what happens when "core investments" don't go up all the time; when markets collapse, when bonds behave very much like equities; when expected unexpecteness hits portfolios hard?

As Sally Hickey reported, advisers were concerned how these clients might feel when a statement shows their portfolio has dropped in value - will complaints to Fos escalate? And how might all this need to be fed into the new consumer duty regime?

There are obviously more questions to be asked of this CP, which closes on January 16, 2023 - enough time to write your responses in between mouthfuls of turkey leftovers. 

Warnings over inflation

And then on December 1, just as most households had finally succumbed to the pressure of dragging boxes of decorations out of hibernation, the FCA put out its proposed regulatory framework for pension dashboard service firms.

Coming in at 328 pages long, this meaty tome appears to be the result of the FCA having had "greatness thrust upon it".

Did I detect some snark in the comment: "The government intends to make us responsible for regulating commercial bodies that operate pensions dashboard services"?

Maybe that was the eggnog talking already, but by the end of December 1 I have felt as deeply sorry for the FCA in pushing all these regulatory proposals out as I am for those in the industry who have to read and digest and respond to them. 

I do not envy anyone with a compliance function in financial services right now.

Hats off to the FCA, really - this must be a mammoth task to get these papers out - but my, oh my, that's a lot for small, directly-authorised advice firms to deal with over the next few weeks. 

Under this consultation, which is intended to focus on how platforms can best provide the right outcomes for the end user, platform and Sipp providers will be required to warn investors of the impact inflation can have on their pensions.

The FCA has also stated: "Firms must have proper controls in place to manage risks. We propose to apply our senior managers and certification regime and our systems and controls rules on conflicts, risk management and outsourcing."

If the dashboard(s) are going to work well, they need to be robust and deliver what they say on the tin. But as the FCA is not responsible for the delivery of the dashboard, only regulatory oversight around those who are delivering it, this looks like it will be a feat worthy of Hercules himself. 

A brief glance at the draft handbook (page 111 onwards) and the authorisation application forms for the pensions dashboard service (page 244 onwards of the consultation) give an indication of how this scope of regulation will take shape.

Responses to the proposals, and to the draft handbook and application forms, is due in on 16 February 2023.

I do not envy anyone with a compliance function in financial services right now. 

simoney.kyriakou@ft.com