Regulation 

Biggest regulatory change facing advisers in 2019 revealed

Biggest regulatory change facing advisers in 2019 revealed

It could take up to three years to see a "significant increase" in penalties against individuals under the Senior Managers and Certification Regime but "big change" is certainly on the horizon, a managing director at Duff & Phelps said.

Monique Melis, managing director of compliance and regulatory consulting at Duff & Phelps, said in an attempt to improve behaviours in the financial services, global regulators switched their focus to making individuals more accountable for misconduct in 2018, as evidenced by the introduction of the Senior Managers and Certification Regime.

Ms Melis said she believes UK regulators have led the way in promoting the importance of individual accountability through legislation, something subsequently mirrored in Australia (BEAR), Hong Kong (MIC) and Singapore (Individual Accountability and Conduct). 

The Financial Conduct Authority introduced the SM&CR in an effort to "reduce harm to consumers and strengthen market integrity" by making individuals more accountable for their conduct and competence in the financial services industry, and is expected to be fully rolled out by December 2019. 

Ms Melis said: "However, the majority of UK financial services firms will not be affected by SM&CR until 2019.

"This, combined with the fact that regulators require time to investigate and conclude cases, means that we expect it could take up to three years before a significant increase in penalties against individuals start to be recorded.

"Indeed, in the UK alone, penalties against individuals dropped sharply from £18.8m to £970,000 between 2016 to 2017, the lowest amount on record since the financial crisis in 2008."

However, Ms Melis said "big change" is coming for the industry and moving into 2019 firms should be consolidating and embedding the regulatory change into their systems, culture and staff training.

She said: "The new year will signify an end to the focus on monitory policy and regulators will be looking to see how well these new requirements have been implemented."

Regulators will therefore likely increase their oversight of governance and risk management frameworks, Ms Melis said.

She add: "New and old challenges, such as lingering economic uncertainty from the ongoing Brexit negotiations, continued technological innovation and developments in the way in which financial services operate, will put additional strain on firms.

"Despite this, it is essential that a focus on conduct and individual accountability remain high on the business agenda."

rachel.addison@ft.com

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