CISI’s Culhane: ‘The FCA is always playing catch-up’

Speaking to FTAdviser earlier this month (February 3), Culhane, who recently announced he would be stepping down from the role, said it is a truism that the FCA, like many other regulators, is always following innovation rather than taking a proactive approach.

“The only way you can really [change] that is to make sure you involve and work with the practitioners,” he said.

“The point is you've got to work in collaboration and involve the practitioners rather than just dictate. It has to be a common regulation otherwise you are forever destined to catch-up and it becomes antagonistic and it doesn't really work.”

Culhane described the work of a regulator to the policing system in the UK, arguing that it is very difficult for a regulator.

“Essentially, in order to make it work, it has to be collaborative and that means you have to listen and work with all the stakeholders, not one particular one but all stakeholders, and be realistic and proportionate,” he said.

“Members tell us their biggest problem is the lack of consistency amongst the FCA people, they don't stay long enough and they don't understand the subject,” he said.

“If you talk to any group of CEOs in a room, they'll tell you that's the fundamental problem.”

It’s a disproportionate power position there

He argued that it has been a problem for many years at the FCA, stating the turnover of staff at the regulator has played a role. 

To eradicate some of these issues around consistency, Culhane said the FCA needs more involvement with practitioners, particularly the stakeholders, shorter consultation papers and a reduction in time to get things through. 

“You need people to stay for a reasonable time but equally you need new blood in there so it's a very delicate balance for the regulator,” he said. 

To be regulated or not to be?

Discussing some of the regulatory requirements for firms, be it advisers or asset managers, Culhane argued that the rules should be the same for those working at the FCA.

He explained it is not fair to let a regulator regulate who is not professionally qualified themselves.

Culhane said: "We've got regulators who are deciding what firms and others should do and one of the things they make the firms do is be qualified and yet they aren't qualified in the first place. 

“You can see why that drives members. They don't believe that many of the people talking to them from the regulator, actually understand what is going on, and if they've got no qualifications behind them - you can see why that argument might hold water.”

Culhane said the FCA should require its staff to have the necessary qualifications in order to regulate the firms and individuals it is working with.

“The FCA requires fully qualified people to sell to the customers and to look after and to make sure they're selling properly and similarly, we should have fully qualified regulators,” he said. “It’s a disproportionate power position there.”

Earlier this month, FCA Unite members voted 'yes' in support of industrial action and yesterday (February 16), some members gathered around the offices to hand out leaflets highlighting concerns about proposed cuts to pay and conditions.

Culhane added: "They are not in good shape and that doesn't help the people that are being regulated by them.”

Advice gap is an unintended consequence of RDR 

The advice gap is a long-running issue in the industry, something which Culhane also noted.

“We do have a problem providing financial advice in this country,” he said. “One of our megatrends is that we are all living longer but arguably, in the last year or so that growth has gone slightly backwards and Covid has actually reduced life expectancy in this country.

“But if you're living longer, what that means is that you need your money to last longer.”

Culhane explained that previously, people were retiring around the age of 65 and would die within a couple of years. 

However now, people are retiring and living for a lot longer, and therefore need their money to last a lot longer. 

“The advice gap is a real problem - if they are not getting advice and they're not ready to make their assets last longer then these are big problems for them and actually for society because we have a safety net in this country that basically bails people out,” he said.

“This advice gap is one of the downsides of RDR and it is effectively where the regulation has gone a bit too far over the other side. The amount of regulation to take a new customer on has raised the value of the assets needed before a client will be taken on.”

Culhane said previously, where £50,000 would be considered to be a reasonable sum, this is now around £125,000 to £150,000.

“That's a whole different ball game. This is one of the big problems and it needs to be reversed. We all recognise there is an advice gap. It is an unintended consequence of the RDR because it has overregulated the onboarding process.”

He added: “If you want to go and lose £500 pounds on the four o'clock from Chelmsford, and place that on a bookie, you could do that. You want to go and get a unit trust and put £400 a month into it - the paperwork involved in doing that is just completely disproportionate.

“We have got this all wrong now. It now needs to be looked at again. How can you effectively encourage low risk savers into low risk products for the mass market?”

Elsewhere, Culhane also noted advisers will need to hone in on their soft skills as the increasing use of technology will see these skills become more in demand.

sonia.rach@ft.com

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