The Financial Conduct Authority’s pledge to do better by being quicker about rooting out bad actors and more assertive on tackling misconduct has been met with scepticism from commentators calling for “clampdowns” not “platitudes”.
Laying out the first business plan of his tenure, chief executive Nikhil Rathi promised a more “proactive” regulator that is “tough, assertive, confident, decisive, agile”.
“Over the next 18 months you will continue to see an FCA that looks and feels even more different. One that operates differently, partners differently, and communicates differently,” Rathi said.
“One that delivers market integrity and delivers for the consumers that we serve. One that is not only purposeful but that is fit for purpose.”
Top of the FCA’s priorities is to identify issues and potential harm faster, which it intends to do by investing £120m in its data strategy over the next three years.
The regulator has also vowed to be more “assertive” by tackling misconduct to “maintain trust and integrity”.
The FCA has been trying to repair its reputation following a series of scandals, including the London Capital & Finance mini-bond meltdown and the implosion of Neil Woodford’s equity income fund, that happened on its watch under Rathi’s predecessor, Andrew Bailey.
See also: Patience wearing thin with FCA’s snail-like progress two years on from Woodford fund suspension
‘Haven’t we heard many of these platitudes before?’
“There is little, in theory, to disagree with in the FCA Business Plan 2021/22, but haven’t we heard many of these platitudes before?” asked Gina Miller, SCM Direct co-founder.
“It is hard to believe genuine transformation can take place in a regulator that allows the individual in charge of transformation, cited in a recent damning Gloster Report, to remain in post and when the FCA has pointedly refused to investigate their own failings in regard to the billion-pound Woodford scandal,” she said. “We can only judge the regulator by its action, not words and they remain not fit for purpose.”
Robin Powell, editor of the Evidenced-Based Investor, said he has been “pleased” at some of the noises coming out the FCA since the change in leadership. But he still wants to “see more by way of action”.
“There is no doubting the intention at the FCA to make the industry fairer and more transparent. The assessment of value (AoV) regime, the proposed consumer duty and repeated warnings about the risks involved in cryptocurrencies are examples of that,” Powell said.
“More lacking is the resolve to ensure that the industry abides by the letter and the spirit of any new rules it introduces.”
AoV reports shows ‘industry continues to ride roughshod over consumer interests’
A case in point is the regulator’s own damning review of the AoV reporting standards last week, which “showed yet again how the industry continues to ride roughshod over consumers’ interests,” said Powell.
“If the FCA is serious about being more assertive, it needs to clamp down on firms whose value assessments are deliberately misleading or are missing important information,” Powell said.
“Only when senior staff are held to account and properly punished will we start to see the changes in culture and behaviour required.”
See also: How can asset managers address their assessment of value issues?
FCA already has rules in place to tackle firms causing consumer harm
CWC Research managing director Clive Waller said one of his biggest gripes with the regulator was its excuse its hands were tied when it comes to dealing with bad actors that are unregulated.
“They [The FCA] regularly say they can’t intervene where a firm is not regulated. That is of course a nonsense,” said Waller. “Scammers are hardly likely to be regulated.”
“On a wider view, they need to state very strongly to their bosses at the government and HM Treasury that the rules restrict them too much,” Waller continued. “If they cannot do their job – scream about it. If they get no satisfaction – resign.”
See also: FCA’s hands tied as firm plagiarises wealth managers to target pensioners
Miller said she was disappointed Rathi’s business plan did not address the process and system changes recommended in Dame Gloster’s report to ensure better consumer protection.
While the FCA is due to publish a three-year consumer investments strategy, which outlines how it tackles firms and individuals that cause consumer harm, Miller said it already had the rules and regulations in place to do this.
“They just need to enforce them in order to send a strong message to bad actors that there is indeed a new sheriff in town,” she added.
Falling short on ESG disclosures
Another area the FCA looks to have fallen short on is implementing standards around ESG disclosures.
“The current ESG disclosures by firms could impolitely be described as a ‘bugger’s muddle’,” said Boring Money CEO Holly Mackay.
“The lack of consistency makes it extremely hard to find the information we need, and comparison is not easy. Quite often this information is available but buried in non-standard 80-page PDFs, which is a touch self-indulgent.”
Lack of transparency around individual fund holdings has led to instances of “flagrant greenwashing”, which the FCA has done nothing about, said Miller.
“We first reported and notified the FCA of industrialised levels of greenwashing in November 2019 but we are not aware of a single firm mentioned in the report being publicly censored or fined by the FCA and several of the firms appear to continue to greenwash their investments to this day,” she added.
In his business plan, Rathi said the regulator would “increase our supervisory focus” on whether fund groups are presenting ESG properties of funds “in terms that are fair, clear and not misleading”.
The FCA is currently consulting on new disclosure rules for asset managers, life insurers and regulated pension schemes with the aim of bringing new rules into force from 1 January 2022.
