pa analysis more aggresive regulation from the fca

Even though the FSA will not exist from 1 April (it's true!) it is going out with a bang with fund managers recently getting their own Dear CEO letter and wealth managers facing a more personal visit.

pa analysis more aggresive regulation from the fca


Keeping up with the compliance burden is a common complaint from intermediaries, especially smaller firms with limited resources and that load is only likely to increase in the coming months. RDR is one thing, but what about initiatives from further afield, such as MiFID and the Foreign Account Tax Compliance Act (Fatca) that the FSA will implement?

Make no bones about it the FSA is stepping up its efforts to police wealth managers, with satisfying the regulator’s rules on suitability top of the list for compliance professionals.

In June last year, the FSA issued a ‘Dear CEO’ letter to all intermediary firms outlining its key concerns, which included an absence of basic know-your-customer information and inadequate risk-profiling. This was followed in August this year with the announcement of a new thematic review, including further company visits.

So should wealth managers be expecting a visit imminently?

The simple answer is that they should be prepared for a visit tomorrow but they should not expect it to be over in a flash. Whereas Arrow visits used to take up to a day, they could now take a week as the regulator takes a more systematic approach to assessing whether a business model is sustainable. And whether clients’ wealth is managed end-to-end throughout the process.

As has been pointed out several times before, a real danger for wealth managers lies in the definition of risk benchmarks as one man’s cautious is another’s balanced. It will be interesting to see what the regulator makes of this, and whether it goes as far as to say they are even unacceptable or incorrect.

Without doubt, compliance costs will go up next year. A recent survey from Protiviti found around half of senior compliance professionals (from 30 firms) believe their company’s costs of compliance will increase by up to 20% under the new ‘dual’ regulatory regime once the FSA is split up.

At present its hard to say for sure how the new regime will improve the clarity of regulation, though it should be pointed out that most firms will likely fall under the care of just one regulator – for wealth managers and discretionaries this will be the Financial Conduct Authority.

As usual, the most wide-reaching and important legislative changes originate from further afield with the compliance burden also having to cater for Fatca from the US and MiFID and AIFMD (Alternative Investment Fund Managers Directive) from Europe.

How these legislations may impact intermediaries – and their compliance requirements – will depend on the size of the business and its client base. For example, a larger private client broker serving investors from the US must be more au fait with Fatca than a smaller IFA with just UK clients.

The UK regulator’s mood has shifted more towards thematic reviews and an outcomes-driven strategy whereas its emphasis used to be on its wide-ranging principles-based approach. There has been speculation that its split will see UK financial services adhere to more of a formal rule-based approach, as typified in the US.

Whatever its future, commentators suggest we will see more focused, detailed and perhaps aggressive regulation in the UK – a warning to those that have so far been lax in keeping processes clear and concise and client files up-to-date.



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