We are now into a new decade.
As such, it's a good time to take stock of all the regulatory change we've seen over the past 10 years, and look ahead to what's likely to change in the near future.
The last decade has brought a lot of regulatory change in the advice profession and in the wider financial services industry.
Generally, the trend has been for the regulator to bring in rules designed to increase accountability, both at a firm and senior manager level.
This is a recap of some of the biggest changes, and what they set out to achieve.
The Retail Distribution Review (RDR) was designed to change the way financial advice operated within the UK.
The ultimate goal was to ensure more transparency in the retail investment sector.
It also sought to improve services through higher qualifications, make sure investors understand the true cost of advice and ensure consumers receive unbiased information.
The Markets in Financial Instruments Directive, or Mifid II, aimed to improve the functioning of financial markets in light of the financial crisis.
It extended the scope of the original Mifid rules to more financial instruments, essentially to all products available in the European Union (EU).
Other aims included strengthening investor protection and increasing the transparency of charges. This led to increased restrictions on inducements and requirements around keeping records client conversations within all authorised firms.
The General Data Protection Regulation and the Data Protection Act 2018 marked an essential step towards enhancing the privacy and security of personal data.
Since May 2018, firms are required to be able to produce evidence on the steps they have taken to comply with GDPR.
The aim of the senior managers and certification regime (SM&CR) is to reduce harm to consumers and strengthen market integrity by creating a system that enables firms and regulators to hold people to account.
Overall, over the last 10 years each regulation change has increased the compliance requirements on firms, and in particular, the onus on senior manager accountability.
This theme is unlikely to disappear any time soon.
As for what's to come in 2020, in the next year alone there's a number of key changes that financial services firms need to be aware of and prepare for.
Whether you were for or against it, the ubiquitous B-word will probably be the largest cultural, regulatory and political change which we as a country have seen in generations.
Looking at Brexit's impact on financial services, a proportion of our legislation and regulation originates from the EU.
However by the end of the year all EU legislation will cease to apply to UK firms.
Following Brexit, Mifid and Insurance Distribution Directive passports will no longer be available.
Firms authorised in a European Economic Area (EEA) state will continue to have passporting rights during the transition period, which is due to end on 31 December.
At this point a firm’s passporting permissions will no longer be valid, and firms will need to be authorised in all countries which they wish to operate in.
Under GDPR, firms are allowed to store and transfer data within the EU without additional requirements.
Following Brexit the UK will still be able to transfer its data to the EU with the same degree of flexibility.
The Financial Services Compensation Scheme (FSCS) and the Financial Ombudsman Service (FOS) will continue to provide UK based consumers with protection for their UK based firms and products.
Following Brexit, the FSCS and FOS will no longer be able to assist with funds and firms based outside of the UK.
Assessing Suitability Review 2
The FCA completed its first review into the suitability of advice in 2017, and is due to carry out a second suitability review.
This review will look at retirement income recommendations where advice was given to clients to withdraw assets/take an income in retirement. It will focus on the period between 1 October 2018 and 30 September 2019.
It will be made up of an information request and FCA file reviews, and we can expect to see the findings by the end of the year.
The exact date hasn't been confirmed for the rollout, but realistically between April and September we expect to see the new FCA Gabriel system go live.
What we know so far is that Gabriel is moving from a server-based system to a cloud-based one, which should prevent any future outages and the disruption we saw in the last reporting period.
The system will also have an auto-save function which means hopefully we won't lose as much data if there's a system crash.
There's also going to be new data validations flagging up sooner when any data input breaches system tolerances.
Modernising its reporting means the FCA should be able to increase its accountability on the information it gathers and reviews.
In December 2019 SM&CR went live for solo-regulated firms.
Firms have until 8 December 2020 to add applicable members of staff to the new directory, at which point the directory is due to become operational.
Sixth money laundering directive
It's still up for debate what EU legislation the UK will continue to implement post-Brexit.
Yet it's likely the UK will implement the sixth money laundering directive (6MLD), as without it we might find it hard to do any business with the EU.
The key changes are the addition of 22 specific 'predicate' offences which will apply to all member states. Interestingly, this includes environmental offences, cybercrime and tax offences.
Criminal liability has been amended to companies and supervisors. The directive also proposes increased jail terms for individuals involved in financial crime.
To sum up, to get ahead of the curve here are three things you can be doing now:
- If you haven't already done so, consider how Brexit will impact your firm and your clients
- Start uploading applicable members of staff to the FCA directory in preparation for the December deadline
- Start reviewing your retirement income advice to make sure your recommendations can always be seen to be in the client’s best interests, and that they are as cost-effective as possible.