Everything advisers should know about the FCA's plans for 2019

Brexit business plan

The Financial Conduct Authority (FCA) published its business plan for 2019/20 yesterday, setting out its priorities for the coming year.

Number one was, of course, supporting an ‘orderly’ Brexit when the UK finally leaves the EU in October/next March/2045.

However the regulator has more on its mind than the ongoing departure talks in Westminster and Brussels. ‘Dealing with Brexit will be the most immediate challenge we face. But this plan also commits us to a stretching programme of work across the financial sector,’ said FCA chief executive Andrew Bailey (pictured).

Read on to see what advisers should look out for from the regulator in 2019/20. 

Suitability search

One of the biggest areas to keep an eye on is the FCA’s return to looking at advisers’ suitability reports. When the regulator last looked at suitability in 2017, it was disappointed with how advisers were disclosing their charges, despite finding 93% of firms were providing suitable recommendations.

This second review of suitability, due to take place in 2019 with findings published in 2020, is therefore likely to look closely at how information such as charges is being presented by advisers. The regulator’s focus will be sharpened by recent EU rules introduced over the past year that emphasise the importance of being clear to clients.

‘It will allow us to assess how firms have implemented the requirements introduced by Mifid II, Priips and the Insurance Distribution Directive.’

The original review follows examined advice given by 656 firms, so prepare to hear more from the FCA soon...

Read the full story here. 

RDR review

The new suitability review will also be an important part of the FCA’s review of the retail distribution review (RDR) due to take place this year.

This will judge the success of RDR against measures set out back in 2011 by the Financial Services Authority (FSA), including whether firms are now making fewer unsuitable recommendations.

Perhaps one of the bigger sticking points of the review will be about whether advisers now recommend ‘more cheaper/lower-charging products’ than before the RDR came into effect in 2013, one of the ‘indicators of success’ set out by the FSA in 2011.

While no one would doubt high commissions are largely a thing of the past, the RDR review could pose some tricky questions.

Read more on the FCA's RDR review here. 

Contingent conundrums 

Another part of the FCA’s Business Plan will provide tricky questions about charging: more work on defined benefit (DB) pension transfer advice.

‘There is an inherent conflict of interest when firms use contingent charging structures,’ the regulator said in its Business Plan, hinting it could take action in the summer.

Then again the regulator pulled away from a ban on contingent charging last year, stating it had no evidence such models were the ‘main driver’ of poor DB transfer advice.

Expect to hear more from the FCA if your firm is currently offering DB transfer advice. 

Read the full story here. 



It giveth and it taketh away 

There was joy at first as it appeared advisers will see a fall in their FCA fees this year according to a consultation paper published alongside the Business Plan. 

In a paper released this morning as part of its annual business plan, the FCA said A13 firms, which covers advisers and brokers, will see their FCA fees fall from £80.3 million in 2018/19 to £79.4 million in 2019/20. This represents a decrease of 1.1%. 

However, the joy was short-lived as further down in the paper the regulator revealed additional levies on advisers will increase as part of the roll-out of the government’s new guidance body, Money and Pension Service (Maps). Maps is a consolidated quango consisting of the services formerly known as Pension Wise, The Money Advice Service and The Pensions Advisory Service. 

This is sure to make former FSA chief Hector Sants (pictured) popular with advisers in his new role at Maps. 

Read the full fees story here. 

DFMs in the crosshairs

The FCA warned it has seen an increase in scams being placed in discretionary fund manager (DFM) portfolios. 

‘We have seen evidence of an increase in wealth managers’ discretionary portfolios being used for pension scams, and poor conduct from wealth managers who make unsuitable investments in high-risk assets for their clients. Our activities will improve our ability to prevent or reduce harm in this area,’ the regulator said.

Read the full story here. 

Turn it off and on again?

The FCA also said it was launching a review into how firms are using third-party IT suppliers, following a number of high-profile failures in 2018.

In the regulator’s business plan for 2019/2020, it said around 17% of the incidents firms reported to it were caused by IT failures at third-party suppliers.

Last year high-street bank TSB suffered a prolonged period of customer disruption after a botched customer data transfer, which hit 1.9 million customers.

Wrap platforms Aviva and Aegon also suffered from rocky platform technology migrations last year, which hit IFAs and their customers.

Read the full story here. 

Dashboard bills

In the time since the pensions dashboard was announced in the 2016 Budget, England has reached a football World Cup semi-final, the UK has voted to leave the EU and George Osborne has started at least seven different jobs.   

But we are yet to see what the dashboard actually looks like, despite a lot of to-ing and fro-ing between government and providers. 

Any eagle-eyed readers will have noticed the FCA was not silent on the project though: of the £35.9 million allocated to fund pension guidance, £4.9 million will be spent on the dashboard. 

Who knows? By the time Brexit is done with, we could even have a dashboard that's ready to launch...


Vulnerable clients

If you ‘ctrl+F’ ‘vulnerable’ on the PDF of the FCA's business plan, it comes back with 17 mentions of the word. Clearly, vulnerable clients are on the FCA's mind. 

Check out this section, from part of the business plan devoted to regulatory technology – or ‘reg tech’ as it is colloquially known – the FCA had this to say about its plans:

‘We will run workshops to identify technical innovations that support vulnerable consumers. In the longer term, we would like to see firms using technology to serve vulnerable consumers’ interests and support them to manage their financial wellbeing.’

The elephant in the room...

The Financial Times recently reported the FCA would appoint an independent analyst to examine its own failures in the lead-up to the collapse of now-notorious bond provider London Capital & Finance.

In its business plan, the FCA addressed concerns surrounding its response to the scandal head on, saying:

‘And of course, when things go wrong, it is important we carefully consider what happened and learn lessons for the future. That is why, as agreed by the Board, this year will see an independent investigation into the issues raised by the
failure of London Capital & Finance.’

No doubt there will be more to follow on this. 

Brexit means Brexit

‘Firms, consumers and markets have already weathered a considerable period of Brexit related uncertainty,’ the FCA said of Brexit. 

‘Against this backdrop, our focus is on ensuring Brexit is implemented in a way that delivers on our objectives – ensuring we maintain market integrity, protect consumers and make competition work well.’

Now, if Treasury Select Committee chair Nicky Morgan is any authority on the matter, that may well be easier said than done. Indeed, at the back end of last year, she told us that the FCA's attempts to prepare for Brexit had been ‘frustrated’ by its European regulatory counterparts. Awkward...

Death by committee or diligent delegation?

Anyone with an interest in workplace pensions governance should keep a look out for a policy statement from the regulator 'by the end of the year' on the remit of independent governance committees, whose remits are set to be extended to include oversight over use of drawdown by members.

These are all part of proposals to protect savers in occupational schemes in the wake of the pension freedoms, but there are some lobbyists out there who are still a bit unsure about what precisely the FCA is 'getting at' with the idea.

Tom McPhail, head of policy at Hargreaves Lansdown, said: ‘The extension of the IGC remit to encompass drawdown is a significant evolution in the governance of consumers’ relationship with product providers

‘We’d like to have a clearer understanding of the FCA’s thinking here and of the implications for the broader market: once you’ve crossed the line beyond using IGCs purely for auto-enrolment, into the realm of what are at least nominally elective purchases, where does that stop? We look forward to engaging in discussion on this issue.’