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FCA business plan: 11 key wealth and fund insights

The Financial Conduct Authority today published its annual report, revealing its key areas of focus and strategy for the next year.

The Financial Conduct Authority today published its annual report, revealing its key areas of focus and strategy for the next year.

Inside were a series of iniatives, reforms and rule changes which will impact the world of wealth between now and 2020.

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The Financial Conduct Authority today published its annual report, revealing its key areas of focus and strategy for the next year.

Inside were a series of iniatives, reforms and rule changes which will impact the world of wealth between now and 2020.

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High risk regulated investment advice is a key area which the FCA has identified as a source of concern, alongside pension transfers. ‘These will continue to be a priority in our supervision work,’ it said.

It added that it was turning to data analysis in order to help identify patterns of behaviour and outcomes which may act as early warnings signals.

Following the 2017 suitability review which found that 93% of pension advice was compliant, the FCA is carrying out a second review this year for publication in 2020.

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Wealth management was increasingly vulnerable to scams being perpetrated in pension business, it said, and would be subject to specific monitoring.  

‘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.’

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In a small footnote the FCA revealed it had begun to examine the regulatory burden placed specifically on small firms, although it emphasised this remained at an exploratory phase.

‘We are undertaking a survey of firms to understand the perceived costs as well as the potential harm to firms and consumers that are avoided,’ it said.

'This will inform our view of the areas that generate the highest regulatory costs’.  

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The regulator said it would focus its attention on the outcomes of the platform market review it published last month to ensure that businesses were taking steps to improve their services.

While the market overall was found to ‘generally working well’ it nonetheless identified some significant failings such as the routine use of exit fees, and fee structures which defied a straightforward like-for-like comparison between firms.

The FCA said that having begun a consultation on these issues it may move further on enforcement if businesses do not implement their own changes.

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Following a consultation which in February ruled that packaged retail investment rules introduced last year have created serious ‘potential consumer harm’, the FCA pledged to continue to work to reform rules which fund managers risk misleading investors

‘We will continue to work with firms and trade associations on what we can do to resolve the issues identified,’ it said

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Following its recent work on fund price ‘clustering’ which suggested that investment firms were pricing on client fee tolerance rather than fully competing, the FCA said that from next year’s annual report it will publish post-fee performance data on active versus passive funds.

It will also publish anonymised, aggregated data on underperforming active funds returns after fee ‘as a factor that potentially indicates how competition is working for these products.’

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In one of the biggest shake-ups of individual-level regulation in history, the senior managers certification regime will be extended to all FCA-regulated firms including investment businesses at the end of this year, with the approved persons register massively expanded to include the intake.

While the rules have been test-run in the banking sector for three years, the FCA said it expected to work closely with all regulated firms to ensure data and reporting systems remain compliant.      

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The FCA will explore how ‘to reduce unnecessary costs to firms’ as it consults on a new prudential regulation regime ‘more appropriate’ for smaller firms than the current one-size-fits-all rulebook of the Capital Requirements Directive IV.

The consultation will be closely aligned with the EU’s Investment Firm Directive and Regulation, expected to be up and running by the end of 2021, regardless of the end shape of the Brexit negotiations.

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Increasing use of third party tech and service outsourcing will be a key area of cross-sector ‘operational resilience’ testing, with the FCA pointing out that one in five of the incidents reported to it in the year to late 2018 were caused by third-party tech failures.

‘Change management, such as system upgrades and data transfers to new systems, is the single highest cause of failure and operational disruption,' said the FCA.

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The FCA said it would continue to invest in making as much of its data capture and reporting as machine readable as possible, as it engaged with regulatory tech specialists to minimise costs via automation.

‘We have met with a number of start-ups, incumbent institutions, technology providers and academics to see the impact regtech could have,’ it said.

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Many retirees entering pension drawdown ‘often struggle’ to take investment decisions or fail to engage in the choices facing them, said the FCA.

It is currently consulting on a regulated requirement on firms to offer a range of ‘investment pathways’ helping clients understand the options available, and would report on its findings in July.   

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