Navigating Regulatory Challenges Seminar

Our seminar saw over 100 compliance professionals gather in person and 180 join virtually to listen to engaging talks by industry leaders. Attendees also had the opportunity to participate in interactive polls, network with their peers and learn from insightful Q&A sessions. This event was endorsed by CISI for 4 hours' worth of structured CPD points.

We were joined by experts, including speakers from PIMFA, Linklaters, and Shoosmiths, to discuss the regulatory challenges surrounding the FCA Business Plan update, Consumer Duty, enforcement, and innovation. We've outlined some of the discussion points and the takeaways from the morning. 

Navigating Regulatory Challenges Seminar Agenda

• Session 1: FCA Business Plan Update
• Session 2: Consumer Duty and Vulnerable Customers
• Session 3: Enforcement and the Regulator
• Session 4: Data Governance in Meeting Regulatory Expectations
• Session 5: Enhancing your Compliance Learning

After a networking breakfast, the seminar began with our keynote session, where Leaman Crellin's Katharine Leaman unpacked the update on the FCA's Business Plan and how firms can navigate the FCA's strategy.

Session 1: FCA Business Plan Update

Katharine Leaman, CEO, Leaman Crellin

Our keynote discussion centred around the regulator's focus areas for 2024/25 and how these impact your firm's compliance efforts.

Discussion points

• An overview of the FCA's Business Plan and its impact on firms
• The FCA's three key commitments for 2024/25
• The other 2024/25 commitments the FCA has outlined

The FCA aims to ensure that financial markets function and have the operational objectives to protect consumers as well as the integrity of the UK financial system. In addition to this, the regulator strives to promote effective competition. The FCA highlighted three priorities in its 2022-25 Business Plan:

1. Reducing and preventing serious harm
2. Setting and testing higher standards
3. Promoting competition and positive change

These themes are the backbone of the FCA's three-year strategy and how they will achieve their objectives.

The FCA's three key commitments for 2024/25

As we enter the final year of the FCA's three-year strategy, the regulator has set three commitments:

1. Reducing and preventing financial crime
2. Putting consumers' needs first
3. Strengthening the UK's position in global wholesale markets

The biggest change to the Business Plan this year is the weight of focus on financial crime. A recent statistic reveals that 40% of crime in the UK is fraud-related. The FCA is dedicated to preventing financial crime through various strategies, focusing on reducing investment fraud and authorised push payment (APP) fraud.

The regulator also aims to combat money laundering by strengthening supervision and collaborating with professional bodies, emphasising its commitment to maintaining the financial system's integrity and building trust with stakeholders.

The FCA is committed to prioritising consumers' interests by ensuring that firms operate with integrity, transparency, and accountability. Firms must act in good faith, provide products aligned with consumer needs and fair pricing, offer comprehensive information for informed decisions, and maintain high customer service standards. 

Regulatory initiatives like Consumer Duty encourage innovation, competition, equitable access to financial services, and sustainable debt management, highlighting the FCA's dedication to consumer rights and a fair financial ecosystem. The FCA is committed to bolstering the UK's standing in global wholesale markets through a robust regulatory framework that is clear, trusted, and conducive to fair value determination.

Firms are expected to understand and meet the FCA's conduct standards, promptly addressing any shortcomings. This approach fosters confidence among market participants, positioning the UK as a premier market destination where innovation is encouraged and regulation evolves to tackle emerging opportunities and risks. 

Other 2024/25 commitments

The FCA has made 13 public commitments. In addition to the three key commitments, these include assertive action to combat market abuse, safeguarding against harm stemming from firm failure, and advancing environmental, social, and governance (ESG) considerations within financial markets.

The FCA also aims to shape digital markets to ensure positive outcomes for consumers and businesses alike while empowering consumers to navigate financial decisions independently. Firms need to align their priorities with the commitments that the FCA has outlined for this final year in their strategy. 

Key takeaways

• Have fraud at the top of the list of challenges to tackle in the year ahead.
• Make every effort to understand your customers better - the FCA is looking to see this from firms.
• Have a framework in place - this is the most important thing for any firm; some type of policy is better than nothing. 
• Think of investing in people - from leadership training to learning and development plans; spend time on this to grow people. 
• Consider trade associations - they have a strong, clear, loud voice and can represent you when talking to the regulator.
• Align your firm's operations with the regulator's commitments, prioritising the three key commitments for 2024/25.
• Consider the challenges the FCA has highlighted, including inflation and global financial and geopolitical risks.

Session 2: Consumer Duty & Vulnerable Customers

Alexandra Roberts, Head of Regulatory Policy & Compliance, PIMFA

Head of Regulatory Policy & Compliance at PIMFA, Alexandra Roberts, offered valuable perspectives on how firms can adapt and evolve in response to regulatory shifts. She provided insightful reflections on the challenges encountered while navigating the Consumer Duty journey.

Alexandra also elaborated on its multifaceted impact on business operations and highlighted the areas of focus going forward.

Discussion points

• Experiences, approaches and challenges of navigating the Consumer Duty journey
• The impact on business operations: propositions, fee models, communications and governance around
• Areas of focus going forward: fair value, board report and vulnerable customers

The key challenges of Consumer Duty revolve around its broad application across all business functions, which could lead to complexity and difficulty in implementation. Additionally, its outcomes-based regulation approach offers flexibility but may lack clarity, potentially causing interpretation issues.

Finally, evidence of compliance, particularly through data and management information (MI), presents a challenge, requiring robust systems and processes to demonstrate adherence effectively.

Consumer Duty is all about evidencing which is a challenge. This is one of the ways it differs from Treating Customers Fairly (TCF). The FCA has found that there are data gaps or mismatches between the risks identified and the data captured. Despite the challenges, Consumer Duty has been a driver of change.

Consumer Duty impacts

The impact of the Consumer Duty is multifaceted, encompassing changes across propositions, fee structures, communications, and governance.

In propositions, there's an emphasis on updating and simplifying investment propositions, introducing new services, broadening investment options, and adopting a 'pay-as-you-use' model. 

Fee structures are streamlined with fewer tiers, focusing on fixed fees and introducing subscription models while enhancing transparency through the publication of fees. Communications has seen the most changes, with a revamp of communication strategies through redesigned websites, concise suitability reports, client podcasts, and the elimination of jargon.

Governance improvements include training on the new Conduct Rule, professional development courses, remuneration policy reviews, and integrating the Consumer Duty into Statements of Responsibility and the firm's mission and values. This also saw changes to staff appraisals. These changes collectively aim to enhance consumer understanding, streamline services, and promote a culture of transparency and fairness within financial firms.

Focus areas going forward

The latest directives from the FCA emphasise the importance of meeting Consumer Duty obligations, particularly in demonstrating fair value and addressing ongoing charges. The first annual board reports under the Duty are due by the end of July, highlighting outcomes and actions taken to rectify shortcomings.

The FCA underscores the significance of aligning business strategies with Consumer Duty goals, ensuring transparency and accountability throughout. A key focus lies in safeguarding vulnerable customers, with upcoming reviews of firms' treatment of this demographic. Training initiatives are crucial to equip staff with the necessary tools to identify and assist vulnerable customers effectively.

Key takeaways

• Firms should not wait for regulatory intervention; they need to prioritise robust data management practices. 
•  Consumer Duty should permeate every aspect of a firm, with leadership from boards ensuring its integration. 
• Demonstrate fair value to retail customers - this is an area of improvement for firms since some firms rely solely on market comparisons.
• Firms should not add fees along the distribution chain - charging customers for unnecessary services further undermines fair value principles -.
• Board reports need to monitor results, take action to address issues, and ensure there's an impact on business strategy.
• Incorporate considerations for customers with vulnerability characteristics into product and service design to ensure inclusivity and accessibility.
• Conduct comprehensive reviews of systems and processes, centralising vulnerability-related operations to enhance effectiveness in identifying and supporting vulnerable customers.

Session 3: Enforcement & the Regulator

Daren Allen, Partner, Shoosmiths

Our second session saw Shoosmiths Partner Daren Allen delve into key aspects of enforcement and supervision within the regulatory framework, emphasising the importance of available tools and factors considered by regulators in ensuring compliance and safeguarding market integrity.

Discussion points

• Regulatory enforcement and supervision
• Available tools and factors considered by the regulator
• Preparing for next year's FCA visit, including the Annual Board Report

The FCA identifies four key drivers within organisations that can lead to consumer harm, collectively shaping organisational culture. These drivers encompass purpose, leadership, an approach to rewarding, and a commitment to conduct.

The regulatory landscape is evolving to prioritise the prevention of financial crime and the fulfilment of Consumer Duty obligations. Supervision is transitioning towards a more assertive, intrusive, proactive, and data-driven approach.

Consumer Duty expectations emphasise a clear focus on the needs and objectives of the target market, ensuring ongoing alignment of products and services with consumers' needs, risk profiles, and circumstances and to ensure comprehensive consumer understanding of investment products and services, avoiding exploitation of limited knowledge.

Caution should be exercised in transitioning consumers from retail to professional status, with robust systems and controls in place. Complex or unregulated investments must be fully justified, with suitability for the consumer clearly assessed, while limitations to consumer protection status and associated risks are transparently communicated.

Preparing for an FCA visit

Preparation is key for an impending visit from the FCA. Firstly, identify who from the FCA will be visiting and what the focus of their inspection will be. Understand the full scope of their visit to anticipate their requirements. Be ready to fulfil any document or file requests they may have. Brief managers and staff about the visit to ensure everyone is informed and prepared. Finally, identify a suitable room and arrange the necessary facilities for the visit.

Maintain a culture of openness and transparency, even in the event of errors. It's crucial to provide any further information requested promptly and to efficiently follow up with additional details if necessary. Additionally, glean insights from the visit to facilitate continuous improvement, ensuring that lessons learned are applied for future engagements.

Key takeaways

• Firms need to remember that the focus of regulators is on governance - the FCA is looking for first-line involvement.
•  Firms are required to reassess the vulnerability status of consumers in accordance with FCA guidance.
• Ensure you have an audit trail - this is the best way to protect your firm.
• Test good outcomes and reinforce a compliant culture.
• Be organised in advance to avoid the FCA going on a chain of enquiry.
• Ensure you follow up - if the original problem hasn't been addressed and the FCA follow-up, there will be much larger fines.

Session 4: Data Governance in Meeting Regulatory Expectations

Sara Cody, Specialist Financial Services Regulatory Counsel, Linklaters
Jonathan Chibafa, Partner, Keystone Law

Data is a key aspect of Consumer Duty. Whiteboard's Chris White moderated our third session, during which Sara Cody and Jonathan Chibafa examined how we can use data to support compliance.

According to a poll conducted in the session, cybersecurity and data protection are the aspects of data governance that present the greatest challenge to organisations. This has now become an organised crime—there are corporate structures in place where this is their business.

Discussion points

• The significance of data governance in meeting regulatory expectations
• Best practice for ensuring data quality, timeliness, and accuracy
• Enhancing regulatory compliance and consumer protection efforts

Timely response to data requests poses a significant regulatory challenge for firms, emphasising the necessity of having a robust data set as evidence to support statements and demonstrate compliance with regulatory requirements to the FCA.

While data accuracy and protection are paramount during system reviews, the challenge lies in ensuring clarity in data handling practices. Improved data quality and accessibility not only save time but also reduce costs, highlighting the importance of understanding organisational dynamics through data.

However, securing budget and buy-in remains a challenge, with enforcement activities serving as a primary concern for boards. Standardisation in data reporting, especially concerning issues like greenwashing, is lacking, underscoring the need for agreed-upon standards to optimise data utilisation.

The FCA acknowledges the importance of proportionality, recognising that different-sized firms achieve varying levels of compliance actions. They emphasise substance over form in reporting practices. How a firm does things will differ from firm to firm, but there are four areas to focus on:

1. Assessment of an organisation's structure
2. Understand roles and responsibilities - ensure there is the right tone from the top and that data policies are reviewed
3. Oversight and metrics - this is important for reporting purposes
4. Be clear on what the data scope looks like and understand all aspects of the data that you are looking at

A more diverse workforce is important for better decision-making and customer relations. Gathering data on Diversity, Equality and Inclusion (DEI) is a challenge, and there is the additional hurdle of aligning with global standards while meeting the demands of regulatory bodies like the FCA, which is currently subject to political influence. Clarity of purpose is crucial for firms and the industry as a whole to navigate these complexities.

Key takeaways

• Firms need to have a system in place that gives them confidence that they can demonstrate that they are doing what they say they are.
• Have a clear set of KPIs and an escalation procedure in place.
• Aligning data governance practices with regulator expectations is essential for all organisations.

Session 5: Enhancing your Compliance Learning

Catriona Razic, CRO, Skillcast
Simon Truckle, Director of Learning Solutions, Skillcast

In a recent discussion led by our Chief Risk Officer (CRO), Catriona Razic, and Director of Learning Solutions, Simon Truckle, the focus was on enhancing compliance training methods.

The session highlighted a key poll result, revealing that the primary challenge in compliance training is a one-size-fits-all approach, closely followed by issues related to employee engagement. Addressing these challenges is imperative for refining compliance training strategies and ensuring effective implementation across diverse teams.

Discussion points

• Utilising microlearning and gamification for engagement and problem-solving
• Enhancing knowledge retention and productivity through targeted learning methods
• Fast-track staff development with adaptive learning and role-specific training

Improving the learning experience is multifaceted. Doing things differently and changing the dynamic in your organisation are becoming necessities for compliance training to be effective. It is also something that we are passionate about. We have a few innovative solutions to enhance your compliance training:

Nudge learning

This method employs a personalised approach by delivering targeted questions directly to your inbox at convenient times. These questions are tailored based on diagnostic assessments, identifying specific knowledge gaps within training. By addressing these gaps with bite-sized learning modules, nudge learning effectively engages individuals and promotes continuous skill development. This method not only enhances learning retention but also encourages self-paced improvement, making it an efficient and adaptable strategy for ongoing professional development.

Diagnostic reporting and assignment

Diagnostic reporting and assignment systems offer tailored content to individuals, customised based on their unique knowledge gaps and proficiency levels. This personalised approach is complemented by set deadlines spread throughout the year, ensuring a consistent and manageable learning pace. Additionally, these systems incorporate confidence levels, pinpointing areas where individuals may harbour incorrect beliefs despite their confidence, presenting a potential risk that warrants attention. Leveraging this data, training modules can be automatically assigned, featuring bite-sized content designed to address identified knowledge gaps efficiently. 

Learning at the point of need

Learning at the point of need revolutionises training by embedding educational resources precisely when they are required, ensuring relevance and immediacy. Accessibility is key, with learning materials readily available whenever and wherever they're needed. The content is designed to be easily digestible, recognising the value of bite-sized training that can be quickly consumed and applied. 

AI in your compliance portal using a virtual tutor 

AI can be seamlessly integrated through a virtual tutor that answers questions based on course content. This intelligent system leverages a comprehensive database to pull relevant information for each course, ensuring that users receive accurate and detailed responses to their inquiries. The use of AI in this context not only enhances the learning experience by providing instant support and clarification but also plays a crucial role in monitoring compliance.

AI-powered assistant

An AI-powered assistant within your compliance portal would take user support to the next level by providing instant access to answers and resources. Drawing from a defined knowledge set, this intelligent assistant offers links to relevant courses, policies, and procedures, ensuring users can easily find the information they need. 

Key takeaways

• Break down learning needs into bite-size chunks - this will deliver concise, manageable pieces of information, making learning more digestible and less overwhelming.
• Quizzing is the new way of learning - integrate quizzes as an interactive and engaging method to reinforce knowledge and assess understanding in real-time.
• Personalise learning - leverage AI and data analytics to tailor learning experiences to individual needs, ensuring that each user receives relevant and customized content.
• There is a general lean towards adopting innovation solutions to enhance compliance learning.

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