We hosted our quarterly seminar at the Chartered Accountants' Hall at One Moorgate Place in London, focusing on navigating regulatory challenges.
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.
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.
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.
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:
These themes are the backbone of the FCA's three-year strategy and how they will achieve their objectives.
As we enter the final year of the FCA's three-year strategy, the regulator has set three commitments:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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:
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 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 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 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.
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.
SkillcastConnect community brings together compliance professionals for unique group networking free of vendors. Join today for priority access to unique insights from best-selling authors, leading academics, training gurus and industry insiders in a friendly, supportive environment.
If you are interested in joining our community, you can find out more on our dedicated SkillcastConnect page.