From a regulatory perspective, all the focus in recent times has been on the implementation of consumer duty rules, and it has been difficult to look beyond the implications of this wide-ranging piece of policy.
However, there are a number of significant regulatory challenges on the horizon for firms, on which it is worth keeping a watchful eye.
Our regulatory scanner has been designed to give a forward view of some of these changes and the regulatory obligations they may place upon authorised firms.
Below are the most important developments advisers must be aware of.
Regulatory reporting
A key challenge continues to be the industry's ongoing reporting obligations.
We are seeing more and more returns being generated by the Financial Conduct Authority – whether that is the insurance reporting obligations at the start of each year, the new economic crime levy, annual conduct rules reporting, new returns for firms with appointed representatives, or the quarterly baseline financial resources return, which will go live from 2024 onwards.
We know the FCA has committed to becoming a data-driven regulator, so keeping on top of reporting requirements will be more important than ever to ensure your firm stays out of the spotlight.
Capital adequacy
We also know that the FCA has a suite of consultation papers pending that will be of interest to intermediary firms.
Potentially the most noteworthy for investment firms is a review of capital adequacy requirements, with a publication due imminently setting out proposals for reform.
This consultation process will take time to play out, and any proposed increases will likely be fiercely contested by the industry.
In line with the shift to outcomes-based regulation, I would expect the FCA to place more emphasis on a risk-based, rather than a rules-based, approach.
FSCS reform
There is also a consultation expected in relation to reform of the Financial Services Compensation Scheme, with the current levy widely acknowledged as being unsustainable.
Again, there is an indication that the FCA wants intermediary firms to be able to show more resilience. However, it will also re-open the debate in other areas, like whether the level of product provider contributions remains appropriate.
We know the FCA wants to incentivise product providers to take a greater responsibility for the conduct of intermediaries with which they work.
Sustainable investment advice
Finally, we have an FCA consultation pending specifically for financial advisers as distributors of information to retail investors on sustainable investments.
This consultation will sit alongside and support wider reforms for product manufacturers in this area, including the proposed new "label regime" to make it easier to distinguish investment products according to the assets in which they invest.
To use a label, a product will be expected to have an explicit sustainability objective in relation to a sustainable characteristic, ie environmental, social or governance.
The three new labels are expected to be as follows:
- Sustainable focus – invests in assets that could reasonably be considered "sustainable" or that align with a sustainability theme. • Sustainable Improvers – invests in assets that are on a path to becoming more sustainable. • Sustainable Impact – products that aim to achieve a positive, measurable real-world impact.
These labels will be underpinned by a set of clear, objective criteria. There will be no hierarchy between the labels; each is designed to deliver a different profile of assets and consumer preferences.
