With just a few months to go until the new regulatory regime under the Financial Conduct Authority (FCA) comes into force, wealth management executives are urging the new guard to actively engage with the sector to avoid a ‘one size fits all’ approach.
This follows the announcement that Sheila Nicoll, director of policy at the Financial Services Authority (FSA) and a driving force behind the retail distribution review (RDR), will leave the regulator in April before it transitions to the FCA.
Although Nicoll had helped steer the new conduct strategy at the FCA, senior figures in wealth management appear unperturbed by the exodus, suggesting that new blood in the leadership team under incoming chief Martin Wheatley should prove positive.
‘I think having some new people involved is a good thing and Martin Wheatley strikes me as a very capable person and someone who understands what is going on within the sales process,’ said Jonathan Fry, private wealth director at jonathanfry plc. ‘Some of the leading figures like Adair Turner and Hector Sants were undoubtedly capable people, but how much experience did they have in the retail environment?’
In contrast, he highlights the roles Wheatley (pictured) has held at the London Stock Exchange, which he hopes should improve the regulator’s connection with practitioners.
His sentiments are echoed by Charlotte Black, director of corporate affairs at Brewin Dolphin, who said: ‘The brain drain from regulation is a constant worry and has surely been a frustration for the FSA. However, we have met some impressive new members of the executive team recently and are very hopeful that these fresh eyes will see things more clearly.’
Can the new guard drive change?
Even if industry figures are pleased with the prospect of new blood, can new leadership really drive change?
This is perhaps most relevant in terms of their approach to regulating retail financial services and the relationship they build with a wealth management sector that arguably feels increasingly disillusioned and overladen with regulation.
But Paul Killik, chief executive of Killik & Co, is unsure that new leadership can enact cultural change. ‘Our biggest concern is there will be more of the same and things won’t change. I think Martin Wheatley has got a big job in changing the culture of the same people that are in the same office. Why would they think the world looks different than before?’
With competition now falling under the FCA’s remit, Killik says that although this makes sense in principle, it might prove more difficult to enforce in practice and runs contrary to the FSA’s historic approach.
‘They have very sensibly put competition into their remit. Whether it is accepted, I am not sure. It would help to get over the one size fits all issue, but if you are trying to impose a single set of rules across the industry it means you are driven towards a single business model, which is not good for competition,’ he said.
‘You have got a lot of different business models that evolve and need to be regulated in different ways, but I don’t know if they have really thought through this question.’
In its paper, Journey to the FCA, which outlines its approach, the incoming regulator said it would seek to engage with groups of firms and trade bodies to gain a better understanding of specific sectors. Likewise, it hopes the new policy, risk and research division will provide market intelligence.
However, fewer supervisors will be allocated to specific firms, which the FCA said would allow it to carry out more in-depth reviews in response to problems that are identified.
Brewin Dolphin supports the FCA’s new approach to categorising firms and decision to shift away from the Arrow approach to a ‘firm systematic framework’, based on preventative work through conducting assessment of firms.
The FCA said this would be combined with reactive event-driven work and ‘fast campaigns on sectors of the market or products’ which could put consumers at risk.
However, Apcims is concerned that event driven work and product or sector campaigns could ‘address potential failings in one sector of the market and automatically “read across” to other sectors, including our own.’
Meanwhile Fry, although positive about the FCA’s desire to be more interventionist, is concerned there would continue to be a lack of engagement between the regulator and the industry. This would result in a one size fits all approach, following the FCA’s decision to adopt a more desk-based approach of the FSA in contrast to the more interactive approach of the PIA.
His concerns are echoed by Killik, who argues the FCA should set outcomes and engage with the industry – and the experience it has to offer – to work out how these can be achieved.The FCA's approach
• Identify issues sooner, e.g have powers to ban products that pose unacceptable risks to consumers
• Remove inappropriate barriers to entry and ‘distortions to competition’
• Fewer supervisors allocated to specific firms to allow more manpower to react to problems quicker and conduct in-depth reviews
• Make supervisory judgements about business models and forward looking strategy and intervene if risks identified in terms of TCF
• A commitment to bring about more enforcement cases and penalties