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Is the FCA fit for purpose? asks PIMFA White Paper


PIMFA, the trade association for the investment services and financial advice industry, has published a paper on the future of supervision entitled ‘FCA Supervision – fit for purpose?’The paper, created following months of evidence-gathering from firms and the FCA itself, outlines PIMFA’s and its member’s key concerns, suggestions and feedback regarding supervision and its future in the UK.

In particular it shines a light on current practices in the event of problems arising in the sector – namely, an immediate reaction of the Regulator to review the Handbook or launch a new policy initiative rather than question whether or not the problem has arisen as a result of inadequate supervision.

Individual firm failures erode trust in all regulated firms and undermine consumer confidence at a time when many consumers need financial advice and investment services. Equally the costs associated with these supervisory failures – e.g. FSCS and PII premiums – materially impact on cost structures, damaging competitiveness and innovation. These increased costs also negatively impact consumers by widening of the advice gap. Today, fewer than 10% of UK consumers access financial advice with many who don’t pointing to the cost of advice as a reason why they do not.

The paper, ‘FCA Supervision – fit for purpose?’ identifies a number of areas where we consider that the Regulator is falling short in its role as a supervisor in delivering its regulatory objectives. These areas include:

• Outlining how it assesses its own suitability as a supervisor;
• Improving data collection, as well as analysis, to better understand the activity of firms and what they do;
• Improving intelligence gathering and review procedures; and
• Taking swift action where needed to prosecute firms for criminal offences as they are entitled to do

PIMFA’s extensive engagement with members also illustrated that whilst firms are concerned about rising FSCS levy costs, of greater concern is the level of accountability within the FCA on both its supervisory approach and the practical outcomes of that approach. There are a number of questions raised by firms which PIMFA would like the FCA to answer; namely:

• On what basis does the FCA Board believe that any new supervisory regime will improve the supervision of firms?
• How is the FCA Board monitoring the implementation of the new supervisory approach and assessing its outcomes?
• What actions are planned on the basis of those outcomes to mitigate future claims on the FSCS?
• Are current FSCS costs attributable to historic supervisory failures on the part of FCA and are these now being identified as a result of the new methodology?
• How long is it likely to take before the impact of the new methodology is reflected in lower claims on FSCS? If FCA do not know yet, then it should publicly say so.

Speaking on the FSCS issue specifically Ian Cornwall, Director Regulation at PIMFA says: “Clearly, we have significant concerns about the costs of funding the FSCS as it applies to firms. However, in our view, adapting how the levy is constructed, who it applies to etc. will only represent tinkering around the edges.

“Without an effective supervisory regime in place, UK firms will continue to fail or be allowed to perform poorly and levy costs – regardless of the methodology used to fund them – will continue to rise. Currently the cost of running the FSCS is comparable to funding the entirety of the FCA – it cannot be the case that these resources are being spent wisely if the cost of compensation is broadly equal to the cost of regulation.”

Speaking more widely on the paper and the future of UK Supervision, PIMFA Chief Executive, Liz Field:, says: “The UK Wealth Management and financial advice profession is the 2nd largest in the world, after the US. It manages approximately GBP1.5 trillion of investments and savings from individuals and families across all walks of life. This critical industry is constantly evolving and, as such, requires a similarly evolving regulatory and supervisory practice to support it.

“Strong regulatory oversight is a fundamental tenet of a well-functioning financial services marketplace and during this current period of change, the UK has an opportunity to revisit inherited EU regulations to better reflect the way the UK industry works and, ultimately, better serve investors. 

“In order to make advice more accessible for consumers, the Regulator and policy-makers need to use this period for self-reflection and consider the impact they also have on individual behaviour rather than just dictate to firms that they must do better.

“We look forward to working with the FCA, the Government, our members and other stakeholders to help address the issues raised in the paper to ensure we have a supervisory regime that is truly fit for purpose and cost-effective, both now and in the future.”

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