Advisers have stepped up for the FCA’s retirement advice review. But the regulator still has a data problem. When the FCA’s latest survey dropped on advisers’ desks last month, they could be forgiven for thinking: ‘oh god, not another one’.
Data requests from the regulator have come thick and fast in the past few years. The advice sector was hit with multiple questionnaires on its Covid resilience for example, not to mention probes on everything from the consumer duty to defined benefit transfers – on top of filing the usual regulatory returns several times a year of course.
But as of 26 June 2023, 325 of the 1,275 advice firms asked to submit their data on retirement income advice had done so, according to a Freedom of Information Act request. That’s despite the tight turnaround of three weeks. The earliest the first tranche of firms would have had to respond was 30 June, and others had until 4 July, meaning plenty have done it well in time.
Responses flooded in from firms large and small, directly authorised firms, principal firms, and appointed representatives. 162 of the firms were directly authorised, and 163 were principal firms that had appointed representatives. The FCA said that no firms had failed to meet their deadline in a response sent on 4 July – quite the record if this remains the case after the last batch of responses closes.
Financial planners, it seems, are playing ball. They have done so in the past too – of the 1,166 clients files requested by the regulator as part of its 2016 suitability review, just one was left unaccounted for.
But all of this begs the question of whether the FCA uses the data in the most effective way possible. Insiders suggest it doesn’t always do so.
Diving into the FCA’s data
While it appears that the majority of advisers are clear with their numbers, what the regulator does with those figures is far from clear. For the retirement advice review, the FCA said it did not specifically record how much staff time was spent on the work. It would need to contact FCA employees who had worked on the review to retrospectively analyse their time on different projects, It said.
For the consumer duty questionnaire, there are gaps as well. The FCA said it was not possible to estimate the supervisory resources required, or the potential extent of enforcement action (bans and fines in non-compliance speak).
The FCA’s former asset management supervision head, Nick Miller, now at Moody’s, says particularly in areas like ESG where the regulator is looking to get more information in the future, it has to set reasonable expectations of what smaller firms in particular can deliver.
“You can have different views about how high these things are, how to the point, but you have got to be realistic about your level of ambition. At regular corporates, you don’t just have a team on standby without any other responsibilities.
“While disclosure is critical, you have got to be realistic about what you can achieve. Putting something out to market and saying go out and do it, will that up the quality of data? Proper due diligence and quality are critical. That’s the risk if you are too aggressive.”
Counting the cost of FCA questions
Streamlining data requests could save the regulator costs, which could be passed on in the form of lower fees. Running until next April, the FCA’s contract with research agency Ipsos to monitor how firms are implementing the consumer duty is worth £195,000, for example.
But having so much data means the FCA also has to pay for bullet-proof processes to secure it.
“They get tons of data that is priceless if they were ever to use it,” says a financial services lawyer who works regularly with the regulator. “It’s a risk for them to have so much data and not work mechanically through it.”
The FCA used Survey Monkey to collect financial resilience info during Covid – hardly the most sophisticated tool available. In the advice market in particular, when so many data points are subjective and open to interpretation, it will always be difficult to get a reliable read on the market, no matter how many surveys it sends out.
“One of the biggest problems with the existing approach is that firms inevitably interpret the reporting instructions slightly differently from each other,” former FCA chief risk officer Gavin Stewart wrote on LinkedIn. “Survey Monkey is unlikely to help this.”
Data is a key FCA pillar
Data is one of the key pillars of the new strategy outlined by FCA chief executive Nikhil Rathi when he took over in October 2020. To be fair to the regulator, it has had some successes by using regulatory returns to spotlight rogues.
Around the time that defined benefit pension transfer scandal was emerging, a person close to what was then called Gabriel told me that the regulator was using algorithms to pick up outliers for investigation. If an advice firm had only done two DB transfers in a particular year, but the next year, it did 100. That, the FCA insider said, was starting to show up in the system, and was a good place to start their enquiries.
Advisers must use or lose permissions
The FCA is also using data to boot out those holding on to permissions they no longer need, so arguably posing a greater risk because they only dip their toe into particular work occasionally – a so-called ‘use it or lose it’ drive.
Compliance professionals have told me that a number of clients have received warning letters giving them as little as 10 days to give up their authorisations or have the FCA take them away.
So don’t underestimate the importance of those surveys you send back to the FCA. They are more important than advisers, and maybe the regulator itself, is giving them credit for.
Photo by Vlad Sargu on Unsplash.com
