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Key compliance issues you need to be aware of in 2020

3 February 2020

With the pace of regulatory changes seemingly set to continue unabated, Steve Bailey, director of ATEB Consulting, lists a few of the things the company believes adviser firms will need to ensure are addressed.

MiFID II
On its second birthday, the application of MiFID II is moving, in the regulator’s eyes, towards being “business as usual”. As such, we believe that, in the year ahead, the FCA is likely to increase supervisory (and potentially enforcement) focus in areas which may adversely impact retail investors, including but not limited to costs & charges, inducements and conflicts management.

It’s also worth mentioning that a review of several important aspects of MiFID II is being undertaken, and changes to legislation and/or guidance may be on the cards. The key changes being considered are:

  • Regulation in relation to costs and charges statements;
  • A mandate for producing guidelines for product governance.

Some specific questions to consider are:

Aggregated costs
Is your firm producing its own costs and charges statements (in addition to the costs and charges produced by platforms)? Is there management oversight of how the costs and charges are calculated? Could you explain this if asked?

PROD
Do you know if you are considered a manufacturer, a distributor, both? Have you segmented your client base to a sufficiently granular level? Do you know why the platform(s) used are compatible with your client segments? Do you know why your ongoing service is appropriate, proportionate and value for money for each of your client segments?

SM&CR
By the end of 2020, almost all staff who work in financial services will be expected to meet minimum standards of behaviour. The key milestone is 9 December 2020. This is the date by which:

  • all staff in a certified role should have been assessed and certified;
  • all staff (other than ancillary staff) must have been trained on the individual Conduct Rules. This training should give individuals an in depth understanding of the practical application of the specific rules which are relevant to their job.

(NB – Senior Managers, Certified Persons and Non-Executive Directors are already subject to the Conduct Rules which apply to them).

The FCA has already undertaken a review of the implementation of the SM&CR in the banking sector. The review found significant weaknesses in its implementation. And it is worth noting that there was a particular focus on the Conduct Rules, so firms should treat this aspect seriously. The review might well be worthwhile reading.

We think it likely that 2020 will be about allowing solo regulated firms that came under the SM&CR in December 2019 to embed its implementation into the business. However, firms that were already subject to the SM&CR can expect increased scrutiny.

The SM&CR is likely to be evolutionary rather than revolutionary and firms will need to respond to additions to the regime if and when regulators identify areas requiring specific oversight. For example, we are aware that the FCA and PRA have asked for a Senior Manager at some firms to be allocated responsibility for new roles (e.g. resolution assessments). This suggests that the regime will be extended as and when ‘gaps’ are identified.

Last, but not least, all SM&CR firms will need to start uploading data about in-scope individuals to the new FCA Directory.

Culture
During 2019 there were a number of enforcement decisions published by the FCA that illustrate how poor workplace cultures pose a risk to consumers.

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