By Tom Richmond
Great Scott, a new decade has begun! And whilst this decade comes and goes without a time-travelling DeLorean on every driveway, we can still look back at what has changed over the last 10 years and look to the future to see what will likely change.
The last ten years for the financial services industry has had changes ranging from the Retail Distribution Review (RDR) to MiFID II and more. Generally, what we have seen throughout the last 10 years is the regulator increasing firm and senior manager accountability. Let's take a look at some of the biggest changes.
RDR
The Retail Distribution Review was designed to change the way financial advice operated within the UK. The ultimate goal of this review was to ensure more transparency in the investment industry, improve services through higher qualifications, ensure investors understood the true cost of their advice, and consumers receive unbiased information.
MiFID II
The Markets in Financial Instruments Directive, or MiFID II, aimed to improve the functioning of financial markets in light of the financial crisis. It extended the scope of the original MiFID to more financial instruments, essentially to all products available in the EU. Other aims included strengthening investor protection and increasing the transparency of charges. This led to increased restrictions on inducements and record requirements for client conversations within all authorised firms.
GDPR
The Information Commissioners Office published an update on the EU GDPR; an essential step toward enhancing the privacy and security of personal data. Firms must be able to produce evidence to demonstrate the steps that they have taken to comply with GDPR.
SM&CR
The aim of the SM&CR is to reduce harm to consumers and strengthen market integrity by creating a system that enables firms and regulators to hold people to account.
Notice that each regulation change has increased the compliance requirements on firms, in particular, the onus on senior manager accountability. This theme is unlikely to disappear any time soon.
In the next year there are a number of key changes which financial services firms need to be aware of.
The ubiquitous B'word, whether you are for it or against it, Brexit will probably be the largest cultural, regulatory, and political change which we as a country have seen in generations.
What does Brexit mean for financial services?
A proportion of our legislation and regulation originates from the EU, however, by the end of the year, all EU legislation will cease to apply to UK firms. As such, by the 1st February 2020 the government will have converted all EU legislation into UK Law.
Following Brexit, MiFID & IDD passports will no longer be available. From the end of this month a firm's passporting permissions will no longer be valid and firms will need to be authorised in all countries within which they wish to operate.
Under GDPR firms are allowed to store and transfer data within the EU without additional requirements. Following Brexit the UK will still be able to transfer its data to the EU with the same degree of flexibility.
FSCS and FOS will continue to provide UK based consumers with protection for their UK based firms and products. Following Brexit however, the FSCS and FOS will no longer be able to assist with funds and firms based outside of the UK.
The FCA is to complete a second review into the suitability of advice which firms are giving, the first of which was completed in 2017.
This review will look at retirement income recommendations where advice was given to consumers to withdraw assets/take an income in retirement and will focus on the period 1/10/2018 - 30/9/2019. The review will take the form of an information request and FCA file reviews. We can expect to see the findings of this review by the end of the year.
Whilst the exact date has not yet been confirmed for the roll out, realistically in quarter 2 or 3 we will see the new FCA Gabriel system go live. What we know so far is that Gabriel is moving from a server-based system to a cloud-based system, which should prevent any future outages and disruption as we saw in the last reporting period.
The system will also have an auto save function which means that hopefully we will not lose as much data if there is a system crash. Users will also be pleased to know that there is going to be new data validations flagging up sooner when any data input breaches parameter tolerances. Modernising its reporting means that it is able to increase its accountability on information it gathers and reviews.
In December 2019 SM&CR went live for Solo Regulated Firms, firms have until the 8 December 2020 to add applicable members of staff to the new directory. By December 2020 we will see the directory become operational.
It is still up for debate what EU legislation the UK will continue to implement post Brexit. It is unlikely that the UK will not implement 6MLD, as without it we might actually find it hard to do any business with the EU. The key changes are the addition of 22 specific predicate offences which will apply to all member states, interestingly this includes environmental offences, cybercrime and tax offences. Criminal liability has been amended to companies and supervisors. The directive also proposes increases in jail terms for individuals involved in financial crime.
To get ahead of the curve for 2020 here are 3 things you can be doing now:
Tom joined Apricity after spending nearly 10 years in a variety of compliance roles, including Financial Crime (anti money laundering, counter terrorist financing and bribery and corruption). He has experience in complaint remediation at the Financial Ombudsmen Service.
Tom holds advanced certificates in Anti Money Laundering and in Managing Sanctions Risk and a certificate in securities and investments.
