The Financial Conduct Authority may use regulatory tools such as sanctions and voluntary requirements if firms fail to adequately take steps to ensure they can justify their ongoing fees, Isio strategic adviser Ritchie Thomson has warned.
Thomson joined Isio in March, having worked as a supervision projects manager at the FCA for 20 years.
While at the regulator, he led its supervisory work for the advice sector, including establishing the team overseeing defined benefit (DB) pension transfers.
He also served as the architect of its ongoing advice review.
The FCA published the long-awaited findings of its review in February.
In its initial research, it found that suitability reviews were delivered 83% of the time and 15% of cases it was told that clients either declined or did not respond to the firm’s offer of a review.
There were fewer than 2% of cases where firms reported they had made no effort to deliver the suitability review to clients.
It told all advice firms that they must review its findings, and to consider whether they have met their regulatory requirements and contractual obligations regarding ongoing services.
“The next stage will be crucial when the FCA comes back to look at things,” Thomson told Money Marketing.
“If they see improvements and that firms have taken the hint and actually done the work—identified the ongoing advice or not—and taken the right steps, then I think they may be satisfied that no further action is needed.”
But, he warned, if the regulator find that firms have done no work, or have taken some steps but it’s not adequate, then there’s a very good chance it will “ramp up further”, and there will be more stringent requirements.
Cover story: Ongoing advice: No black and white
“If they find firms who haven’t done anything, they could well use regulatory tools like sanctions or voluntary requirements,” he added.
“Essentially, they’ve put firms on notice that something has to be done. So, a lot depends on how firms react in the next few months.”
The FCA has said it plans to its work in this area this year.
“We all know sometimes things get delayed, but that’s a relatively quick turnaround,” said Thomson.
“Clearly, it’s still a high priority for them, allocating resources to do further work in the same year, which is quite unusual for thematic reviews.
“This remains a key issue on the regulator’s agenda.”
He said that what the FCA has said firms need to do is “quite directive”.
“It says to look back to 2018 and emphasises that firms must ensure they’ve carried out those reviews. Where they haven’t, they need to do the necessary work” he added.
“Now, while the FCA hasn’t specified exactly how firms should do that or set out detailed expectations, it’s still a pretty clear steer that they expect action in this area.
“So I wouldn’t expect firms to sit back and think, ‘Oh well, there’s no big stick from the FCA, so we don’t really need to do anything’.
“If you look at the history of regulation, this is quite a common pattern. The first interaction is fairly low-key — along the lines of, ‘This is what we’ve found, now it’s over to you to do the right thing’.
“Firms are given the opportunity to act, and then the FCA comes back for another look.”
In its initial work, the FCA wrote to 22 of the largest advice firms.
When it comes to next steps, Thomson does not expect the regulator to go straight to smaller firms.
“I think they’ll continue focusing on larger firms, as there are still plenty of impactful ones they can review before turning to the smaller end of the market.”
He said it is possible they could look at small firms, but he imagines they will prioritise reasonably sized firms – perhaps a mix of those they have reviewed before and some they have not.
He added: “That would make sense in terms of checking whether the firms they’ve already interacted with have made the changes expected.”
