Part 3: FCA’s ongoing advice services review: long term compliance and RegTech

The final part of TCC’s webinar continued the house view on the FCA’s ongoing advice review findings for wealth managers. Recordsure’s Chief Product and Chief Commercial Officer, Garry Evans, was joined by TCC regulatory experts Gary Maude and David Boyhan.

The session explored how wealth management firms can deliver long-term compliance for ongoing advice services, why RegTech has a role in evidencing ongoing advice reviews, and how firms can build actionable MI.

Garry Evans

Garry said the FCA had not been, and may never be, explicit in its requirements for regulated firms, but TCC’s house view aimed to clarify the firm’s interpretation of the regulator’s position.

He asked whether firms planned to conduct a past business review. Although he believed the FCA had indicated that it did not think there was a large redress population, he said the need for a past business review was being solidified back to 2018.

Garry said he was pleased to see a pragmatic approach from those planning action. For firms not planning work, he said TCC may see the issue return when the FCA checks in after six months. As a minimum, he recommended collecting a meaningful sample review so firms can make an educated assessment of how much of a problem they may have.

He also asked for the minimum acceptable measures that would avoid negative FCA attention, recognising that measures to ensure complete compliance could be onerous and expensive.

Garry said there were measures that wealth managers could put in place to be fully compliant, but that some would be onerous and expensive. He therefore asked for TCC’s view of a pragmatic set of measures that could reduce the risk of negative FCA attention.

He said the response from firms not planning action was predictable, but TCC’s concern was that the FCA had not forgotten the issue. Firms should therefore create enough evidence to support a meaningful assessment before the regulator returns.

Garry said that, despite the FCA’s de-escalation, he did not think the regulator had forgotten about the issue. He expected some fall out when the FCA came back to check in, which is why TCC recommended at least a meaningful sample review.

He noted that TCC had been involved in many ongoing servicing projects over the previous 12 months and that there were measures firms could take to ensure compliance, even if some were expensive.

David Boyhan

David said it is crucial to remember that for wealth management the FCA has had ongoing advice in the past two portfolio strategy letters. Although firms were happy with the findings released in the previous month, he said the issue has not gone away and will return later in the year.

As an ex-FCA supervisor, he said the last thing a firm should say when the regulator arrives is that it has done nothing. TCC’s recommended minimum expectations were the backwards-looking work going back to 2018, plus forward-looking work on fair value assessments and review of MI from the past business review.

He identified the disengagement process as a key issue. When TCC asks firms how many clients have disengaged over the previous 12, 24 or 36 months, the answer is often a handful, if any. David said the FCA will expect a material number of clients to be disengaged if they have not been using a service, while firms also need to take vulnerable clients into account.

His short advice was to complete the backwards-looking piece and make sure current processes meet the FCA’s specified requirements.

David said he was mindful of time but wanted to be clear that ongoing advice had appeared in the past two portfolio strategy letters for the sector. In his view, the issue would come back, so firms should avoid appearing to have taken no action.

He said the forward-looking piece includes making sure current processes meet FCA expectations. That includes fair value assessments, MI from the review work, disengagement processes and the treatment of vulnerable clients.

David said the question is what firms should do now, not whether the FCA findings were welcome. His recommendation was to complete the backwards-looking work and make sure forward-looking processes satisfy the regulator’s expectations.

Gary Maude

Gary preferred the word “proportional” to “minimum”, because firms vary in size, complexity and client numbers. He said proportionality can help firms avoid a wide-scale past business review, and TCC often avoids Section 166s and VREQs by taking a proportionate sample of files. Even where files are not tidy, the aim is to reach a conclusion on whether there is customer detriment.

He said firms have struggled to collate information from different systems because systems are old, have changed, information has been lost, or some information remains paper-based and unscanned. As a result, confidence in evidence can fluctuate and affect next steps.

Gary said firms need to consider confidence in sampling, adviser adherence to their own process, possible PI or disciplinary implications, and ongoing provisioning implications. They also need to assess how able they are to defend the possibility of a larger-scale past business review and whether a causation approach will stand up to expectations from the regulator and PI insurer.

He repeated that many firms are struggling to assemble a cohesive pack of information to determine whether advice took place and assess its quality. That leads to the question of where firms stand on redress if they have done some work that may or may not match their terms and conditions.

Gary said many attendees would be speaking to legal representatives, and that DAC would cover the legal detail. If there is redress, the clarity of chronology, frequency of client contact or attempted contact, and the mediums used could all be relevant to causation, including when the client should reasonably have challenged the firm.

Gary explained that confidence in evidence can affect sampling, adviser-adherence conclusions, PI implications, disciplinary implications and provisioning. He said next-stage implications also depend on whether the firm’s own process is clear enough and whether the evidence can support a defensible causation approach.

He noted that chronology, frequency and medium of contact can all become relevant if there is redress, because they help determine when a client could or should reasonably have challenged the firm.

Gary said TCC had seen real-time scenarios where firms struggle to pull together information from old systems, changed systems, lost records, paper files and unscanned material. That struggle affects confidence in the evidence available and, consequently, the next steps firms choose.

He said firms may need to consider whether adviser adherence to process creates PI implications or disciplinary implications. They may also need to consider whether their own process is clear enough to support any next-stage decisions.

He said many firms were now talking about what happens where they have done something, and perhaps many good things, but the work may not match their terms and conditions. That question affects redress, causation and the ability to defend a wider past business review.

Gary said firms often attempt to avoid larger reviews by taking a proportionate sample of files and trying to reach a defensible conclusion of no customer detriment. That approach depends on the quality of advice for each individual firm.

He referred to current discussions around St James’ Place and what he understood was called Mr B. He said many firms would need to speak to legal representatives, and that DAC would cover more detail on the following Wednesday.

TCC house view

Garry closed by summarising TCC’s house view. He said the FCA’s findings were surprisingly positive, but because survey results were self-reported and did not show much evidence burden, they may be more positive than the market position.

He said the FCA had indicated a low redress population, but TCC still expects wealth managers to identify which category each client falls into for each service review period back to the start of 2018 and at least redress the 2% that were not offered a review. He said MI based on practice management system data would not be acceptable as evidence of a review taking place.

TCC’s view was that evidence should include at least updated KYC, recent attitude to risk documentation, and an updated suitability letter. For declines and disengagement, firms need proof of contact for every service review period. Garry added that email is probably one of the most acceptable channels because it is literal proof, and a recording of a conversation is even better.

TCC’s view was that clients who were not offered a review for any period should have their fees refunded for that period. Garry said TCC did not currently believe consequential loss questions are required. For clients with multiple service review periods where they declined or did not engage, fees should be refunded for every period after the second decline of engagement.

He added that live clients who, on review, had more than one year of decline or disengagement should have to opt in to continue an ongoing advice service. Any client with no-change reviews for more than two years in a row should have suitability advice checked. Garry caveated that these were TCC house views and interpretation of the FCA guidance and letter, not direct statements from the FCA.

Garry also said clients with multiple declined or disengaged periods may need differentiated treatment. Where live clients had more than one year of decline or disengagement, TCC’s view was that they should actively opt in to continue an ongoing advice service.

He said the FCA’s survey results were self-reported, so the market position may be less positive. His summary also said practice management system MI alone would not be acceptable as evidence of a review taking place.

Garry said his closing points were not direct FCA requirements but TCC’s interpretation of the FCA guidance and letter. He presented them as a useful benchmark for firms considering their own response.