PIMFA updates Future of Supervision paper and calls for more improvements from the Financial Conduct Authority

20 July 2022

PIMFA updates Future of Supervision paper and calls for more improvements from the Financial Conduct Authority

PIMFA, the trade association for the wealth management, investment services and the personal investment management and financial advice industry, has called for further improvements from the Financial Conduct Authority (FCA) in the way in which it supervises regulated firms.

In an update to its Future of Supervision paper from 2020, published today (20 July 2022) the new paper, entitled Together We Grow PIMFA acknowledges the FCA has made progress in the way in which firms are supervised. These include an increased outward focus on the financial sector’s resilience and an increased inward focus on its own resilience, in the form of plans to improve and update its processes including investing in enhanced data solutions.

Several issues remain however, not least of which is the cost of the Financial Services Compensation Scheme (FSCS) which has continued to rise in recent years as financial institutions have collapsed without warning leaving thousands of customers to fight to get their money back.

That in turn has evolved into a sour debate about the increased cost of the FSCS levy to well run firms, who are ultimately left to compensate customers of failed financial institutions.

The FCA’s supervisory methodology also remains unclear, and the process is not transparent. Feedback from PIMFA member firms two and a half years after the first Future of Supervision paper was published still resulted in the following recommendations:

• That the FCA gains an in-depth understanding of the sector so it can supervise it more effectively.
• That the FCA works with its staff to ensure that they receive the training they need and to manage high staff turnover (lack of continuity of supervisory staff has been quoted as a specific disruptive factor by PIMFA firms)
• That the FCA reconsiders its level of engagement with the regulated population – there are firms which are supervised on a portfolio basis but that are large enough to warrant a more frequent engagement
• That the FCA works with the sector so that a risk-based approach can be applied in full in Anti-Money Laundering supervision.

PIMFA’s update to the Future of Supervision paper calls for the FCA to update its own Approach to Supervision paper and illustrate its vision for supervision in the future; the methodology used to supervise and risk assess firms; its vision for a hybrid “data-led” and “human-led” regulator; how, if any, the events in the last two years have impacted the way the FCA thinks about supervision; and the supervisory process as a whole and how engagement between the FCA and the regulated population will improve as a result of the changes in the operating models which are being implemented.

A change to a data-driven ecosystem will have teething issues and the FCA will need to be vigilant for false positives/negatives, bias and data leakages. A very important function of the success of the regulator’s enhancement plans will be communication. It is beneficial to gather data from firms, analyse it and use it to risk-assess the regulated population, but it is also very important that the regulator remains engaged with financial institutions at all times. Getting buy-in from the regulated population will be essential to effective supervision.

Alexandra Roberts, Head of Regulation, Policy and Compliance at PIMFA, commented: “The FCA’s supervisory methodology remains unclear, and its processes still lack transparency which shows there is still much to do as firm’s often feels that the Regulator doesn’t fully understand them and that better communication is needed.

“A more data-led approach to supervision is certainly welcome, but this is a long-term project and we do not know how wide the positive impact will be and when we will start to see the benefit. Data requests for instance need to be relevant to the sector they are requested from – blanket data requests can easily backfire and produce as irrelevant, bad quality data.

“The last few years has seen a shift towards a more robust and resilient industry even as the industry and the Regulator have had to face unprecedented events such as the pandemic, but it remains important that both the financial sector and the FCA continue to work together to ensure we mitigate the risk of disorderly firm failures. The last two years have shown we can work together more effectively we must continue to do so and improve.”

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Notes for Editors

About PIMFA – the Personal Investment Management & Financial Advice Association

• PIMFA is the trade association for firms that provide wealth management, investment services and the investment and financial advice to everyone from individuals and families to charities, pension funds, trusts and companies.
• The sector currently looks after £1.65 trillion in private savings and investments and employs over 63,000 people.
• PIMFA represents both full and associate member firms. Full members provide a range of financial solutions including financial advice, portfolio management, as well as investment and execution services. They assist everyone from individuals and families to charities and pension funds, all the way to trusts and companies.  Associate members provide professional services to the PIMFA community.
• PIMFA  leads the debate on policy and regulatory recommendations to ensure that the UK remains a global centre of excellence in the wealth management, investment advice and financial planning arena. Our mission is to create an optimal operating environment so that its member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments. 
• PIMFA has made numerous recommendations to the FCA regarding the Future of Advice, Future of Supervision and the FSCS levy – read more.
• To read the full update to the Future of Supervision paper  click here.
• PIMFA was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA) with a history as a trade association since 1991 – read more.
• Further information can be found at pimfa.co.uk

Contact

For further information on this release or other press matters please contact:

Matthew West, PIMFA PR Manager – MatthewW@pimfa.co.uk, +44 (0)20 7382 0376

Sheena Gillett, PIMFA Communications & PR Director – sheenag@pimfa.co.uk, +44 (0)20 7011 9869 / +44 (0)7979 493225