FCA to survey advisers about their 'financial health'

During a speech at PIMFA’s Virtual Fest, Megan Butler, executive director of supervision at the FCA, said "financial pressures can cause harm to customers if firms cut corners on governance... market volatility can reveal previous mis-selling and the need for redress”.

Wealth managers and financial advisers had responded well during the crisis and firms were adapting well to the new normal, she said. But she cautioned the regulator could not “overlook financial resilience”.

One of the reasons for conducting the upcoming survey was so the regulator could get a sense of the financial wellbeing of firms. “We are trying to get a much greater, more granular sense of what the pipeline might look like,” she said.

She added the FCA expected to write to firms holding client money shortly about how to protect it. “We will assess how the wealth and advice market has responded to changes but we continue to expect firms to provide suitable advice. Firms must continue to act with integrity, charge reasonable fees and prevent fraud,” Megan Butler said.

Areas of concern remained around phoenixing and life-boating of firms: whereby firms preemptively set up new entities or acquired new firms before closing down. While one of the more egregious practices identified in recent times had been that of advisers leaving firms that had fallen foul of regulations and joining claims management companies to seek compensation against the firm they had recently left.

She added that the regulator was moving more towards an “outcomes-based approach” to regulation, suggesting this was better, both for firms and supervisors, However, work needed to be done to identify those firms that needed help. She commented: "How does a regulator find firms that need help to improve, because there are some firms that want to do better, but there are also firms that have no place in the industry so it’s about identifying them.”

Liz Field, Chief Executive of PIMFA commented: “I’m grateful to Megan Butler for her time and her insights on the future of regulation and also the current response to the Covid-19 pandemic.

“Protecting consumers from scams and ensuring best practice will always be at the forefront of the vast majority of wealth managers' and financial advisers' minds. But as we have often said before, the increases to the FSCS levy, particularly this past 18 months, results in good firms are being punished financially for the behaviour of bad.

“It is promising to hear that the FCA wants to take a more data-led approach to identifying those firms that either need more supervisory support or that simply should not be on its register. It is also a relief to hear that the FCA wants to avoid unexpectedly large bills for firms that see treating their customers well, let alone fairly, as a prerequisite of being in business in the first place.

“We will, as always, engage in a positive and constructive way with the regulator to ensure best practice in the industry, protect consumers both from scams and rogue firms, and forge a path towards a regulatory regime that works for all.”