The past 12 months has seen a flurry of new regulations enter the UK financial services sector with the aim of making the industry more transparent and boost consumer confidence following a scandalous few years.
And, according to industry insiders, the regulators will not be shy in holding senior managers accountable for failing to keep up with the new rules.
Jim Muir, director of financial data management solution firm AutoRek, says the scandals of 2012 and the record-breaking fines that have been handed out by governing bodies to the City have focused the minds of the financial services community.
“More than ever, [they seek] how to avoid fundamental failings surrounding operational supervision, audit supervision and breaches of authority,” he says.
“Companies are beginning to recognise that the failings of the financial industry are relatively straightforward to fix by introducing automated controls which improve management practices.”
Last July, the outgoing UK regulator, the Financial Services Authority (FSA), penned a “Dear CEO” letter to the chief executive officers of firms offering wealth management services, explaining that, having identified widespread failings in record-keeping and suitability, the sector may face “tougher supervision”.
Regulation has forced firms to step back from their sales process and put controls in place
Jason Stather-Lodge, chief executive at OCM Wealth Management, says the key for wealth management firms is that the technology behind the money management proposition ensures they can review all assets collectively.
Mr Stather-Lodge says this should not alter the asset construction. “This is something that is becoming an issue for many firms that have not in the past invested heavily in technology to support this type of transaction reporting and review of client portfolios.”
He adds that, in his view, the FSA will continue to focus on how wealth management firms deliver the service on offer, what the internal processes are, and whether those processes and the systems behind them are robust enough to ensure all clients, irrespective of size, are dealt with in the same way.
Ian Stott, client services manager at The Consulting Consortium, which formed in 2000 and works with growing businesses to ensure they stay within the boundaries of regulation, says: “Wealth management firms have been forced to make their internal processes more robust and make sure they are giving the right advice to the right clients.
“The regulation has forced firms to step back from their sales process and put controls in place to ensure they have the right management information to be certain that their controls are working.”
But with so many wealth management firms and stockbroking companies offering advice services, how can an investor be sure they have chosen one with a compliant structure?
Dominic Crabb, compliance executive at London and Capital, explains that the first place any investor should look is the FSA register or APCIMS – the Association of Private Client Investment Managers and Stockbrokers – which has a directory of firms that are up to scratch.
He explains: “The general public has had access to details on all regulated individuals in the UK for some time, data including their disciplinary history and the permissions that each firm holds.
“Although this is not the most straightforward of systems, it can give an insight into the firm: can it, for example, hold client money, or provide a discretionary or advisory service which the underlying client may use.”
What is clear is that the industry – both through regulation from the FSA and day-to-day practices among wealth management and stockbroking firms – has a long way to go before confidence is fully restored.
Mr Stather-Lodge concludes: “In many ways the only way to reassure clients is to reaffirm the processes and annually state the financial position of the firm to clients, and to ensure through actions rather than words that the services are being delivered.”
