In a paper released this week, the British Personal Investment Management & Financial Advice Association says that its firms 'question both the adequacy of the FCA’s supervisory regime and whether they are being penalised for the FCA failings.' This is fighting talk from the UK's main wealth management trade body, but will the regulators take it seriously?

The Financial Conduct Authority might well opt to treat this paper as a cathartic "letting-off of steam" on the part of the industry. Stung recently by eye-watering increases in the levy that all wealth management firms should pay to the Financial Services Compensation Scheme or FSCS, PIMFA has never before produced anything like this diatribe against the FCA, which it provocatively calls FCA Supervision - Fit for Purpose?

A spokeslady for PIMFA told Compliance Matters: "In the past we've put out various pieces but it's more of a factfind. We have a regulatory committee and a compliance working group that say various things. We've criticised the old Financial Services Authority over the Retail Distribution Review, we've published things about the transition from the FSA to the FCA, we've published our reactions, which were sometimes critical of the regulators, about various consultations that they've done, but we've not produced a dedicated paper."

More fighting talk is to be found at the beginning of the paper: "In our view, when problems arise, the immediate reaction is to review the content of the FCA Handbook or start another policy initiative rather than questioning whether the problem is a result of inadequate supervision."

Ian Cornwall, PIMFA's director of regulation, had other harsh words to say in a related press release: "Currently the cost of running the FSCS is comparable to funding the entirety of the FCA – it cannot be the case that these resources are being spent wisely if the cost of compensation is broadly equal to the cost of regulation."

Listen up!

In its conclusion to the paper PIMFA, like any self-respecting trade body, wants the regulators to listen to it more often and more respectfully. To this end, it wants the FCA to consider the demands that it makes in the paper by talking to it on various working groups that it wants to set up. It expresses a desire to "inform review and refinement," whatever that might mean, and wants the FCA to "engage with" firms (presumably the members of PIMFA) at an early stage, although it does not say of what. Again, confusion seems to reign.

It is, however, worth peering into the body of the text - if not to deduce a coherent argument, then at least to spot the subjects that PIMFA finds so contentious. The expensive FSCS, which the paper mentions 25 times, is at the top of the list.

Also prominent are some demands, to be found in the middle of the paper, for the FCA to appoint someone senior to listen to PIMFA and the rest of the indutry; to ensure that every "whistleblowing report" is reviewed by competent people; be clear about the process that it follows when presented with intelligence; put generic details in its Annual Report on the intelligence received during the year and the types of action taken; and give 'due recognition' to any action it takes on the back of intelligence provided by financial firms.

PIMFA, at one point, envisages the FCA having a ‘cadre of experts’ (perhaps from PIMFA itself) for each sector who are not deskbound and whose duties include talking to firms and helping to supervise them directly.

Groundwork for complaints

The paper draws on information that PIMFA has gleaned over the years from its member-firms and, indeed, from the FCA itself. It says that people are debating whether the FCA should simplify its rulebook and concentrate on outcomes rather than prescriptive rules. At the same time, it thinks that people who live "at an overarching level" are hardly discussing the role of supervision in the fulfilment of regulatory objectives at all. Nor are they discussing whether the FCA's supervisory approach is effective or whether it ought to improve its supervisory regime to any substantial extent.

Although PIMFA does not want to see the end of the Financial Services Compensation Scheme, it thinks that some claims on the FSCS are the fault of the FCA's deficient supervisory regime. It admits that its firms are smarting from the high levies that the scheme imposes on them. It also admits that the FCA has probably notched up plenty of supervisory successes that it has not spotted, but only because the FCA keeps such things secret.

On the minus side of the ledger, PIMFA complains about "perceived failures of supervision (such as London Capital and Finance plc) and recent feedback from the [Financial Regulators] Complaints Commissioner which highlighted supervisory failings in respect of specific complaints." Complaint number FCA0053 from that commissioner states that "there are no records to show why some regulatory actions, including supervisory visits, were not taken or were not followed up," prompting PIMFA to ask itself whether the FCA’s internal audit department bothers to review the regulator's supervisory work.

(The Financial Regulators Complaints Commissioner is a creature of the Financial Services Act 2012.)

Portfolio management

In a document called Approach to Supervision, the FCA (according to PIMFA) is not clear about how its board finds out how effective its supervision is, how it allocates resources to supervisory activities, how it satisfies itself that its staff have adequate skills, knowledge and experience, and how it satisfies itself that it is supervising firms properly.

Apparently the FCA has been changing its supervisory methods over the past year, which might be helping it to spot more firms that perform poorly. PIMFA thinks that this, in turn, might lead some unnamed people to 'default,' presumably on their debts. It wants the FCA to tell the public more about this possible phenomenon.

The FCA supervises firms by assigning them to this-or-that portfolio; indeed, every regulated firm is the member of a portfolio of firms that pursue similar business models. The FCA then draws data from all over that portfolio to spot trouble and allocate supervisory resources. It has published very little information to explain its supervisory methods to firms, but is promising to do more. Here PIMFA returns to the main refrain of the paper: "the massive year-on-year claims on [the] FSCS are such that regulated firms want greater accountability from FCA on both its supervisory approach and the practical outcomes of that approach."

Back to the FSCS

PIMFA has been reading the FCA board minutes of the last two-and-a-half years and has deduced that the board has never looked into the compensation payments that firms have to fund through the FSCS, despite the volume of claims being at an all-time high. This is a sore grievance.

The FCA - slow off the mark

PIMFA has reservations about the FCA's reaction to data that it receives from the Financial Ombudsman Service and the FSCS and its tendency to be slow off the mark when it does detect problems. Again, there is another reference to the dreaded FSCS levy, this time for firms in the life and pensions intermediation sector, nearly doubling in 2015 because of a surge in claims made to the FSCS that related to self-invested personal pensions or SIPPs. At the FCA, work did not begin until 2017. The paper also quotes the House of Commons Work and Pensions Committee report on the British Steel Pension Scheme: "The FCA has long been aware of problems with defined benefit transfer advice. They should have been monitoring the developing risks surrounding the BSPS and intervened earlier to protect members against unsuitable advice."