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?

LCF presents PIMFA with another opportunity to suggest, without evidence in this particular paper but perhaps elsewhere, that the FCA was slow off the mark. Firms, presumably belonging to PIMFA, "do not understand why this action was not taken much earlier and...are unclear whether this was a result of the FCA being subject to procedural restrictions."

Staffing

Pausing to growl about the higher echelons of the FCA having trouble with staff continuity, PIMFA moves on to ask the FCA to shake up its recruitment purpose to "attract experienced staff," a clear reference to wealth management practitioners, especially those at the ends of their careers who might like some cushy employment away from the hurly-burly of productive business.

The eternal question

Ever since regulation began, people in the financial services industry have been asking regulators whether they put the information that they extract from firms to good use. Ever since regulation began, regulators have been reluctant to answer this question in any detail, or at all. PIMFA hopes that better IT will help it ask such questions and help the FCA answer them to better effect. Needless to say, its members are "very nervous about [the] FCA’s ability to specify meaningful data that firms can produce in a cost-effective manner." It wants the FCA to explain how it is using all the data that it gathers from firms, although only in general terms.

PIMFA is especially critical of the FCA's use (or non-use, as it suspects) of transaction reporting data. It has heard that regulators find it hard to lay their hands on firms' transaction reports whenever they want to look at them. By way of illustration, one of the major problems with SVS Securities, which was declared in default in August last year, was the ‘selling’ of highly risky bonds to clients. One of these bonds was Corporate Finance Bonds Ltd which was listed on the Irish Stock Exchange; assuming that SVS Securities was meeting its regulatory obligations, transaction reports should have made FCA aware of this activity. Similarly, Grand Jury charges published in the USA in respect of Beaufort Securities suggest that transactions after 2014, which presumably generated transaction reports, should have "raised the red flag" at the FCA because they made Beaufort appear to be operating as a ‘penny share’ firm.

The war against the hub

Not much love is spent on the so-called supervision hub, a ten-man contact centre full of 'associates' (aka supervision hub supervisiors) in the FCA's Firm Helpline team. These people respond to inbound telephone enquiries from firms, while sometimes being called away to cover correspondence and/or consumer helpline calls when that is necessary. PIMFA is not impressed. It wants the hub split into sectors and is especially concerned with the fact that people who only have experience of the regulatory problems of small firms are fielding calls from large firms whose problems are often utterly different. It is the job of the hubsters to 'escalate' problems upwards to the real decision makers at the FCA and they seem not to be doing this very well.

Market those regulations!

PIMFA is concerned about the small fry of wealth management as well as the big fish. At one point in the paper it comes close to acknowledging regulation for what it largely is - a dagger in the vitals of small businesses, which always find it harder and more expensive to observe rules than larger ones. The very smallest firms typically spend 7-11% of their turnover on compliance; the largest spend 3-5%. To lighten the load for small firms, PIMFA wants the FCA to identify the main regulatory requirements in major topics and publish them alongside clear statements regarding its supervisory expectations. It also wants the regulator to 'market' these key messages clearly, effectively and repeatedly. Even this author has occasionally telephoned the regulator on the subject of this-or-that topical rule, only to be told to talk to a consultant instead.

Thematic reviews

"The majority of firms have little or no engagement with FCA, other than through the supervision hub, unless they are subject to a thematic review." With this in mind, PIMFA broaches the subject of thematic reviews - regulatory investigations on various restricted topics involving visits to firms, which usually result in a rash of fines.

PIMFA calls on the FCA to publish its plan of action for every thematic review it is about to undertake (it calls such a plan a 'supervisory programme' for some reason) on the valid theory that this will allow interested firms to know the FCA's methodology and apply it to their own operations without waiting for the regulators to come knocking.

Other calls for information

PIMFA wants the FCA to say how it intends to ensure that the Senior Managers and Certification Regime Directory (to replace the old Financial Service Directory) is accurate. Every time a firm fails, PIMFA wants the FCA to say whether it reviewed its prudential supervision of that firm to see whether it missed any warning signs.

Again and always, we return to the burden of the FSCS, this time in PIMFA's call for the FCA to pay more attention to firms' audited accounts - something that it hardly does at the moment. Citing City Equities Ltd, which went into administration in October 2013, along with the aforementioned Beaufort Securities, it argues that the FCA is in deriliction of its duty when it does not bother to glean damning information about firms' precarious finances from such easily accessible information, as it failed to do in those two cases. On this subject PIMFA howls anew in pain: "The fact that readily available information indicating potentially serious deficiencies in firms’ financial management are not even considered by the FCA is a matter of deep concern, particularly for those of their counterparts who then end up having to fund the resulting compensation costs."