Opinion - Looking ahead

Keith Richards looks ahead to what regulatory themes might emerge if and when the pandemic subsides

This has certainly been a watershed year. History tells us that pandemics do not last forever and we have started to hear good news about vaccines, but for now, Covid-19 has certainly turned everything upside down. 

As far as new regulation is concerned, Covid-19 has meant a pause in new regulatory initiatives. In the first part of the year, we worked with the Financial Conduct Authority (FCA) to reduce the burden on advisers, relaxing rules on the Markets in Financial Instruments Directive (MiFID) reporting requirements, reducing the need for ‘wet’ signatures, pushing back the deadline for outstanding reporting requirements on the senior managers and certification regime and for transfer specialists’ new examination requirements, as well as extending the time period in which new advisers could give advice under supervision while they studied to become fully qualified.

However, as we have seen, regulatory impact is not all about rules. Throughout the year, firms have been challenged with increased professional indemnity premiums or – even worse – the threat of not being able to obtain cover for current and previous years of advice, sometimes going back decades.
 
In addition, Financial Services Compensation Scheme contributions went up sharply in 2020, after several years of stability. So, advisers have felt the impact of existing financial services legislation more than ever before, even though the FCA has reduced the flow of new regulation. The PFS has been working throughout the year to remind HM Treasury and the FCA of the problems this is creating for consumers as well as advisers and we will continue this work into 2021. 

Investment market review

Looking forward to next year, we know the FCA will eventually return to the regulatory agenda that it had already set out before the pandemic. 

A key piece of work that we will hear about more and more in 2021 is the investment market review. The review will be looking at crucial questions that are of the utmost importance for consumers: how can we protect consumers from scams? How can we ensure that consumers understand the consequences of choosing non-advised services? How can we improve the products that are on the market for consumers?

However, the review does not end here. On top of these important questions is a desire, for the first time since the Retail Distribution Review, to ask: ‘what does good look like for investment advice?’ 

Whatever else happens in 2021, we know that the flow of new regulation will start to pick up again. Our challenge is to participate in this process, so that the regulators’ view of what good looks like across all issues is the model that delivers real benefits to the public 

For example, in its call for evidence the FCA has set out its views on ongoing advice, saying: “Some people have long-term needs and seek advice on managing their finances over many years… The current financial advice market already provides for these consumers.”

So, the FCA is effectively suggesting that there is little potential for growth in the professional advice market. Whether this view is challenged and modified, or whether it becomes the received wisdom, is up to us as a profession to decide. The PFS is working hard with practitioners to develop a strong, evidence-based case for ongoing advice to the FCA and we will be expanding this work as we go through 2021. 

Ethical investing

Another big theme for next year will be the ethical dimension of investment. We have heard a lot in the last few years about environmental, social and governance (ESG) considerations and the growing movement around social impact investing. 

This has taken on a new regulatory dimension with proposals from the European Union to amend MiFID to establish new standards for considering ESG issues during the suitability process. These proposals will not come into force until well after the Brexit transition period is due to end, so the extent to which they are adopted in the UK will depend on the nature of any ‘equivalence’ regime that the UK agrees with the EU as part of the ongoing trade negotiations. But there is no doubt that with the attention on climate change globally, advisers are going to face more questions about how they factor environmental, social and other ethical issues into their advice process. 

Whatever else happens in 2021, we know that the flow of new regulation will start to pick up again. Our challenge is to participate in this process, so that the regulators’ view of what good looks like across all issues is the model that delivers real benefits to the public
 
Keith Richards is CEO of the Personal Finance Society