Ironically, a more prescriptive approach from the FCA could ease the regulatory burden on firms

The American politician Hillary Clinton once told a room of Wall Street bankers: “There’s nothing magic about regulations: too little is bad, too much is bad.”

That is the fine line regulators must walk – ensuring consumer protection while trying not to unduly restrict the market.

Overall, in my opinion, the FCA gets this balance right. However, given the ever-evolving nature of regulation, constant effort is required to maintain that balance.

Therefore, I was pleased to see the regulator recently launch a review of its rulebook to identify areas to “streamline” to “reduce burdens on businesses”.

As part of the process, it is calling on stakeholders to suggest ways in which it can remove barriers for firms and promote growth – safely, of course.

You’ll be pleased to know I am not about to rattle off a list of obscure rules that I would like to see tweaked or even binned entirely.

No, instead I believe the FCA would achieve its goal of protecting consumers while promoting growth by a relatively minor change in philosophy.

Challenges for different types of firms

Over the years, the FCA has shifted to an outcomes-based approach to regulation. This broadly means the onus is on firms to figure out how to comply fully.

This type of approach is seen as flexible and allows firms to operate as they see appropriate, as long as it’s within the regulatory framework. But it can be expensive, time-consuming and, dare I say it, growth-sapping.

If you are a large advice firm or network with a large and experienced compliance team, your organisation and business model is designed to have the time, resources and expertise in place to interpret the regulator’s intentions.

However, that process is not cheap. It costs networks such as Stonebridge millions of pounds a year to ensure our Appointed Representatives (AR) operate competently and remain compliant. That covers everything from authorisation, supervision, quality of advice checking and the deployment of specialist software to help our members compete while remaining on the right side of the regulatory requirements.

As a network, we are of course structured to absorb those costs. But if you are a privately owned brokerage with a handful of advisers, it can be extremely difficult and expensive to remain competent and compliant. It’s unsurprising then that many firms opt to be part of a network for technical competence, scale and support.

Despite that, the regulator has the opportunity to reduce the regulatory and financial burden on firms – both large and small, AR or DA – if it were to be more prescriptive about what it expects from them.

Benefits of a streamlined regulatory environment

I’m not suggesting the FCA explain its thinking for every line of the rulebook, but rather that it could choose to be black-and-white in certain areas. For example, it might tell the advice sector more explicitly what it considers acceptable and unacceptable when dealing with vulnerable customers.

The FCA may decide that approach would be too impractical in real life, in which case an alternative may be to continue and increase the frequency of sharing examples of good industry practice for others to follow.

Either approach would allow the FCA to remove much of the guesswork around regulation, meaning firms spend less time and money working out whether they are compliant, resulting in more time supporting and servicing their customers.

Given the added certainty this approach could provide, it would also reduce the financial burden that comes with regulation. The risk of non-compliance reduces, which may also lead to a number of consequent benefits such as lower Professional Indemnity Insurance premiums.

Ultimately, moving to an environment where the rules are easier – and cheaper – to follow will result in better value and outcomes for consumers. That ultimately has to be the goal we as an industry aim for.

Rob Clifford is Chief Executive of Stonebridge

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