Unjust Governance: The FCA’s Burden on Small Financial Firms

In the realm of financial services, the level of reporting required by the Financial Conduct Authority (FCA) for small firms has become disproportionate compared to other industries. Despite the pandemic being behind us, COVID-related reports continue unabated, adding to the regulatory burden. Complaints made to MPs and the Treasury are simply passed on to the FCA, raising questions about governance and fairness. How can service complaints be handled justly if they are passed to the very body that is the subject of the complaint? This lack of accountability is alarming, especially for a system meant to support fairness and justice.

The FCA’s Overreach

The FCA has acknowledged that the reporting requirements create a burden, particularly for smaller firms. However, they maintain that these requirements are proportionate to the overall benefit provided. This perspective fails to consider the severe impact on small businesses, which often lack the resources to manage extensive reporting demands.

Julian Pruggmayer, a Wolverhampton-based adviser, raised this issue with his MP, Sir William Cash, who took it to the Treasury. Yet, the Treasury passed the matter back to the FCA, which defended its stance by citing the need to understand market operations and intervene early to minimise harm. While these objectives are important, the execution disproportionately affects smaller firms.

The Mental Health Toll and Industry Exodus

The relentless reporting and regulatory demands have significant mental health implications for advisers. Studies indicate that many advisers face mental health issues due to this burden, and 3 in 4 see it as a valid reason to exit the industry . This exodus threatens the sustainability of financial advice services, particularly from smaller, community-oriented firms that play a crucial role in providing personalized financial planning.

A Call for Change

The current system’s flaws highlight a breakdown in good governance. Effective governance should ensure accountability, fairness, and justice, yet the FCA’s practices fall short. The solution lies in reducing the regulatory burden on small firms and ensuring that service complaints are handled by an independent body, not the subject of the complaints.

One suggestion for advisers is to consider retiring from regulated advice but not from financial planning. By shifting focus to non-regulated financial planning, advisers can continue to provide valuable services without the excessive regulatory burden. This change can improve well-being and ensure advisers can sustain their practices without undue stress.

See Retire from Work You Dislike, Not from Meaningful Projects You?Love – Blog.

Moving Forward

The path forward requires a balanced approach that protects consumers while not overburdening small firms. The FCA and the Treasury must work together to create a more equitable regulatory environment. This includes revisiting the necessity and frequency of reports and exploring alternative ways to collect essential data without imposing excessive demands on small businesses.

In conclusion, the current regulatory framework imposed by the FCA is unsustainable for small financial firms. It is crucial to address these issues to ensure the continued viability of these businesses and the mental well-being of those who run them. By advocating for change and exploring new approaches, we can create a fairer and more supportive regulatory environment for all.

For further reading, refer to the article by Simoney Kyriakou on FT Adviser , which provides detailed insights into the burden of adviser reporting acknowledged by the FCA in a letter to MP Sir William Cash.