Regulation Including PROD
5 min read 14 May 21
Just as everyone’s calendars are starting to fill up again with restaurant bookings, pints with friends and family and maybe even a staycation or two, the FCA decides it wants in on some of the diary action and publishes its Regulatory Initiatives Grid. I, of course, have been sitting waiting patiently for the FCA’s business plan which has been postponed until July but this certainly makes for some interesting reading in the meantime.
A natural, and also simple, place to start on the grid is with the FCA’s work on the platform market study, which it has confirmed as being complete. It is worth remembering this was a competition study, not supervision, and the FCA have found that, in the main, the platform market is operating effectively from a competition point of view.
Something which isn’t going away anytime soon (and nor should it) is the review of DB transfer firms which will continue until at least Spring 2022. And there is no hint of further work being carried out on suitability which, as I hinted last month, is a further sign that this review has been well and truly kicked into the long grass while the regulator focuses on wider challenges such as pandemic recovery and improving the accessibility of advice to the mass market, both of which are included in the grid.
But there is still plenty to keep us busy over here in the world of advice and investments with lots of work landing around ESG and also diversity over the coming months, the latter of which looks set to have quite a tight turnaround.
June 2021 will see the publication of a consultation paper on requirements for climate-related disclosures by asset managers, life insurers and FCA regulated pension providers, aligning with the recommendations from the Taskforce on Climate related Financial Disclosures (TCFD). The final rules are then due for publication in Q4 2021.
There has been much speculation as to if and what ESG regulations will be implemented here in the UK following Brexit, so it’s a real positive to see some clarity coming down the line. And the focus on asset managers and providers is exactly where we think the emphasis needs to be as this will eventually make ESG a standard part of the normal investment process, which in turn will make it so much easier for advisers and clients to consider ESG investing.
And that’s not all on the ESG front. Guiding principles are also due this month on the design, delivery and disclosure of ESG/sustainable fund products. The inclusion of consumer research looking at how statements relating to ESG impact consumer choices will certainly make for interesting reading. It also gives us hope that we’ll start to see greater consistency and simplification when it comes to some of the language used to describe ESG and sustainable investments because if it’s confusing for us industry professionals, just imagine what a minefield it must be from a consumer perspective.
A discussion paper on diversity and inclusion is planned for next month and a data request will also be sent out by mid-2021. I’m almost certainly not the only one thinking that the initial data will reveal some (ahem) interesting results given that our industry isn’t exactly known for its diversity but this just highlights why it’s such an important issue to get stuck into. And while there might not be any quick fixes to this particular problem, even if it gets us thinking as an industry about changes and steps to make gradually over the long-term, that can only be a good thing. The benefits of having greater diversity within a business are pretty well known at this point and it could also do wonders to help cut through to those areas of the population who currently don’t engage with savings, investing and advice.
Feedback has also just been published on the FCA’s proposal to introduce notice periods for open ended daily dealt property funds, in order to tackle liquidity mismatches. This feedback revealed concerns about the operational challenges for fund managers and other firms created by introducing notice periods and the FCA will continue its attempt to work through these. With this in mind, no final decision has been taken but what has been made clear is that there will be an implementation of 18-24 months if they do decide to introduce notice periods.
Hot on the heels of publishing the grid, the FCA unveiled a consultation to explore the creation of a new open ended fund structure designed to facilitate long term productive finance investment. The consultation proposes creating a new category of fund designed to invest efficiently in long-term, illiquid assets, therefore providing a potential solution to the property fund conundrum just mentioned. If this becomes a reality, these structures would be both open-ended but also potentially embedding longer redemption periods. Nothing imminent here, but an interesting one to keep an eye on.
And if all of that wasn’t enough excitement, potentially the most impactful piece of work is the new Consumer Duty consultation paper. If implemented this would have wide-ranging implications for firms, consumers and the FCA themselves. The consultation proposes introducing a new Consumer Principle, requiring all firms to act in a way that reflects how consumers actually behave and transact in the real world. In essence, they want to see firms putting themselves in their customers’ shoes, asking themselves questions such as ‘would I be happy to be treated in the way my firm treats its customers?’, or ‘would I recommend my firm’s products and services to my friends and family?’. Potentially interesting questions for some firms across the full spectrum of financial services to ask themselves!
Phew, turns out there is actually quite a lot to chew over in the grid and I’m certain we’ll be looking at some of these topics again over the coming months when further details are published. In the meantime, I’m away to update my wall calendar.
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