Facing the Rising Cost of Regulation Head On


There’s no doubt that the cost of regulation has risen in recent years. Since the 2008 financial crisis, the FCA’s Annual Funding Requirement (AFR), funded via an industry levy, has increased 48.6%, meaning small to medium-sized firms are now spending on average 11% of their turnover of regulatory costs. TCC’s Andy Sutherland, Managing Director of Advisory Services, explores the impact of rising costs on the advice market, and how advice firms can ensure they are striking the right balance between their compliance obligations and commercial objectives.

In recent years, the effect of a weak economy, rising regulatory costs and the struggle to develop profitable models has resulted in a significant reduction in adviser numbers, as well as many of the banks retreating from this market. Couple this with complex charging structures and poor transparency, and the industry has seen the emergence of a significant advice gap. Of course, it is consumers who disadvantaged in this situation and the FCA has introduced initiatives to counter behavioural issues and ensure the market works well for those consumers looking to access financial advice.

However, there are certain considerations firms need to take into account if they are to prosper in this market:

Review your systems and controls

Effective systems and controls (SYSC), supported by robust governance and relevant management information (MI), can help mitigate emerging risks and therefore reduce the potential for costly past business reviews and fines.

Consider automated solutions

The benefits of automation and technology are clear: improved efficiency, costs savings, increased productivity and consistency of outcomes. These are set to continue as RegTech and innovative solutions become more widely available, supported by initiatives such as the regulatory sandbox and Project Innovate. Many herald the rise of robo-advisers as the key to addressing the ‘advice gap’, allowing currently under-served consumers to access lower-cost advice models.

However, firms looking to develop automated solutions should be mindful that successful implementation relies on robust controls and design and, most importantly, the presence of sufficiently skilled resources and technical knowledge to implement solutions.

Be proactive

One of the most important points to remember is need for a proactive approach. The advice landscape is constantly evolving, and the key to navigating it successfully while mitigating the effects of increasing regulatory costs, is ensuring that resources are always aligned to the FCA’s current area of focus.

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