A nameless compliance director is left baffled after a meeting with the FCA…..

Given that our company has been authorised for fewer than two years and has grown to around 35 advisers, it was no great surprise when we were asked to attend a face-to-face meeting with the Financial Conduct Authority (FCA) as part of its Business Risk
Awareness Workshop (BRAW) programme.

As compliance director, it made sense that I represent the company, and I can honestly say the meeting was one of the most gruelling two hours of my life.

The team – Mr and Mrs FCA – wanted to dispense with pleasantries and get down to the real question:

• What exactly were our intentions and how were these aligned with its own views?
• The only problem was: it wasn’t entirely clear on its own views.

I will outline these inconsistencies shortly, but I want to say the conflicting advice didn’t start with the BRAW meeting…

Risk

I attended the then-FSA’s Positive Compliance seminars some months ago and the uncertainty around assessing risk was a major takeaway from the events.

One Scottish presenter explained the regulator was in direct disagreement with the Financial Ombudsman Service (FOS) in circumstances where investor portfolios contained some funds with risk ratings above those considered suitable for the client.

He said: “The FOS says that, if you are a five out of ten, you shouldn’t be invested in anything above a ‘five’ for risk, even though this may have been blended with other funds of lower risk profiles. We think that’s ********.”

Many of us reacted blankly: keeping the regulator happy would, it seemed, compromise our position with the FOS. Keeping our business safe just got a whole lot tougher.

Profiling

Back at the BRAW, attitude to risk came up again.

Having explained our risk profiling process, I was told in no uncertain terms that the fact a minority of clients would override our risk tool and select different portfolios was a “bad outcome” for them, and that compensation could be appropriate.

This seemed to directly contradict the compliance seminars. One of the main concerns for the speaker had been that firms were overly reliant on risk-profiling tools and were, apparently, blindly placing clients into whichever risk profile the profiler suggested, with no qualitative discussion.

• “Risk profilers are part of the assessment process, not the whole process,” he’d said.
• “Advisers should use the results to stimulate discussion with the client.”

I challenged Mr FCA on this:

• “You’re telling me that, if every client ends up in a portfolio suggested by the risk profiler, that’s always a good outcome?”

When I said this was at odds with what an FCA colleague had said, he retracted his statement somewhat and admitted his understanding may have been incorrect.

What now?

It seems the administrators at Canary Towers disagree on a great deal. That’s not to say there aren’t positive signs from the FCA, but I hope these inconsistencies are cleared up before the companies that abide by these rules hit the regulatory rocks.