SORTING COMPLIANCE FACT FROM FICTION

Proportion
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21 July 2022

It is time to set the record straight. There are a number of inaccuracies clients and potential clients are led to believe that can colour decisions they make about compliance and business strategy. These can lead to costly errors and potential action by the FCA.

Below, we look at some of the most common myths we have to address when beginning to work with a new adviser firm. We hope you find them enlightening.

Compliance manuals

Compliance manuals. Lengthy, tedious and often expensive to compile. And did you know they aren’t an FCA requirement? Don’t worry – you’re not alone!

It is a widely held belief that firms must have a compliance manual and we often find clients panicking if they don’t, or worrying that the one they do have is out of date.

Manuals are simply a compilation of your compliance policies and procedures. By bringing them together, they can become complicated and difficult to use. If you don’t use them, what is the point wasting time and resources creating and maintaining them?

The FCA expects you to have adequate policy and procedure to ensure your firm, its managers and employees are compliant. If you give your staff a document with hundreds of pages, will they read it, understand it and adhere to it? The answer is likely to be ‘no’ and if so, then you are not meeting the regulator’s requirements.

Our recommendation is to have a well-managed suite of policies and procedures that are reviewed and updated in line with relevant changes. Ultimately, this will save you time and money and reduce errors or breaches of the regulations.

Sustainable investing

Investing in sustainable funds means sacrificing performance, right? Wrong!

This is a pervasive myth that likely originated in the days when ethical investment meant excluding companies or whole industries.

Sustainable strategies traditionally meant avoiding investments that clashed with your client’s views on things like alcohol, tobacco, firearms or casino stocks. These days, it is more about engaging with companies and looking at their environmental and social policies, as well as how they are governed (ESG).

Fund research company, Morningstar Financial Research, found that when ESG analysis is incorporated into more traditional investment processes, it can potentially enhance performance.

The UK has been quite slow to adopt a framework for sustainable investment, but the United Nations’ document, Principles for Responsible Investment (PRI), is likely to shape the future of this sector.

Regulation prevents business

Regulatory changes are a thorn in the side of many firms and too often, they believe this additional red tape stops them doing business.

Whilst understanding and implementing new legislation can be lengthy, complicated and onerous in some instances, treating it as a barrier to trade is dangerous.

Ultimately, the FCA’s core objective is to protect consumers and if bad practise wasn’t an issue, there would be no need for legislation. If you do not embrace change, you not only risk falling foul of the regulator, but also – most importantly – could do harm to your clients.

No complaints equal ‘compliance’

Firms often wear their zero complaints badge of honour with pride. However, this is actually a red flag for the regulator.

Receiving a complaint is not necessarily an indicator of non-compliance and similarly, having some on your register is not an intrinsically bad thing.

Feedback from a complaint can help you improve procedures, inform changes to your internal systems and ultimately, reduce your risk of non-compliance in the future.

A complaint handled well can often improve your relationship with a client.

Compliance is expensive

This is more of a misnomer than a myth.

The US deputy attorney general, Paul McNulty, uttered the now infamous phrase: “If you think that compliance is expensive, try non-compliance.”

Yes, compliance is an additional cost to a business that doesn’t bring you direct revenue, like sales or marketing functions, but good compliance can save you money in the long run.

In 2021, the FCA issued fines for non-compliance ranging from £52,000 to £264 million, the most severe relating to breaches of the money laundering regulations. In some cases, prohibitions and criminal charges we also imposed where serious failures within organisations were identified.

Ultimately, highlighting errors and advice issues, and properly managing risk with effective policies can reduce costs and reputational damage that could otherwise have devastating effects on your business.

If you would like to discuss any of these myths in more detail, or you require advice on improving your compliance procedures, don’t hesitate to contact us. Telephone (0161) 521 8641 or email: [email protected]

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