Regulatory hurdles to conquer in 2015Regulatory hurdles to conquer in 2015
Regulatory change and the challenges that it presents have been a key topic of discussion in the industry for some time. Concisely, it is assumed that larger financial institutions that are better equipped with resources, compared to smaller, less equipped businesses, will manage the hurdles that 2015 will bring in terms of regulation.
Thomson Reuterssurveyed nearly 600 compliance practitioners from financial services firms including banks, brokers, insurers and asset managers around the world encompassing Africa, the Americas, Asia, Australia, Europe and the Middle East.
According to Thomson Reuters Annual Cost of Compliance Survey, regulatory fatigue, resource challenges and personal liability are expected to increase throughout 2015.
The findings in the survey are a reflection of the sheer volume of regulatory change that continues to be anticipated, as firms navigate both international and domestic rules which have global impact with resulting overlaps. The findings also highlighted the diverse pressures which compliance functions continue to face, with broadening compliance remits, no let-up in the volume of regulatory change and the growing pressure on compliance budgets.
Key findings
From the 2015 report the key findings are that compliance officers express regulatory fatigue and overload in the face of snowballing regulations. Seventy percent of firms are expecting regulators to publish even more regulatory information in the next year, with 28% expecting significantly more. Fifty nine percent of all respondents (53% in 2014) expect the personal liability of compliance officers to increase in 2015, with 15% expecting a significant increase.
From recruitment challenges in finding and retaining suitably skilled staff to increasing pressure on compliance staffing budgets, 69% of respondents expect the cost of senior compliance professionals to increase in 2015. As compliance functions need to be engaged, many firms have also employed more compliance staff but there is a growing need for more truly skilled compliance officers.
According to the survey, regulatory changes are consuming disproportionate amounts of board time, from correcting non-compliance and preventing further sanctions to implementing structural changes to meet new rules.
The local landscape
Anton Swanepoel, a Certified Financial Planner®, said that advisers have been bombarded with regulatory reform with the introduction of the Retail Distribution Review (RDR),Financial Intelligence Centre Act (FICA), the Financial Advisory and Intermediary Services (FAIS) Act and many more regulations.
Richard Rattue, Managing Director of Compli-Serve SA, said that increasing regulation and lack of experienced resources are the major problems facing most compliance functions at this time. “Compliance has gone from the back office to the front line and some compliance officers find this change difficult to adjust to. Increasingly onerous responsibility and liability has made some compliance officers leave the industry for gentler pastures,” he said.
RDR, according to Rattue, remains the main point of concern for intermediaries, given the focus on remuneration. “Savvy advisers that have aligned their business to the principles of fair customer service should find it much easier to cope with the changes that are coming via RDR. Consumers should gain if their advisers are complying with regulations which are mostly consumer focused,” he continued.
“It comes down to the overall efficiency of the adviser business rather than compliance alone. The risk of the so called “advice gap” for lower end consumers is a real one and the regulator has taken steps to try and prevent this scenario, but only time will tell if this has been successful or not,” said Rattue.
Rattue and Swanepoel both mentioned that South Africa compares well to other recognised jurisdictions around the world. “Our regulatory framework is on par with most of our international counterparts,” said Rattue. Swanepoel said in some respects, South Africa is at the cutting edge of legislation. “For example, the UK advisers were not subject to writing RE examinations and they introduced their minimum education requirements after that of South Africa. We have almost double the amount of CFPs as opposed to the UK.”
The yellow brick road
Swanepoel said that, although the RDR proposals have been published and comprehensively responded to by industry, financial advisers are uncertain about the final outcomes of these proposals at this point.
“Advice risk remains the number one risk in any Financial Service Provider (FSP) business, yet it is not factored into the proposed RDR remuneration structure. The proposed reduction of commission will without a doubt create significant cash flow challenges for advisers. Of all the stakeholders in the financial services industry, financial advisers have been the most impacted. Many small, independent businesses are under pressure because of the onerous nature of legislation and the high cost of compliance.” said Swanepoel.
“It is obvious why advisers feel challenged and intimidated by the quantum of regulatory change they are faced with. It is important to get some expert advice to assist with implementation. The main step a broker can take to manage regulatory risk is to deal with clients in a fair manner and to record any client interaction in writing, disclosing all costs and fees and rand amounts,” said Rattue.
“The only way that businesses can survive this onerous world of compliance is to make sure that they differentiate between essentials of the legislation, the good to haves and nice to haves. There are certain components in the legislation that are absolutely essential. The good to haves are those components which assist FSPs in running a professional business. The trick is to ensure that the FSP first addresses the essentials in order to create a sound foundation for the business, then to address the good to haves and if there is time and capacity address the rest,” said Swanepoel.
Editor’s Thoughts:
Over the last 10 years financial advisers have paid the biggest price for legislation compared to the other stakeholders, but hopefully this will change soon and we will see a level playing field. Swanepoel further believes that these changes will create a sound foundation for the industry to be recognised as one that can be trusted and will lead to much better outcomes for all the stakeholders over the long-term. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za
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