Ultimately, irrespective of the context, rules are rules, says Mike Phillips – Novia Global’s Commercial Director. This article explores his views on financial services regulation and the ‘ever changing’ landscape.
In my favourite sport, rugby, there’s almost always some sort of rule-related row going on. One of the latest disputes revolves around steps by the governing body to lower the height for legal tackles.
For elite players, historically, shoulder height has been the norm. The powers that be now seem to believe sternum height is the way to go and are set to trial the idea at this year’s Junior World Championship in Georgia.
Proponents say fully implementing a new law would improve player safety by reducing the risk of serious head and neck injuries.
Opponents say it would lead to confusion and prove nigh on impossible to enforce.
In the financial services industry, at least in my experience, the chances of being poleaxed at any height are mercifully slim.
Even so, we can all relate to the challenge of ever-changing regulation.
Those of us in the platform business might consider ourselves especially familiar with the phenomenon. So might the adviser community.
It also seems reasonable to suppose we’ve all done our fair share of complaining about it.
But perhaps we ought to stop griping for a moment and ask ourselves a couple of questions.
First, why do regulatory requirements come so thick and fast nowadays? Second, could the demands of keeping pace actually help identify the likely winners and losers in the platform space and beyond?
Compliance versus chaos
It may sometimes be tempting to conclude that financial regulation exists primarily to ensure the Financial Conduct Authority (FCA) stays busy.
However, the explanation is a little more nuanced than that.
If we closely examine any commercial arena – particularly one that’s notably competitive and entrepreneurial – we find there’s a genuine danger of a free-for-all.
In fact, it could be argued that the advice sector has veered perilously close to that unfortunate standing in its time.
Forty or so years ago, before the Retail Distribution Review and Consumer Duty were even twinkles in the FCA’s eye, there were thousands of self-appointed “advisers” in the UK. With the best will in the world, a sizeable number of them wouldn’t pass muster today.
Similarly, the early days of investment platforms offered a classic illustration of what’s known as “the pacing problem”.
This occurs when social, economic and legal systems – which, by their very nature, tend to evolve gradually – struggle to remain abreast of rapid technological advances.
An “anything goes” approach in which rules are neither imposed nor upheld can certainly enable some participants to prosper.
On the whole, though, it’s usually bad news for the vast majority of stakeholders – and consumers end up paying the price.
This simple truth is always worth remembering when, yet another regulatory edict is handed down from on high.
Staying compliant can be a tedious and heavily resource-intensive affair, but it’s got to be better than the alternative, which is something akin to anarchy.
Punishments and prizes
This brings us to whether unstinting compliance has any rewards. Does it give rise to any tangible benefits from a business perspective?
For example, during the past couple of years alone my colleagues at Novia Global have got to grips with Consumer Duty – as I’m sure you have, too – as well as achieving full compliance with Europe’s MiFID II and familiarising themselves with the requisites of the Dubai Financial Services Authority.
Is avoiding a fine from the regulator all they can hope for?
I don’t think so. There should be far more at stake.
In my opinion, one reason why the best platforms, like the best advisers, are determined to tick every box put in front of them is that they expect doing so to set them apart from their rivals.
Why is that important? Regulation might go a long way towards deciding the survival of the fittest.
As the protocols, procedures, guidelines, directives, decrees and imperatives continue to mount, providers could increasingly be recognised for their commitment to integrity and their keenness to do the right thing.
In other words, non-compliance might, and very probably should, be interpreted as a sign of weakness.
Why would stakeholders align themselves with those that are willing to cut corners when they could instead work with those that do all they can to stay on the straight and narrow?
Ultimately, irrespective of the context, rules are rules.
In our industry, as in sport, there should be severe penalties for breaking them and clear incentives for adhering to them, and those that follow the latter course should prevail over the long run
