Navigating Compliance for Smaller Firms

Unknown Speaker

Hello and welcome back to the B-Compliant AI podcast. So, the FCA published its latest findings from a supervisory review of smaller asset managers and alternative investment firms. The findings on smaller firms are, well, not surprising but still pretty concerning. They’ve noticed that many of these firms use overly simplistic investor suitability assessments.

Rachel MacRae

Wait, you mean like those basic questionnaires with generic questions that, you know, anyone could just tick through?

Unknown Speaker

Exactly. And the issue is, they don’t really test whether the investor genuinely understands the risks involved. For non-advised retail investors, this can open up a huge can of worms because they’re essentially vulnerable to being mismatched with risky or complex products.

Rachel MacRae

Right, it’s like handing someone a map but not teaching them how to read it. So they’ve kinda got no idea what they’re walking into. But tell me, what stood out the most in these assessments?

Unknown Speaker

Well, in some cases, firms were actually assisting investors to pass these assessments. Or they failed to distinguish between an investor’s wealth and their sophistication. That’s a major red flag.

Rachel MacRae

Major. And you’ve got firms onboarding people into these high-cost alternative investment funds without proper evidence of fair value. Not only does it feel dishonest, but it flies right in the face of the Consumer Duty principles.

Unknown Speaker

It does, Rachel. And speaking of governance, the FCA highlighted significant gaps there too, especially regarding conflicts of interest. Many firms did have conflicts registers, but they were barely adequate—lacking enough detail or even mitigation strategies. It’s as if they thought checking that box would suffice.

Rachel MacRae

Oh, come on, we’ve seen this exact problem before. Remember back in history when lack of governance nearly caused financial collapses? Like, um, the whole South Sea Bubble thing?

Unknown Speaker

Yeah. And just like then, today’s issue traces back to poor strategies and oversight. Senior staff holding multiple roles compounds the risks, and some firms don’t seem to realise the additional exposure this creates.

Rachel MacRae

Which is wild when you think about it. I mean, conflicts management is, like, step one in avoiding bad practices, right?

Unknown Speaker

Absolutely. And the FCA’s good practice examples reveal just how pivotal senior managers are in all of this. They must take ownership of compliance frameworks and ensure proper governance is in place. It’s more than just regulation—it’s about protecting investors and fostering trust.

Rachel MacRae

Exactly, and it seems so obvious that without detailed conflicts registers or proper oversight, you’re just inviting problems.

Unknown Speaker

But it’s on firms now to reflect on these findings and implement the necessary changes. The guidance is there—it’s about taking it seriously and acting accordingly.

Unknown Speaker

Speaking of taking FCA guidance seriously, they’ve just rolled out a new policy statement—PS25/3—that outlines another step forward in improving regulation. It mandates a brand-new regulatory return aimed at firms in credit broking, debt counselling, debt adjusting, and providing credit information services. Let’s unpack what this means.

Rachel MacRae

Oh, right, the new CCR009 return. Isn’t this another change that’s supposed to streamline reporting for firms?

Unknown Speaker

Exactly. The whole point is to improve the quality of data being submitted. The FCA wants to use this data more effectively for supervision—it’s about being more targeted and efficient in identifying risks.

Rachel MacRae

So, I guess the days of firms drowning in repetitive forms are numbered, huh? They’ve cut out, what, like, 27% of the questions compared to the old returns?

Unknown Speaker

Yes, that’s right. They’ve reduced duplicates and introduced this branching logic where firms will only see questions relevant to their specific business model. It’s a much more focused approach, but it’s still a significant shift for firms to adjust to.

Rachel MacRae

Significant’s the right word. Changing reporting systems—or even just training staff on new formats—is no small task. But, honestly, it does sound like a smart move in the long run.

Unknown Speaker

It is, Rach. And with this new return is already in effect, and reporting will be aligned to the calendar year rather than firms’ accounting reference dates. They’ll need to get their systems ready, review the updated guidance in SUP 16, and maybe even engage with the supporting materials the FCA plans to roll out.

Rachel MacRae

But why now? I mean, what’s driving the FCA to overhaul this process at this moment?

Unknown Speaker

Good question. The FCA’s rationale is all about tackling inefficiencies in their supervisory processes. By consolidating and enhancing the usability of these returns, they can identify risks faster, reduce ad hoc data requests, and adopt a more proportionate approach to supervising firms. All three of their operational objectives—consumer protection, market integrity, and competition—tie into this change.

Rachel MacRae

Ah, makes sense. Plus, I’m guessing this’ll help the FCA adjust monitoring based on firm size? Like, with tailored requirements for reporting frequency?

Unknown Speaker

Yes, absolutely. Firms with more than 5 million pounds in credit-related revenue will report semi-annually, while others will only need to do so annually. And even for the first reporting period, firms can annualise their data if full-year figures aren’t available. It’s practical, but it does mean firms really need to get organised.

Rachel MacRae

Especially if they’ve got appointed representatives, since principal firms have to consolidate data for them now too. That’s a whole extra layer of complexity to deal with.

Unknown Speaker

Spot on, and it’s why firms shouldn’t underestimate the work involved here. Reviewing permissions, systems, and staff training is crucial. It’s also a chance for firms to align with the FCA’s broader strategy of data-led, proportionate supervision while avoiding potential slip-ups.

Unknown Speaker

Now that we’ve unpacked the FCA’s regulatory updates on credit returns, Rachel, let’s shift gears and look at another area under their spotlight. They’re proposing some significant changes to mortgage rules, starting with simplifying the advice requirements.

Rachel MacRae

Simplifying mortgages? That sounds like a headline we’ve heard a hundred times before! So, what’s different this time?

Unknown Speaker

Well, under the proposed changes, firms wouldn’t have to provide advice automatically during interactive dialogues with customers. It's about giving more flexibility, especially for those execution-only sales where consumers are confident in making their own decisions.

Rachel MacRae

Ooh, that’s a shift! So, it’s more about letting people take the wheel themselves when they’re ready?

Unknown Speaker

Exactly. But don’t forget, firms still need to ensure good outcomes under the Consumer Duty. Removing the advice requirement doesn’t mean lowering the bar for customer safeguards.

Rachel MacRae

Right, so there’s still accountability. What about those affordability checks? I bet there’s a twist there too!

Unknown Speaker

There is Rach. Currently, anyone trying to shorten their mortgage term has to go through a full affordability check. The FCA’s now proposing proportionate assessments instead, letting lenders use their responsible lending policies to streamline this process.

Rachel MacRae

Finally! That’s been such a sticking point for ages. Makes you wonder why it took so long to address it.

Unknown Speaker

True, and there’s more. They’re also expanding the scope of the Modified Affordability Assessment. It’s not just about cheaper deals anymore—it’ll apply when a new deal is better than what the customer’s current lender is offering. That could open up so many more options for people shopping around.

Rachel MacRae

Total game changer! And it’s clever, ‘cause it encourages competition without putting borrowers through the wringer with needless checks. But what’s the deal with this retiring of non-Handbook guidance then?

Unknown Speaker

Ah, good question. They’re phasing out guidance like FG13/7 and FG24/2, saying they’ve outlived their usefulness. Instead, firms are expected to lean on established rules and the Consumer Duty framework. It’s about streamlining and cutting redundancy.

Rachel MacRae

Makes sense, but some might see it as the FCA stepping back, you know? Like, leaving too much room for interpretation?

Unknown Speaker

Possibly, but I think it’s more about promoting clarity. The FCA wants rules that are flexible yet focused, and retiring outdated guidance helps refocus priorities. In the end, it’s about trust—ensuring consumers are protected while firms get the leeway to innovate responsibly.

Rachel MacRae

And that’s the key, isn’t it? Balancing innovation with responsibility is, well, it’s easier said than done.

Unknown Speaker

Exactly. These proposals reflect a broader strategy aimed at sustainable home ownership and reducing unnecessary burdens without compromising on consumer protection. It’s all interconnected.

Rachel MacRae

So, there’s a lot riding on this. Let’s hope small firms embrace these changes wisely. It’s definitely a step forward—but, as always, it’s about the execution.

Unknown Speaker

Couldn’t have said it better myself, Rachel. And on that note, we’ll wrap things up here. Thanks for tuning in, everyone, and we’ll catch you next time!