2019 – a year of change

20 December 2019

2019 is likely to go down as one of continued focus on culture within regulated firms, but there's still more work to be done.

Close up of colourful files on a black bookshelf

2019 is likely to go down as one of continued focus on culture within regulated firms. So, what’s new you may ask! Quite a lot when you look at the FCA’s 2019/20 Business Plan and specifically the statement ‘protecting consumers from harm is at the core of our work’ you get a feeling that there’s recognition that there’s more work to be done. Delve a little deeper and the cross-sector priorities are spelt out:
 
  • Firms’ culture and governance
  • Operational resilience 
  • Financial crime
  • Fair treatment of existing customers
With this in mind let’s look at some of the key moments. 

GDPR

The General Data Protection Regulation (GDPR), also known in the UK as Data Protection Act (DPA) 2018 passed its first anniversary in May. Although not an FCA-driven piece of regulation, we have seen their interest piqued if the ICO are aware of a breach and may take the view that it’s an indicator of shortcomings elsewhere.

Wholesale study

After many months of activity, the FCA published its final report of the Wholesale Insurance Brokers market study. Launched way back in November 2017, its aim was to assess how competition was working in the sector. Many in the industry held their breath only to then heave a collective sigh of relief as no evidence was found of significant levels of harm that merit the introduction of intrusive remedies. 

That’s not to say that all is rosy and some areas for improvement were identified. A shot across the bows and there’s no doubt that the FCA will continue to watch for signs of poor practice.

Whistleblowing

Changes in society have influenced the ability for whistleblowing to be seen as more acceptable in the workplace. Various studies have reported a significant increase in the number of whistleblowing reports, challenging the culture in firms large and small. 

Perhaps it’s no coincidence that the increase has occurred as the Senior Managers and Certification Regime (SM&CR) was introduced into the financial sector. 

As SM&CR will be extended to solo-regulated firms, including insurance brokers, from 9 December 2019, one can only assume that whistleblowing complaints will continue to increase.

Senior Managers & Certification Regime (SM&CR)

The Senior Managers and Certification Regime (SM&CR) is arguably the most far reaching and significant piece of regulation to be introduced for some time. 

Much of the focus relates to the tone set by a firm’s senior management and the inevitable ripple effect that ultimately impacts how the customer is treated. No longer will only those holding control functions (senior management functions post 9 December 2019) be directly responsible to the FCA. 

With the introduction of the Certification Regime there will be more personal accountability below senior management, depending on role and the likelihood of significant customer harm. This prompts firms to consider whether their training and competency scheme is robust and that their people (HR) process and procedures really ensure that staff know what they are accountable for and are fully equipped to carry out their role. 

RWA’s experience is that this area is consistently weak in the insurance broker community and requires more focus and attention. Like many things in life, prevention is better than needing a cure!    

Succession plans

With the continuation of mergers and acquisitions the need for a well thought through succession plan remains. 
 
Succession plans serve many purposes not least of which is providing comfort to the FCA that should the ‘unthinkable’ happen, customers will be protected. Plans should be proportional to the size and complexity of the firm and may be many pages or a single side of A4 in its most basic form. The real benefit is the thought process that leads to the plan itself. 
 
Taking time to consider the ‘what if?’ also helps to decide on the direction of the business and when the current management may seek to exit. With many director owners reaching a certain age, deciding what to do with the business has become increasingly important. Generally, owners only sell their business once, rushing into it is rarely a good idea.

Conclusion

The FCA have made it clear that culture is an area that will gain their increasing attention. Culture stems from the top, it sets the tone and influences every aspect of the firm. 
 
There are plenty of examples of good and poor culture through the insurance industry. Recent media interest in some well known organisations has shown that there’s room for improvement. 
 
SM&CR emphasises this and introduces a far greater level of personal accountability, it’s the regulation that acts as a catalyst for many far reaching positive changes which must be good for the industry that we cherish.     
This document is provided for information purposes and is general and educational in nature. Nothing in this article constitutes legal advice. You are free to choose whether or not to use it and it should not be considered a substitute for seeking professional legal help in specific circumstances.