CAN YOUR SYSTEMS MEET THE FCA’S LATEST DEMANDS?

Let’s be clear – we are now operating in a data-driven regulatory environment and the FCA’s recent information request has reinforced the point.

The mandatory Section 165 notice was issued to most wealth and advice firms and for many, attempting to pull together the required information has been a wakeup call. It has highlighted the robustness (or lack thereof) of their internal systems and data collection processes.

We’re speaking to firms impacted by the request. The detail required in the questions, which are, occasionally, quite niche, has caught some off guard. What has become clear is that the ability to respond efficiently is largely down to how well your management information (MI) is functioning behind the scenes.

Lessons from the S165 request

Let’s unpack what this request has taught us. Should it act as a catalyst for firms to reassess their systems and controls?

The key challenge seems to be the segmentation of data. Some questions refer specifically to client characteristics, such as gender, vulnerability and other demographic factors. Having this information readily available is essential.

We believe the FCA may use the data provided to inform future policy and regulatory developments. That’s why it is important your responses are accurate and reflect your current Consumer Duty implementation.

A stress test for internal systems

The FCA is asking firms to provide data relating to their advice and distribution activities, clients, product governance and more.

None of the questions should be impossible to answer, but many are highly specific. For example, you are being asked to detail client objectives by category. For those without comprehensive CRM systems, structured back-office processes or consistent MI collection, this request has been particularly burdensome.

We have been made aware of a positive development worth sharing. One of our clients confirmed that Intelligent Office (IO), a widely used back-office system, has updated its platform to help firms respond to the data request more effectively.

IO can now help answer questions four to ten in the regulator’s survey. These sections focus on client segmentation, advice activity and support for vulnerable clients. It has rolled out system updates that include new data capture functionality relating to vulnerability, particularly whether additional support has been offered. This is a key part of the FCA’s interest in how Consumer Duty is being delivered.

IO is a really encouraging example of a provider who is being proactive in response to regulatory developments. It demonstrates some industry partners are not only listening to what the FCA wants, but also adapting their offerings to help meet its demands.

Using systems well

You might have good systems in place, but are you using them to their full potential?

Having data stored in your CRM is not useful, unless it is tagged consistently. You might be setting objectives at the onboarding stage, but are they being updated or categorised in line with your firm’s PROD (Product Intervention and Product Governance Sourcebook) framework? Is your MI being scrutinised for trends or anomalies?

This information request has highlighted that having the system capability is not enough. You also need operational discipline. Firms that have embedded their technology into daily workflows and aligned data capture with their regulatory obligations are the ones who’ve managed to respond to the Section 165 with minimal fuss.

Tough questions – but not impossible

Yes, some of the FCA’s data demands are challenging. For example, the segmentation of client objectives isn’t standard output from many CRM systems.

However, if you have followed the PROD rules, particularly around target market identification and ongoing reviews, then this type of information should be traceable. It might just need a little manual input.

Similarly, questions around client outcomes and value assessments link back to Consumer Duty. So, if you are genuinely engaging with the regulations, not just ticking boxes, your data outcomes should be accessible and meaningful.

It is also worth noting that the FCA’s information request appears to reflect some of the metrics firms should already be capturing under the four Consumer Duty outcomes. In many ways, this is a test of how well you are implementing the regulations and how effectively the principles are being embedded.

Going forward

This information request isn’t likely to be a one-off. The FCA’s five-year strategy reiterates its commitment to a data-led approach, stating its intent to embrace technology and build enhanced detection capabilities.

Put simply, the regulator is building a picture of what ‘good’ looks like using your data. If you can’t provide that information, or worse, it paints a worrying picture, that will raise a red flag.

The Section 165 is a nudge, not just a probe. It is a sign of things to come and firms need to take control of their data governance now. Not later.

Use this as a benchmarking opportunity

Whether you have found the Section 165 simple or a scramble, it is a useful benchmarking exercise. Ask yourself:

• Can you segment clients easily by need, objective and target market?
• Are you confident in the quality and consistency of your CRM data?
• Do your MI reports reflect current trends and outcomes?
• Can you evidence how your advice and distribution aligns with PROD and Consumer Duty?

If your answer to any of these is “not quite”, then now is the time to act.

Final thoughts

The FCA is not asking firms for perfection. It is asking for clarity, consistency and evidence.

This latest information request may have caused some operational headaches, but it also provides an opportunity to tighten up your systems. It is a chance to demonstrate to the regulator how you are putting clients at the heart of your processes.

Data is no longer a by-product of doing business. It is the business of compliance. Those who recognise that will be in a far stronger position next time the regulator comes knocking.

If you are yet to complete the Section 165 request, time is ticking. Depending on the size of your firm, your responses must be submitted between August 28 and September 25. Should you need help navigating your data or embedding better MI practises, we can help.

We are currently assisting a number of clients with the FCA’s information request. If you would like our support, don’t hesitate to contact us on (0161) 521 8641 or email: info@b-compliant.co.uk