The appointment of Nikhil Rathi as CEO of the Financial Conduct Authority provides a useful opportunity to revisit the objectives of the FCA, consider whether it is achieving them and provide some suggestions for a rethink.
According to the FCA Press Office, it has three key Operational Objectives: secure an appropriate degree of protection for consumers, protect and enhance the integrity of the UK financial system, and promote effective competition in the interests of consumers.
As Nikhil Rathi begins his new role, and given these objectives, here are some of the key priorities he might wish to consider.
1. Know a customer has died – and then deal with it
The COVID-19 pandemic will make the majority of UK consumers more financially vulnerable, particularly the value of their strategic assets i.e. property and pensions. As well as asset vulnerability, there is also the daily threat of transaction-level vulnerability from internet and phone scammers – something the pandemic has also magnified.
Of these two challenges, the scamming problem should be the initial focus for the new CEO. At the heart of this lies the complex world of AML and KYC processes that financial services companies must operate, but are currently broken and known to be open to abuse.
My recommendation for the new FCA CEO is to look at the processes that occur when someone dies, particularly given the increased workload that COVID-19 has sadly imposed.
When my father passed away 18 months ago, he left a 91-year paper trail including private and company bank accounts, public and private Ltd company shareholdings, several Limited Company Officer roles and a collection of private pensions.
Currently, I am still receiving correspondence from HMRC and the big four banks that think he is still alive despite being supplied with, and giving acknowledgement of receipt of, his Death Certificate and a Grant of Probate!
To fix this, the new FCA CEO needs to stop financial services firms hiding behind AML/KYC bureaucracy and force them to proactively work as a team to clear up a deceased person’s affairs.
There should be a timeframe, within say six months, where an uncontested will exists and proven executor resources are in place. Publicly listed fines and league tables need to be put in place “pour encourager” too.
2. Audit and SMCR are starters for ten to protect the integrity of the UK financial sector
The integrity of the UK financial system has been compromised by a number of factors, starting with the crash of 2008, followed by a number of corporate failures due to poor auditing and, most recently, the Panama Papers and FinCEN leaks.
Breaking up the big four to separate audit from consulting activities would be a quick win that enables better corporate scrutiny.
The Senior Managers & Certification Regime (SMCR) needs a radical rethink too. The “map” concept within the regulation is little more than “fingerpaint and crayon”, which needs to be replaced by a formal “digital” reporting data structure that can be analysed and compared across the sector.
There is a reasonable argument too for bringing Companies House under the orbit of the FCA. As a regular contributor to officer changes and annual returns for multiple entities, it is clear to me that the system is very simplistic and lacks any cross-referencing or integration with other operational platforms. Mandate changes, in particular, are a bugbear for both the SME and not-for-profit sectors.
3. Examine whether Open Banking APIs are promoting effective competition in the interests of consumers
The UK retail banking sector is currently heading down the well-worn path trodden by the utility companies; enabling rapid switching of accounts enabled by the Open Banking API technology solution.
Whilst this has an apparent attraction for consumers, what we have learned from the utility companies is that we have become trapped in a never-ending “bait and switch” cycle. The recent instruction that insurance premium renewal costs cannot exceed the price offered to new customers gives hope that the FCA is prepared and able to enact change.
The new FCA CEO needs to realise that the proponents of Open Banking refuse to acknowledge that, at its heart, banking is a matter of trust and shared risk appetite. All that an API ends up doing is enabling banks to get rid of low-value customers by feigning disinterest.
To rectify this, there needs to be some form of league table public reporting of account churn driven by Open Banking, and those institutions that lost the most face some form of sanction, especially when their profits increase.
In summary, what the UK needs from the new FCA CEO is someone that is prepared to roll up their sleeves and attack the regulatory “Gordian Knot” that currently bedevils the sector. This can only be done by hard work and structural reforms – the hope that ‘magic’ technologies will have a significant impact is more illusory than a COVID-19 vaccine.
Rupert D.E. Brown is CTO of Evidology Systems Ltd.
The views and opinions expressed in this Viewpoint article are solely those of the author(s) and do not reflect the views and opinions of Fintech Bulletin.