Networks cannot sort compliance out for their members. That
is something firms must do themselves, says Grant Ellis
Worried about impending statutory regulation? Don't know where to turn? Don't know when you'll find the time? We know how to solve your FSA regulation headache overnight - join our network and let us take care of it.
Now, you'd expect me to say something like that given my day job (and for the record and contrary to reports, I'm quite happy where I am, thank you).
But actually I believe that such a statement is not only misleading, but downright untrue, because no one can"take care of it", however much we would like them to.
Compliance is about the business changing the way it operates to fit in with a new, and, in certain circumstances, rigid structure. No one else can do it for you. You have to do it yourself.
That's not to say others cannot give you advice, and even help set up systems and monitor implementation, but ultimately it's down to you to embrace these changed ways of doing business.
The penalties for non-compliance are onerous - withdrawal of the licence to trade being the ultimate sanction. So all businesses will have to get it right quite quickly. And I'm sold on the fact that networks are indeed the ideal solution to provide the sort of help I've already described. It's when they start talking about shouldering regulatory responsibility for their members that I start to get nervous.
There is a myth that being a member of a network that takes regulatory responsibility will mean that somehow this will be a backdoor to easier and less onerous regulation. Nothing could be further from the truth.
The reason for this is simple - each time someone applies for an FSA licence to trade, the FSA assesses what impact the demise of that firm is likely to have on the market overall. If, in its view, the demise would have a"low impact" it adopts a light regulatory touch. However, if the view is that it would have a"high impact", a much more attentive approach is adopted. Networks taking regulatory responsibility will by the very nature of their size eventually fall into the"high impact" bracket.
In theory this shouldn't make any difference to whether a firm is compliant or not, but in practice it has a massive impact. How do I know? Because our cousins the IFAs have told me - that's what has happened to them.
I am a director of an IFA group which has both a directly registered IFA business and a business which is an appointed representative of an FSA principal network which takes regulatory responsibility.
The experiences are chalk and cheese - light touch for the direct firm, heavy rigid and burdensome for the appointed representative.
And it doesn't end there. Networks who shoulder responsibility are much more difficult to exit than those who don't, because they have an ongoing responsibility to the FSA for business transacted while they were the principal.
So, if an IFA wants to cease being an appointed representative, and move to direct regulation under the FSA it has to copy all its client files to the network.
Some exit penalty.
Alternative"service provider" networks have been the big growth area in the IFA sector. They provide identical services to the"responsibility" networks but allow the IFA to directly register with the FSA.
The IFA then gets the best of both worlds -"low impact" regulation while at the same time benefiting from the network providing his whole compliance infrastructure.
So, if you are minded to consider a network, think long and hard before being lured by the attraction of"no FSA form". It's a decision you could be making in haste and will repent at leisure.
Grant Ellis is chief executive of The Broker Network