The burden of regulation is increasing, so how can brokers cope? James Sullivan reports.

It may have taken a while to get a head of steam up, but now there's no stopping the regulatory express.

As if brokers haven't had enough to contend with in recent months, getting used to the strict new regime that is statutory regulation by the FSA, those policy wonks just keep the pressure on.

Like a recently installed government minister keen to prove his reforming worth, so too the regulators just can't seem to contain themselves and are still unleashing initiative after initiative on the already beleaguered broking sector.

The latest great idea is the so-called Treating Customers Fairly initiative. Brokers are now being called upon to design their products with greater care, to provide higher quality information, to monitor distribution channels more effectively at a high level, and to undertake better post-sale analysis of the performance of products, among other requirements.

Yet don't be fooled. This is no mere set of guidelines for best practice. As the FSA has recently ominously warned, although "a majority of firms say that they are implementing TCF programmes ... even in these cases we have found that the high levels of senior management commitment to the fair treatment of customers are often not yet reaching the front line of firms' activities".

And the upshot of such disappointing performance? Discipline, naturally.

Implementing stage

The FSA has said it expects all firms to have reached at least the 'implementing' stage of their TCF work in a substantial part of their business by the end of March 2007. It will be using this as a benchmark when reviewing firms' progress, and that it expects to continue to bring enforcement action in respect of matters relating to TCF.

So with yet another huge compliance burden being presented by the regulator on top of all that has gone before, are brokers being offered the right levels of advice and support which they undoubtedly need?

Unfortunately, the answer seems to be that, at least as far as the regulator is concerned, brokers aren't being given adequate support.

As one regulatory expert says: "The FSA will say it is doing things, but it does come down to the usability of what it offers and, let's face it, this hasn't exactly always been the best. As far as I'm concerned there are examples where it has been particularly unhelpful and bloody-minded."

More supportive

Such views are echoed by brokers themselves. Ian Richens, director of affinity and services at the Bollington Group, is also unimpressed by what he sees coming from the centre.

"The FSA support line could be more supportive," he declares. "On the two occasions I've had to ring it has said: 'We are your regulator and not your adviser, so you might want to speak to your legal team instead.' So it could be better at helping us interpret the rules rather than just explaining them."

Richens also laments the current state of supervision of the sector. "There's now a whole new industry of regulation consultants out there and all that means is increased costs for the broker and reduced profit.

"Why can't it be simpler? Look at Ireland's equivalent rule book, which is only 18 pages, whereas ours is absolutely huge. We're being stymied by red tape," he complains.

And it's not as if the regulator is even doing its job, it seems: "At the moment we've had no visits, and we think we're doing most of it right, so a visit would actually be helpful in affirming what we're doing," Richens says.

"The only ones who are afraid of the visits are those who aren't complying."

Naturally, the commercial arena has not just stood on the sidelines and seen what's on offer for free. Instead there have been various attempts over the past couple of years to offer various regulatory and compliance support services - for the appropriate fee. And the support often takes the form some sort of technological package.

Simon Hughes, sales and marketing director for technology specialist Open GI says: "Regulatory compliance is an area where technology can provide support for brokers. In response to feedback from our brokers, we went to market well in advance of January 2005 with a regulation module designed specifically to assist the compliance process.

"Since then the module has been continually updated and enhanced to reflect changing regulatory requirements.

"For example, in light of recent concerns expressed by the FSA, we have recently added a range of enhancements to help brokers tackle the issues of contract certainty and client money."

Hughes adds: "These latest areas are important for the industry as a whole and we are trying to do as much as we can to help our brokers provide the relevant information from within the system.

"With IT systems forming an integral part of their day-to-day operations, brokers are looking to their software houses for support and guidance."

Another player in this areas is UK GI, one of whose main supporters is Andrew Paddick, the IIB director general.

Regulatory advice

"We at the IIB give a tremendous amount of genuine regulatory advice and I was instrumental in the formation of UK GI, which provides a complete regulatory advice and support service. It's all there for them, really," he comments.

But are there really so many brokers who actually need such a service, or has this area been talked up that little bit too much?

In Paddick's opinion there are more brokers out there who are failing in their regulatory compliance than the market would like to admit.

As he says: "There's a lot of brokers out there who haven't done enough yet. Quite a few in my opinion have gone and ticked the necessary boxes in their application forms with the commitments that come with them, but haven't actually followed up on those commitments. So in the UK we have a lot of brokers who haven't done anything and could find themselves in difficulty if they have an Arrow visit - particularly in the secondary intermediary market."

You have been warned.