The Financial Conduct Authority (FCA) is beginning to focus on matters outside of the UK.
In August, the regulator appointed Ruairi O’Connell as director of international from the Home Office.
O’Connell is responsible for shaping the FCA’s international strategy as well as overseeing the watchdog’s international engagement including matters arising from the UK withdrawal from the EU.
The regulator has a lot of reasons to look externally – as Brexit has left some unanswered questions and more British firms in the sector have started to become internationally-focused, and vice versa.
International Adviser spoke with Blevins Franks and GSB Capital to discuss what O’Connell needs to look at, and the scale of the job he has on his hands.
Ross Whatnall, chief executive of GSB, said: “This is excellent news for the wealth management industry; it can potentially bring better best practices and consistency across global companies; GSB looks forward to working closely with Ruairi O’Connell. It will also allow UK firms to explore partnerships with international firms.”
Jason Porter, business development director at Blevins Franks, added: “Any expansion in size and increase in importance of the international department of the FCA is a good thing. Whilst this hire is likely to be dealing with issues from a 50,000 feet viewpoint, focusing on regulation post-Brexit and maintaining the UK financial markets pre-eminent position globally, the hope would be this in some way rubs off on UK and international advice firms.
“While issues like cross-border financial crime have an impact that will demand O’Connell’s attention – and rightly so – consequences of Brexit, like work permit barriers which now impact the ability of international advice firms to hire qualified and experienced financial advisers in some member states is something I suspect is too granular a problem to land on his desk.”
O’Connell has a lot of work to do in regard to the FCA’s international focus – but what do the two firms believe should be his number one priority?
Porter said: “The main issues I would see concerning O’Connell will be the government’s ‘Future Regulatory Framework’, the plan to give full control of the UK’s financial rulebook back to the FCA, and how this sits with the pressing need to maintain relations as well as regulatory cooperation with the FCA’s EU member state counterparts, and the EU itself.
“There remain significant tensions between the UK and the EU around regulation and Europe’s drive to force international banks, finance houses and investment managers to increase the size of their EU footprint – perhaps at the cost of a reduction in their UK operations – as well as their attempts to weaken London’s hold on the wholesale and capital markets.”
Whatnall added: “I think the biggest challenge Ruairi will face is working with international institutions and regulators to raise the standard to the level the FCA expects.
“As a cross-border advisory business, it’s essential to maintain global standards of the highest regulatory framework you operate within. In my experience, too many companies revert to the lowest standards that allow them to operate.”
Brexit is still the big elephant in the room. Many people in the industry expected an equivalence deal to happen – but there has been no such thing.
Passporting has gone and Brexit has forced firms to set up EU bases to continue to serve clients in the Union.
There are still teething problems of Brexit for the financial services industry that O’Connell will have to fix.
Blevins Franks’ Porter said: “During the UK’s long road to leaving the EU, the government thought they could dynamically diverge from EU financial regulation whilst maintaining passporting, or at least obtaining swift agreement to a ‘blanket’ deal on equivalence. Cherry-picking of this magnitude was always going to be out of the question for the EU.
“The fact the views of the UK and EU differed on the two almost diametrically opposed concepts of regulatory divergence and financial equivalence as acceptable bedfellows to a certain degree means there remains conflict between their supervisory bodies, as well as competition between their respective financial markets.
“Grudgingly, both sides have no choice but to continue working together, and to this end a more influential international side of the FCA is warranted. International regulatory and supervisory body cooperation is fundamental in maintaining an efficient financial system with high global standards.
“From an individual’s perspective in both the UK and the EU, you would hope this can only help in resolving the many issues which currently exist around international financial crime and ESG investing.”
GSB’s Whatnall added: “We’ve seen many UK firms who previously passported into Europe have to pull back their operations as it no longer was economically viable to run two licences post-Brexit. I would expect Ruairi will look to work with European regulators to help UK firms re-enter those markets.”
The advice and wealth management industry has become more globalised over the last decade. UK-based firms have moved further afield and set up operations in the Middle East, Europe and US.
On the other hand, overseas companies have continued to see the UK advice market as an appealing business proposition.
The FCA will need to improve its relationship with cross-border firms or firms with international offerings – something which should fall under O’Connell’s remit.
Porter said: “As people have become more mobile, the requirement for financial advice tailored to both immediate and future needs has grown exponentially. Strategic financial planning through the life cycles is made more complicated where that person or family chooses to move jurisdictions once or twice, perhaps even returning eventually to the UK.
“UK firms advising UK nationals living in Europe on an ad-hoc basis, without the in-house expertise on the local tax and financial system could be exposing their clients to financial loss. The FCA needs to understand and champion those firms who have invested heavily in operating in the UK and the EU and can provide the levels of knowledge and expertise required.”
Whatnall added: “Until now, I suspect the FCA has been very wary of international firms due to the lack of regulation, qualifications and, in many cases, ethics.
“This appointment will allow international firms to build relationships with the FCA and for the ethical ones to demonstrate they maintain the high standards that should be expected of them.”