Don’t have compliance nightmares!

Why IFAs are using new tech to give them peace of mind

The consequences for IFAs of non-compliance are increasing as the regulatory landscape in the UK and Europe shifts towards tougher penalties. Add to this the complexity of Consumer Duty plus other rules and regulations, and it’s no wonder that financial advisers are looking to technology for failsafe solutions to provide peace of mind for themselves and their clients. In this article by fintech expert and entrepreneur David Stamp, Founder of Centology, he explores the trends which are changing the way IFAs use technology.

Fines of up to £50million can be imposed by the UK Financial Conduct Authority (FCA) on individual IFAs for non-compliance, and up to £150million for firms that are found to have broken the regulator’s rules.

The FCA can also suspend or cancel an IFAs authority to trade, and in extreme instances the regulator can refer cases to the police for criminal investigation and prosecution (UK IFA Compliance Requirements | Skillcast)

Of course, the vast majority of IFAs make every effort to ensure they comply with rules and regulations. However, incidents of non-compliance can still happen to professional, diligent IFAs who make errors due to the pressures of work, an increasingly complex regulatory landscape, or failures due to the technology they use to manage data.

As in many industries, technology in the financial advice sector is of varying standards in terms of efficiency, reliability and fitness for purpose. A particular problem which creates risks of accidental non-compliance is when advisers use ad hoc, non-integrated systems that evolve out of using different platforms, types of software and plug-ins or bolt-ons. In fact, we created Centology to address this problem by developing a fully integrated and comprehensive system which is designed specifically to address the limitations of ad hoc IT systems. Of course, technology alone is not a solution, so it needs to be paired with the professional expertise of IFAs to create what we think of as a hybrid solution which combines the strengths of human intelligence and IT.

This experience in the industry means we have an in-depth understanding of the risks that IFAs face if they rely on outdated technology. Broadly speaking, there are three main risks:

1. Technical complexity

This results from using platforms, software and plug-ins that weren’t designed to work together. We are aware of some advisers using up to 19 different systems from different providers, which gives you an idea of the complexity that can be involved by using solutions not specifically designed to meet the needs of IFAs. The greater the complexity, the greater the risks of something going seriously wrong and leading to compliance failures.

• Solve one problem, but create many more

Adding a new platform or piece of software may solve one problem but it usually creates others, some of which may not become apparent to IFAs until it’s flagged up by clients or regulators.

• Human errors

Ad hoc, non-integrated systems usually involve frequently re-keying and duplicating data, and these manual operations create the risk of introducing serious factual errors.

Summing-up

Three of the advantages that IFAs can gain from using the latest technology to ensure compliance are…

• Avoiding the reputational and financial damage of being sanctioned by regulators
• Improvements in efficiency by saving time and money. This is because the latest solutions are much more cost-effective in the long-term and will provide a measurable ROI
• Using an integrated system means that advisers will have one clean dataset rather than multiple datasets. This reduces the risk of errors occurring, and the time it takes to check and correct them.

But there’s also a fourth advantage which is arguably of even greater value, and that’s the peace of mind that IFAs gain from knowing they have full traceability and can always demonstrate compliance whenever questions are asked by clients or regulators. This is particularly important because advisers can be asked to provide data going back decades, and some advisers today are using systems that don’t guarantee easy, fast access to information over that time span. In our experience peace of mind and a desire to avoid having nightmares about compliance failures are factors that are certainly driving more IFAs to look for the latest integrated solutions to replace technology based on outdated architecture.

About the author

David Stamp is an experienced IFA with over 30 years’ experience in the industry. Frustrated by the limits of incumbent technologies, he realised the solution he was looking for (a fully integrated and comprehensive system) did not exist. This inspired him to create a solution, so he founded Centology in 2019 which today continues its mission to provide the level of integration that IFAs want, but without the need for repeated re-keying and duplication of data. Centology is therefore the culmination of David’s vision to provide a complete system with tried and tested processes to enhance wealth management.

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