Time to draw a regulatory line in the sand

Rob Clifford

November 29, 2019

Rob Clifford, (pictured) chief executive of Stonebridge

We are now just days away from the start of the Senior Managers and Certification Regime (SMCR) as it is introduced for mortgage advisory firms on 9 December.

It’s another regulatory step-change for authorised firms and is perhaps proof positive that regulators regulate, and that our environment changes frequently.

You might suspect that advisory firms have had long enough to get used to such constant regulatory movement, and that might be a fair call, however there’s also no doubting that every new regulatory requirement means firms have to set aside resource and often investment, in order to make sure they comply with any new rules.

This can be particularly onerous for directly authorised (DA) firms who must meet those requirements themselves – often with the help of a third-party compliance provider – and where the level of support they get might not be all that they would wish for.

What has been interesting over the past year is speaking to a large number of DA firms and getting their views on how they are managing, what they see, as the constant regulatory change and the increased pressure this puts upon them.

Many appear to be (metaphorically at least) drawing business ‘lines in the sand’ around what they are confident and comfortable of managing themselves and, it’s fair to say that for a growing number, that line keeps inching closer and closer.

Indeed, when you as an adviser are spending as much time – perhaps even more – working on complying with change and the regulatory regime as you are on advising clients, then it’s understandable why you might be considering your current status as a business and whether now is the time to make a change.

In that sense, we’ve talked to a number of firms who are currently DA and (at the very least) are considering moving to AR status within our network.

This is rarely driven by cost-savings, but often the consequence of the feeling that they require a greater degree of compliance protection than they are able to assure themselves, even if they are using a third-party provider.

With an uncertain economic environment, that belief in the need for greater regulatory protection tends to grow, and while many of the firms we speak to are conducting very strong levels of business, there can be a nagging doubt that – should the next big regulatory change be required – they are not in the optimum position possible to cope and/or adapt to it.

So, while there are plenty of positives in being a DA, for certain firms there is also a recognition that more support and help is required, and that this may well take a burden off their shoulders, which will allow them to take advantage of all the business opportunities that currently exist.

And that’s a point that shouldn’t really be underestimated – it’s completely possible, in a tight regulatory environment, to expend such a large amount of energy on staying compliant, that you might neglect the core business blocks.

That is, advising clients, writing business, increasing volumes, moving into new areas, diversification, and making sure you have all the required services available for your client base.

I’ve heard firms talking about ‘keeping their heads above water’ on the regulatory side of things and that can be damaging to all other areas, notably the ones that truly drive the business on.

So, while we absolutely get that some firms want to be fully in control of every single aspect of their business, sometimes when you get into that position you realise that the requirements placed upon you are far in advance of your expectation and your experience.

Being within the supportive environment of a network can make all the difference to firms who want that help on tap, and want to be made fully aware of the optimum operating protocols and how they should be implemented, the processes they need to follow, and the systems and controls they need in place.

There is certainly no shame in moving back to AR status in order to achieve that.

The reality is that the regulatory requirements are only likely to become more onerous and, business-owners and mortgage practitioners rarely set out to be compliance experts.

There’s a lot to be said for focussing on what you are good at – the provision of advice – and letting a proven and reputable network handle everything else.


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