COMPLIANCE


“The response to the financial crisis


was to develop ‘black letter law’ [well- established, undisputed] requirements,” she explains. “Now, underneath any regulatory principle are detailed obligations specifying what that principle means in all situations. But watch this space: the pendulum is starting to swing back, partly as a reaction to the eye- watering complexity of the rule books we now have.”


Stepping up According to David, various scandals – most recently the mis-selling of British Steel employee pensions – indicate that the financial services sector has failed to learn from experience, and therefore cannot complain when regulators seek to raise the bar. From an investment management


perspective, the impact of the Markets in Financial Instruments Directive II (MiFID II) on how the sector operates has been widely discussed (see cisi.org/mifidii) – particularly the requirement for fund managers to budget separately for research and trading costs. In the advice segment of the market,


the UK’s Retail Distribution Review, implemented in 2012, has been extremely important in professionalising the sector as well as increasing transparency and fairness. Commission bias has been a


regulatory focus across most markets but, “While in general the removal of commission has been viewed as a positive for both customers and the sector, one knock-on effect is that advice is increasingly unaffordable for the masses,” says Tom Selby, head of retirement policy at AJ Bell. In Australia, for example, the 2012 Future of Financial Advice reforms removed commission-based payments, but 2022 research conducted by consumer advocacy group Super Consumers Australia finds that the cost of advice is encouraging many consumers to navigate the complexity of retirement planning without professional guidance. “Addressing this ‘advice gap’ is


becoming an increasingly pressing public policy issue,” says Tom.


Positive changes Employee protection One of the most interesting developments over the past 30 years has been the evolution of protection for employees who report misconduct in their organisations. Initiatives such as the Senior Managers and Certification Regime (which aims to strengthen market integrity by making individuals more accountable for their conduct and competence) in the UK and Sapin II in France (which requires companies with more than 500 employees to implement a


CISI INTERNATIONAL REGULATION FORUM Chaired by: Aidan Paddick ACSI, international regulatory and compliance consultant


The CISI International Regulation Forum comprises stakeholders from custody, trade bodies, compliance, regulatory policy, and financial crime, reflecting a recent divergence of compliance and financial crime teams, says Aidan.


The forum has evolved from being UK-centric to looking at the implications of regulatory developments across the world, reflecting the global membership of the CISI and coordination between international regulators within the EU and beyond. It has representation from individuals in Switzerland, Ireland, and Canada to ensure that the needs of all members are being considered. It recently hosted a virtual seminar for Middle East members on regulatory developments in that region.


“Regulatory developments understandably tend to follow innovation in the sector,” says Aidan. “One only has to look at the evolving regulatory landscape of crypto assets to understand the challenges facing regulators to keep pace.”


He describes the involvement of regulators on non-financial matters as another sea change. “Thirty years ago, I don’t recall anyone mentioning conduct risk – now conduct drivers are an increasing focus for regulators across the globe, in an effort to ensure that change occurs through behaviours as well as rules.”


The rise of ESG and increased awareness of the value of diversity are other examples of regulators showing a marked interest in areas formerly outside their remit. And they are just some of the topics the International Regulation Forum has covered over the past year.


“The importance of behaviour is also evident in the seismic shift in the speed of change and communications,” concludes Aidan. “The behaviour of firms will be increasingly influenced by comments on social media rather than the speed of regulatory innovation.”


// THE PENDULUM IS STARTING TO SWING BACK, PARTLY AS A REACTION TO THE EYE-WATERING COMPLEXITY OF THE RULE BOOKS WE NOW HAVE //


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CISI.ORG/REVIEW


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