Regulatory compliance is a cornerstone of credibility and operational integrity for financial services. At Finalto, Klelia Orphanidou leads these efforts as the B2B Head of Regulatory Compliance. With her extensive expertise, she provides a clear roadmap through the complex regulatory landscape that must be navigated as a financial institution.
In this interview, Klelia explains why adhering to regulatory standards in financial promotions is critical. She highlights the unique challenges financial institutions face, stressing the necessity of clear and balanced information embedding consumer duty requirements.
In addition to these insights into the inner workings of industry leading compliance, you can also gain a deeper understanding of marketing and compliance, through the latest entry in the Finalto Broker Series available HERE.
1. How crucial is regulatory compliance when it comes to marketing communications in a financial institution or investment firm?
The UK has well-established and defined financial promotions regime requiring firms producing financial promotions to adhere to specific processes, guidelines, and requirements. This is crucial as it all comes back to the principle of treating customers fairly, ensuring that the information is clear, fair and not misleading; and that it supports consumer understanding.
The communication must be factual, accurate, and present a balance between any benefits and drawbacks of a financial product. For example, if a financial promotion is related to the performance of a financial instrument, appropriate historical data must be provided to give a balanced view. The FCA has also recently issued specific guidance on social media, including the use of influencers (and other unauthorized persons).
Firms are responsible for ensuring that any promotion via social media complies with the regulatory framework. The FCA is aware of practices like hidden disclaimers and is updating rules to prevent misleading communications.
Social media can cause significant consumer harm due to their wide reach and firms need to ensure that their social media promotions are transparent and fully compliant with FCA guidelines to avoid penalties and restrictions.
2. How is marketing in the financial industry different from other industries in terms of duties and expectations for customer outcomes?
The financial industry has specific requirements due to the nature of the products and services offered. It’s crucial to provide accurate and balanced information, especially when promoting financial products. Requirements may be stricter depending on the high- risk nature of specific products (such as CFDs). Additionally, the Consumer Duty, which includes the requirement to ensure good outcomes from a consumer support and consumer understanding perspective, has placed a higher level of duty on firms.
Additionally, the Duty has emphasized the requirement of an appropriate and defined target market and the importance of ensuring that any communication reaches the relevant target market. Therefore, communications must not only be fair, clear, and not misleading but also appropriate for the target market. This includes avoiding technical/legal jargon or limiting the marketing channels used if it's not suitable for the intended audience.
3. What are the consequences of non-compliance with regulatory bodies like the FCA?
The FCA closely monitors financial promotions, and in general communications produced by firms. There are multiple routes the FCA may take, depending on the severity of the issue identified and the firm’s cooperation. The FCA has various powers under FSMA including information gathering, appointing investigators and requiring production of a report by a skilled person.
Should they identify any problematic content, they may contact the firm, requesting the removal of the problematic communication and implementation of specific changes and remedial actions. Such processes allows the firm to improve internal controls with the FCA's guidance.
For more severe cases, they might use their powers under section 166 and require a firm to provide a report by a skilled person or appoint a skilled person to produce such a report, which is a costly and lengthy process. The FCA can also impose fines, place restrictions in a firm’s Part4A permissions including restriction from accepting new clients, or clients or suspend a firm’s license. The consequences are severe, impacting both reputation and operations.
4. What are the best practices for maintaining compliance in day-to-day operations?
The FCA has been very proactive in helping firms understand and adapt to the new consumer duty regulations through issuance of frequent communications such as ‘Dear CEO’ letters, publishing outcomes from data gathering exercises and peer reviews, and conducting webinars. The FCA has been quite clear that non-compliance will eventually lead to repercussions.
It's essential to monitor any new guidelines issued by the FCA and perform a gap analysis to identify areas of improvement. Creating a culture of zero tolerance to non-compliance across the firm is crucial. Staff should be aware of the requirements they should apply in their day-to-day work and the potential repercussions of non-compliance.
Although different rules may apply depending on the nature of the clientele, at Finalto, we still ensure all communications are approved by the compliance department before being released. Monitoring client satisfaction and feedback is also vital, particularly when dealing with customers with additional requirements as this helps identify any gaps and improve services. Through monitoring of relevant MI, we can identify key trends.
For example, where we identify recurring queries from customers, we can enhance our communication to address these areas proactively. Internal communication with existing clients is just as important as external marketing, ensuring consistency and clarity.
5. Can you elaborate on how your group manages compliance across multiple jurisdictions?
Our group has multiple entities regulated in different jurisdictions, each with its own marketing communication requirements. While the main principle of fair, clear and not misleading communication applies universally, jurisdictional specific guidelines can vary. We have different processes for each jurisdiction and company, ensuring we adhere to local regulations.
Being proactive and maintaining a robust compliance culture is essential for any financial institution to navigate these complexities effectively. Training is critical. Ensuring all staff members are aware of the compliance requirements, the difference depending on the jurisdictions and the importance of following them is essential. Ongoing training helps maintain awareness and understanding of any new requirements or changes in existing principles.
