Professional approaches to regulation

The Chartered Insurance Institute (CII) has published a key piece of research, "Professional approaches to regulation’" which sets out what professional bodies can do to secure good outcomes for the public. In particular, it looks at the role professional bodies can play in markets with a statutory regulator such as the Financial Conduct Authority (FCA).

This piece of analysis is particularly relevant now because the UK is undergoing a fundamental regulatory change in the wake of Brexit.  

With the UK’s withdrawal from the EU, the UK is taking back full responsibility for rule-making in UK financial services. However, the way in which UK regulators such as the Prudential Regulation Authority (PRA) and FCA take on the role previously occupied by EU institutions is open to debate – a debate which the UK authorities have started with their Financial Services Future Regulatory Framework Review. This review raises important questions around what kind of participation stakeholders such as consumers, financial services practitioners and professional bodies will have in the regulatory process.

In launching the review, John Glen, the Economic Secretary to the Treasury, said, "The government and Parliament will set the policy framework for financial services and the strategic direction of financial services policy…Enhanced scrutiny and public engagement arrangements will help ensure that the regulators are accountable for their actions and stakeholders are fully engaged in the policy-making process".

In the spirit of this new plan for financial services, this report by the economist, Kyla Malcolm, sets out the part that professional bodies can play in working with regulators to maintain high standards of conduct and encourage innovation in financial services.

The report focuses on three ways in which professional bodies make a difference:

• First, professional bodies are best known for producing qualifications that have a measurable impact on the overall quality of advice in financial services. The expertise that is gained from qualifications can also result in greater market expansion, increased productivity and higher quality products and services. 

• However, providing qualifications is not the only way a professional body can help to deliver good outcomes for consumers. Professional bodies can create communities of individuals across a sector, who all have a common interest in building trust in their profession. Professional bodies can help provide a focus for these practitioners on key issues such as diversity and inclusion, ethics and conduct regulation through codes of conduct, cross-sector initiatives such as the CII’s Insuring Futures initiative, and through good practice guidance on conduct regulation. 

• Finally, by creating these communities, professional bodies and their members can bring to life rules aimed at individuals – such as the Senior Managers and Certification Regime – by building a picture about what strong ethical behaviour looks like at level of the individual as well as the level of an authorised firm.

The report sets out ways in which professional bodies can measure their performance in contributing to these outcomes, including:

• Measuring the extent to which they grow the size and quality of the market
• The extent to which practitioners take part in professional initiatives
• The relevance of the body’s good practice guidance

As a result, professional bodies have a key role to play as the UK takes over from the EU in making rules for financial services. As the UK’s statutory regulators take on their new responsibilities, professional bodies can work with them to build communities of professionals who have the tools they need to deliver world class outcomes to their clients.

Read the report HERE