If I were to describe someone as a critical friend, you might think they were the sort of person who tells you when a shirt’s really not your colour, or that one more glass of wine probably isn’t the best idea if you want to get up early in the morning.
If you’re the FCA though, a critical friend could be a small firm’s best ally in complying with Consumer Duty.
The phrase ‘the burden of regulation’ is used to describe the costs and challenges of complying with the ever-expanding FCA Handbook. Yet it’s not a phrase that gets much traction within the regulator itself, or consumer groups, and nor should it within the industry.
Firms benefit from operating within a well-regulated sector, given regulation supports functioning competition and consumer trust. What is more, a country with a well-regulated financial services sector is attractive to inward investment.
Regulation might, however, look more like a burden if you’re a compliance officer opening an email on a Monday morning detailing an information request from the regulator that needs to be completed in the next week. Or trying to make sense of three consultation papers on crypto assets in December which together run to more than 600 pages (Merry Christmas!).
Our latest State of the Advice Nation research shows that while firms broadly accept data requests as a necessary evil, they do experience them as more burdensome rather than constructive – particularly smaller firms or those without dedicated compliance or data teams.
The FCA and the Bank of England acknowledge that regulatory reporting is a strain on both the regulators and regulated. This is why there is an ongoing Transforming Data Collection programme to ensure data collection is more streamlined and efficient.
In its annual work programme for 2025/6, the FCA committed to trialling practical guides to help smaller firms get to grips with outcomes-based regulation. Research among small firms confirms they find the rules hard to navigate and they need clearer, plainer explanations with real world examples.
Consumer Duty Board reports – good and bad practice
All retail regulation is now underpinned by Consumer Duty and the key document which shows you’re on top of the process is your annual Consumer Duty board report. While the FCA doesn’t prescribe the format of the board report, it has provided examples of good and bad practice.
The key message from the FCA’s recommendations is you don’t need a massive data project to demonstrate you’re complying with Consumer Duty.
For small firms, the very concept of a board report makes little sense. Many have complained it is difficult to produce a report based on guidelines clearly written for large firms. Acknowledging this, the FCA has now updated its guide to good and bad practice with specific examples of how smaller firms might tackle their reports.
Governance
This is where the critical friend comes in. You might not have a board, but the FCA suggests getting someone with relevant sector knowledge to help interpret regulatory expectations in a proportionate way, to act as a kind of sense check.
This could include informal benchmarking, identifying practical improvements or helping with horizon scanning.
Monitoring and outcomes
As a smaller firm you may be more limited in the range of management information you can access. What you can do is draw on data from the likes of trade bodies and the Financial Ombudsman Service.
Feedback from your team may also be easier to collect if there is less data to manage and a quicker route of access.
What actions have been taken to comply with the Duty?
This is the part where there’s good news for smaller firms.
Being smaller comes with greater flexibility, plus you have the advantage of being close to clients. These factors can mean it’s easier to test or pilot changes quickly. And, in the way that a larger firm would find more difficult, adjust changes accordingly – it is easier to turn a rowing boat than an oil tanker.
The key message from the FCA’s recommendations is you don’t need a massive data project to demonstrate you’re complying with Consumer Duty.
Smaller firms can lean on practical insights such as adviser experience, day-to-day conversations and client feedback to build a clear picture of their business. That kind of real world knowledge can neatly fill the gaps where formal analysis is limited, unavailable or simply too expensive to justify.
Alison Gay is senior regulatory consultant at the lang cat
This article was first published in Professional Adviser
