Skillcast Group plc (SKL) Earnings Call Transcript & Summary

Webinar. I'm Samantha Owen got the community leader here at Skill cast, and I'm delighted to be joined once again by Katharine Leaman. Katharine is CEO of Lehman Colin. And as someone who previously crafted FCA business plans, Katharine maintains a keen interest in their content and how firms interpret them. In today's 45-minute session, we will try to make this session as interactive as we can by asking a few polls as we usually do, to understand how you're feeling. And we'd also be grateful if you would participate in the Q&A section. These sessions are carefully crafted to support you. Still it helps to understand where your pain points are and how we can provide additional guidance. Of course, these question-and-answer boxes are anonymous. So we won't call anyone out on specifics. So please ask questions. So let me briefly set the seam before I hand over to our expert Katharine. In this morning's session, we're diving into the key priorities outlined in the FCA's 2022 25 strategy and exploring their implications for firms. As we approach the final year of the 3-year strategy, it's essential to understand what actions the FCA is taking and what it expects from regulated firms. At Skill cast, we've closely followed these priorities and tailor some of our events and webinars to address associated challenges. We've provided a wealth of guidance to our compliance community featuring insights from industry experts who generously shared their experiences and best practice. So as we delve into the FCA's latest update release at the beginning of the month, Katharine, we'd love to know what aspects of the FCA update caught your immediate attention and how you pursue this impact on farms.

Thanks, Sam, and good morning, everybody. I can see we've got hit a few of you on our webinar today. So that's wonderful and good to see so much interest and do ask questions as we go, stick them on the chat messaging system there. They'll come up anonymously, and we won't name you unless you want us to. So give us a little bit of context before we get started because I think it's really important when you look at the FCA's business plan and what are they saying they're going to be doing in the next 12 months, it's really important just to take into account a bit sort of general context what's going on in the environment, what would drive them to prioritize wanting above another thing. And so we've got some sort of key headlines on the slide here, which are things that the FCA has kind of pulled out. As we know, the FCA has been on a bit of a journey to try and transform itself internally to make it much more data led, of course, if this more data-led organization that makes it a lot more efficient, hopefully, in the way that it does things. It means that it's not sending, well, hopefully not too often sending armies of people out into our offices to go look at what we're doing because we're sending them data and they've got people remote working or working in regional offices because we know that the FCA has got offices around the country now. And so they'll be analyzing and interrogating the data that we send them, and they are getting really good at that map. They're getting really good at being able to see what is it that we're doing and spotting trends, but in themes, spotting the really good even being up to spot if we're not giving them the truth then our reporting them. So it's something we've really got to focus on. They've long said that they want to be a more assertive regulator, they want to be outcomes-based and the consumer duty that we saw coming last year and that Skilcor been talking about a lot over the last 12 months. We've seen a lot of that. There's no change to any of that. But continuing to do that is a continuation of where they're trying to get to the more general and I think really important operating context is what's going on in the external environment. And this is driving a lot of their prioritization. You would expect it to. We've got economic uncertainty globally, not just nationally and that geopolitical landscape really is becoming more and more challenging. And so that does drive how they're prioritizing their work, and that doesn't inform what they do. And we'll unpack a little bit of that volume letter. Higher inflation, of course, that does have a bearing because that leads to, as it says on the slight higher borrowing costs. That also leads to pressures on some firms, pressures on the bottom line pressures on fixed costs pressures on what terms are delivering and whether or not they're actually generating sufficient revenue. And I know that the FCA from time to time does ask them and say, well, when are you going to be cash positive. And that's not an unusual question for a new firm. It's also not an unusual question for a firm that regularly sees their regulatory capital bob up and down very close to the minimum levels required in the threshold conditions. And actually, I've seen the FCA say to some firms. Well, actually, you've got sufficiently close to your minimum regulatory capital, you should have started working more bandana. When did you do that? And that's quite a difficult question when you're in a spot. So it's really something that the FCA expects you to be on top of and you should be joining those doctors and not expecting to ask those questions of you and for you to say, "Oh, yes, let me come back to you. So be on top of that. I think before we move on, so to leave a poll before we start the next phase -- so I'd just like to get your feedback and input on this first call. So just generally, what would have the greatest impact on your firm? And if it's not 1 of those 3, then feel free to have a comment on the chat because it's always really interesting to see as there's something else that's causing a bit of a pressure point on your firm at the moment. And as we say in the questions here, there's a number of areas that the FDA is focusing on, and it's just really interesting to see how does that affect your business and your firm and what you're doing internally. So I'll just give you all a few moments to vote pick on any one of those, I must say, do something and the track for us if there's something that's not on a slide that you are focusing on and finding is a real impact on your business. And just to I'll just give it a few more seconds nearly everyone's voted. [Voting] Closing. Well, that's really -- I say I didn't expect that one if I'm honest, I didn't expect the changes being made with the FCA to have a huge bearing people are doing to today. Yes, of course, data is important. And I'm guessing, if anyone wants to comment on the chat, and please soon, but I'm guessing maybe that's one of the biggest impacts for you. Uncertainty with the excellent environment, yes, of course, I'd expect that to be quite up there and some of your higher inflation. I can see in that chat quite a few of you are making some comments to thank you during that. Some of the commented that they voted other because they've got an integration following an M&A acquisition. -- combination that's enormously time consuming it always is when that happens. And someone else has commented that the increase in development of AR models and format client defenses is having a great impact on their business. Now that's a really interesting point, and we will come back to that one. And another comment, product challenges by the FCA interesting. I'm guessing that there's a bit of that around the consumer duty because, of course, product governance and how we're structuring our products and so on, there's a huge impact coming from suit. And there's also -- even if you're not in scope consumer duty because of the product government regulation, you have to consider that. And this is great, some more comment in. I'd interpreted FCA changes to be more linked to regulatory changes, new rules impacting them. Yes, you would expect actually, we'll come back to the point about new rules of what that new land stack might look like in the next sort of next 12 months and actually possibly longer term than that. And someone says that the FCA changes impact their compliance function as well as for the company as a whole, but it depends. Yes, of course, it depends which area of the business that you sit in. So may I move on and talk a little bit, just a quick reminder. I think if you've been coming to a lot of these still cost advantage and webinars, this slide here may not be that new to you, and that's because this is the FCA's 3-year strategy. We are now in the last year of that strategy. This is going to run to end of March next year. We don't know the FCA has so far been silent on what's going to happen after that, whether they're going to produce another strategy or what's going to happen after that. But we are in the final year of this. So they are continuing to focus on these 3 things. They're continuing to progress the 13 commitments that they've made under each of these 3 themes. So I think that's quite interesting. It's good to have some consistency from the regulator. Appreciate that none of us like surprises. And it's good for us to be able to just look at it and say, okay, so where does the FDA really think they still need to make more inroads in the next 12 months to this strategy. So what I've done on the next slide is pick-out for you, my sort of top 3 areas that the FCA say they're going to focus on this year. And I think for me, this is kind of -- part of it shouldn't be a surprise to you. I don't think any of you or I hear none of you are looking at this going, I never expected to see such inspection there. But I think it's quite interesting that these are the 3 that they picked. And what I'd like to do for me is just on package of these 3, and we can have a little conversation about what do they actually mean by item. So perhaps we can go on to talk about the first one, which is reducing and preventing financial crime. And I can just pick out some of the things that the FCA has been talking about there. And on this slide, I've got a little bit here for you about what they're prioritizing in terms of reducing preventing for much crime. Some of the areas that they've really picked out, and I think you might find a surprise is, of course, we've got the economic Prime plan that was published earlier this year with a focus that sort of talks about reducing money laundering, preventing a recovery more criminal assets and combating, catering, housing fraud, reducing the fact of illicit international finance. These are all things that are part of that economic crime plan. And what the FCA is saying for the next 12 months ahead is that they want to focus on reducing preventing product crime in terms of fraud, fraud Book Pro really is up there. It is the biggest -- single biggest item that I can see the FCA is talking about, and I think that's no surprise. If we look at what they've got planned for the year ahead, you can see that they're really focusing on scouts on trying to recover assets for victims, looking at the losses suffered by those victims, trying to slow growth in APP fraud. And then after that, they're also talking, of course, a little bit more about money laundering. Those are the 3 that have picked up. But actually, if you read through the business plan, they do also, and I really put it on this slide actually as mentioned sanctions. Because sanctions compliance, of course, is a really hot topic, particularly if you remember, actually a political landscape, there's a lot of political pressure to make sure that sanctions are being adhered to. It's really, really important that we continue to keep up to date with sanctions. I know it's credibly difficult because they do change quite frequently, but we have to be one step ahead of new sanctions as when they come out and make sure that we are adhering to that. And we will see focus from the FCO on making sure that we are adhering to sanctions as and when they come out. So this is an area of FCA focus, but actually fraud is right up there. And I think so we've been talking about that for some time in events.

Sorry, I keep confidence. So I keep putting myself on me. I mean considering 40% of for me the U.K. is fraud. I figured that this would be a big focus and that it would just be kind that you would talk about the distinctions between the sequent types of fraud. So it's quite interesting that you've put that on there twice. Yes, clarify.

Yes. Absolutely. And that's a great stat that you mentioned. 40% of crime in the U.K. is down to fraud. That's something we really as a sector, given financial services contributes as much as it does to National GDP, it makes it really, really important that we do break the back of roll, but we really do try and help reduce the incidence of fraud and that is not, fraud is not happening in the financial services sector to it happens elsewhere. But for now it is, it is prevalent in services. It is a problem for us. It is an area we have to focus on, as many of you will know, probably a couple of years ago now in response to the London Capital Finance what should I call it with you. The FDA had to retrain all of their staff on fraud. It's now finally coming to fruition fine, they are actually going to pay a lot of attention to fraud. So I think what does that mean for you and people on the webinar today. That means that you really need to understand what are you doing about broad? What are your controls? What will be your prevention techniques, how are you detecting for in the business? How do we know if that's coming up in our organization. Sam, do you want to go on the next call?

Yes, sure. So for question number 2 -- where do you see the potential for improvement or support through learning -- if you wouldn't mind participating in this call. Thank you.

So if you say I'm sure none of above or actually, if he's just got for us before, really interesting, if you don't mind just sharing something in the chart.

There are some comments coming through, Katharine. It's quite an interactive session today. It's quite good. So I'm just going to close the pole down now. We've got a good 70%, 80% people have voted here with me and I'll show the results. Does anything surprise you with that, Katharine?

So I think and this is something we've talked about before, but the fact that we have to keep doing learning and training on financial crime, and I never lost the train that's been done to date is all about money laundering. We need to broaden that. We need to absolutely broaden the trend that we provide to our people around us on not just money launching, but it's going to be the whole set of finance plans. We've got to focus and get a balance tight across all of the metal cans, I think Yes, one at is important, but I think it's really good that we can teach people about sanctions. We can teach people about the importance of anti-bribery and corruption, -- we can teach them about fraud. That's really important. A lot of frauds come up internally. It's staff in our own businesses that are committing fraud. It's not just external. So I think we have to remember that as well. That's really important and putting consumer needs first, yes, really not surprised that that's a very high people agenda in terms of training people, Yes. And someone makes a really good point. Yes, we've got to get the balance right, but how do we make sure it is engaging in the training sticks in the mine. And I think that's really, really -- that's one of the most important things. And one of the reasons why we keep delivering regular, let's say -- and I'm sorry I'm picking on it, but MR training. But -- and we keep doing it and we keep doing it. And yet the stats don't change. We've still got a problem with money long term store got a problem with all. Why is that? We have to change the way that we deliver the training. And that's why things like just short, sharp intervention, short shop kind of training that just few minutes rather than the sort of annual, what I call, sheet through the military learning. Yes, you've got to do that because you've got to evidence that you've trained people, but making it regular, doing awareness campaigns, putting posters up if you're physically in the office. Putting things up in people's screen savers, who great ways of getting to people and just putting it front of mind because often, that's all that you need to do is if it's front of somebody's line, then often, it means that people remember it and to think about it a little bit more. And then Mike just asked the question, does that look like does that feel right? So that's the important thing to do.

I mean, in light of the CEO letter in March, we've actually got a session where we're bringing a couple of financial crime experts in to discuss AML and that DCO letter in a little bit more depth. So I look at it for that one, by the way. So looking at the slide, Coffin, I'm just -- I'm thinking in light of the extensive focus on consumer needs and protections outlined in the notes above. Could you provide some insights into the concept of a skilled person review? Specifically, what does it entail? And are there any exemptions applicable, Furthermore, considering the emphasis on consumer duty throughout the points mentioned. Would it be accurate to say that all of the elements on the screen are largely revolved around fulfilling consumer obligations?

Yes. Yes, great question. So to personal review is something that is required by the FCA when they see that there are risks present in your business that they're concerned about that they think are not being addressed adequately by the organization. So what they do with the tiers review is require the organization under scrutiny to then appoint a third party to come in and assess those risks as described by the FCA and assess your level of compliance against interest. And at the end of it, then the FCA is provided with a report that says this is how you're complying currently. And therefore, these are the actions that you've ever taken. Hopefully, you take them during the review so that by the time astounded, by the time they actually come to write it up. The findings are yes, we found that you had a deficiency in this area, but actually, this has now been remediated and therefore, there's no outstanding or at least the residual risk is much reduced. It's something that you have to pay for. It's something that the FCA will require them to do from time to time, and they do. They have a panel of firms, and I would always say, make sure that you look at that list of panel firms that the FCA has for skilled persons they're published on their website. And then also remember that with the skilled person, if they've recently come in and done, I don't know, health check for you and they've come in and done some kind of review or they're your auditor, they're going to be conflicted out of being a skilled person. So always trying keys I say I assume the worst, they always try to keep 1 or 2 people that still fast person panel available so that you do have someone that you can go to and you roughly know who tissue like you to go to should the worst happen, hopefully, you'll never need to.

On your point some of that, is anybody exempt from them? The short answer stasis no anybody, any size firm, big or small, could be required to have a store personal view. Often what you find with smaller organizations is that then the cost of the review because they are not in the cost of a review can often be prohibitive. And that means that the firm end up having, let's call it, conversations with USA about how they bring about closure to the issue.

I would say in the context of all of this and what we've got on putting consumers' needs first. Whereas the FDA got to particularly on consumer duty, we're not seeing still personal meetings yet.

But where are they getting to on consumer duty? And I think what's most interesting for me on consumer is the fact that we're coming up to the deadline this year, we're coming up to the requirement to produce our Board reports this year. We've got a lot of individuals who are champions the consumer duty, and they're now starting to say, okay, I get what my role was joint implementation program, but what is my role now in BAU, business as usual. What I look like? What do I have to do? What do I do differently? What am I expected to do?