ENSURING FIRMS CONTINUE TO MEET OUR STANDARDS
We will be the conduct supervisor for approximately 26,000 firms across all industry sectors and the prudential supervisor for approximately 23,000 firms not regulated by the PRA.
Our new approach will be to carry out in-depth, structured supervision work with those firms with the potential to cause the greatest risks to our objectives. This means there will be fewer supervisors allocated to specific firms; but this will allow us greater flexibility to carry out more reviews on products and issues across a particular sector or market. This will enable us to take action faster on our priorities and what we believe are the biggest conduct risks.
Essentially, we will be looking for firms to base their business model, their culture, and how they run the business, on a foundation of fair treatment of customers…
The new approach will be underpinned by judgement-based supervision. This means that we will be making supervisory judgements about a firm’s business model and forward- looking strategy, and will intervene if we see unacceptable risks to the fair treatment of customers. Essentially, we will be looking for firms to base their business model, their culture, and how they run the business, on a foundation of fair treatment of customers as set out in the Treating Customers Fairly (TCF) initiative. While we recognise that firms need to be sustainable, we will not let a firm compromise fair treatment of customers to achieve financial success.
Equally, we will be open to innovation in the industry and encourage long-term growth in the sector because it is vital to the health of the wider UK economy. We must allow firms to develop new models of doing business and we will want to see plans and strategies that ensure firms’ sustainability and healthy returns. The importance of firms’ innovation and growth will run throughout our supervisory approach to all firms. Whether we are conducting an in-depth look at a firm’s business model, or a thematic review of a selling practice or product, we will aim to ensure our actions strike the right balance between all our statutory objectives.
We will act more quickly and decisively and be more pre-emptive in identifying and addressing problems before they cause harm, with our senior staff involved in supervision issues at an earlier stage. We will deliver this through a risk-based and proportionate approach, recognising the diversity among firms and markets. These changes, which includes replacing the Arrrow risk assessment framework, will take time to fully roll out, andearly next year we will give firmsahigh-level timetable on when to expect changes.
This approach also means that we will focus our attention on the bigger issues, either in individual firms or within and across sectors, and have a more open, engaged and challenging approach with firms at the senior management and board level.
Looking at competition
Our supervision function will play a key role in relation to competition, starting from when we gather intelligence and identify risks, and running through to when we decide how to act to tackle the problems we find. We will make use of intelligence and information from a variety of sources, including from firms, consumer groups and competition regulators. When carrying out analyses of business models and strategy, we will take account of a firm’s competitive position in various markets when assessing the potential conduct risks that may arise from their strategies. The FCA will also carry out studies of markets, when our intelligence indicates competition is not functioning well. Key to this will be to develop our skills and expertise on competition.
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