ENSURING FIRMS CONTINUE TO MEET OUR STANDARDS

Categorising firms

The starting point in describing how we will supervise a firm is to say which one of our four conduct supervision categories the firm falls into: C1, C2, C3 or C4.

The list of firms in each category is still to be finalised but essentially it means:

C1: banking and insurance groups with a very large number of retail customers and universal/investment banks with very large client assets and trading operations

C2: firms across all sectors with a substantial number of retail customers and/or large wholesale firms

C3: firms across all sectors with retail customers and/or a significant wholesale presence

C4: smaller firms, including almost all intermediaries

Firms are categorised according to their potential impact on our objectives. The category we place a firm in determines the style of supervision we will carry out.

Our categorisation will use a combination of current impact measures, retail customer numbers and some measures of market impact.

We will take a similar approach to categorising firms for prudential supervision. We will write to firms in early 2013 to let them know which category they will be in.

C1 and C2 firms will be classed as ‘fixed portfolio’, which means they will have a nominated supervisor. The vast majority of firms will be C3 and C4 firms and classed as ‘flexible portfolio’, which means they will be supervised by a team of sector specialists and not have a nominated supervisor – just as the FSA currently supervises smaller firms. Our heads of supervision will also have responsibility for specific sectors, and will engage with groups of firms and trade associations, as appropriate, to gain a more in-depth understanding of specific sectors, along with building an open and transparent relationship. 

How we will supervise firms

Some firms in some sectors may experience a highly intensive level of contact with supervisors over months or even years. Others may only be contacted by one of our supervisors once every four years. The point is, we will focus our attention on firms and sectors of the industry that could cause, or are causing, consumers harm or threaten market integrity.

Our supervision model is based on three pillars:

1. Firm Systematic Framework (FSF) – preventative work through structured conduct assessment of firms.

2. Event-driven work – dealing faster and more decisively with problems that are emerging or have happened, and securing customer redress or other remedial work where necessary. This will cover issues that occur outside the firm assessment cycle, and will use better data monitoring and intelligence.

3. Issues and products – fast, intensive campaigns on sectors of the market or products within a sector that are putting or may put consumers at risk.