ENSURING FIRMS CONTINUE TO MEET OUR STANDARDS

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Changes from current Arrow approach

Arrow

Point-in-time assessment

Primarily issues-based – i.e. discovery work on issues considered to be higher risk

Assessment results in letter and risk mitigation programme that frequently has many actions

Extensive follow-up work by supervisors

Firm Systematic Framework

The business model analysis will lead us to decide which of the FSF assessment areas to prioritise. For C1s and C2s, we will follow the analysis by working through the assessment areas on a two-year cycle.

Through the FSF, we will assess how firms manage the risks they create and identify the root causes of what leads to these risks. We will also want to understand consumers’ actual experiences of dealing with firms.

The assessment modules will take place through interviews between supervisors and the firm to look at processes in relevant areas – detailed testing will not be used unless it is the only way to assess a particular risk. We will focus on the biggest problems firms need to tackle, and will prioritise actions; this may mean that firms have fewer risk mitigation programme (RMP) points than now.

Case study: example of how the FSF might work

Issue: the BMSA for a large retail group identifies that it has aggressive growth plans for sales of a new protection product, but a poor track record for its sales practices in this area. We judge the product to have a high potential for unsuitability for parts of its target market. On the basis of this analysis, the supervision team runs FSF modules covering Product Design and Sales Process.

Action taken: before the firm can sell the new product, we require the group to carry out a full root-cause analysis of its prior conduct in this area and to use this to enhance its business plan and implementation strategy for the product. We want the group to ensure that fair treatment of customers has been considered as an integral part of the strategy.

We monitor the effectiveness of the group’s remedial actions as part of the continuous assessment process, and consider it alongside other contact with the firm such as issues and product reviews. This gives our supervision team the ability to identify root causes underlying the emergence of issues, and to require the group to address them as a whole.

How this differs from the previous FSA approach: in the past the FSA would not have intervened at this early stage, because it would not have had the continuous business model analysis and assessment from which to identify the issue. The FSA would have conducted sampling after the product launch, and ultimately would have required the firm to take remedial action, including redress to customers if something had gone wrong.

Form of continuous assessment for C1 and C2 firms

Assessment of key drivers of conduct risk, with work targeted by BMSA

Assessment results in letter and risk mitigation programme focused on a few key areas to be addressed

Follow-up work done by firm with greater use of section 166 powers