Yudu - Journey to the FCA

ENSURING FIRMS CONTINUE TO MEET OUR STANDARDS

We will put the responsibility on firms to do their own monitoring on some of the less important points and to self-attest that they have been addressed. We will use a number of tools to ensure this happens, such as section 166 skilled person’s reports, internal audit review and non-executive director reports.

We will examine C3s’ business models, but will be looking more at the firms which are outliers compared to their peers. The assessment for C3s will be a focused review of their business, how it is run and how it is controlled. The FSF for these firms will be on a four-year cycle, but we will conduct interim reviews of firms where information indicates that the risk they represent is significantly changing.

C4s will also have their business models assessed when we look at how the firm runs its business, but this will be a lighter assessment than for C3s. We will want to see how firms identify and take action to reduce risks to their business. The FSA has already embarked on this approach, known as the Revised Approach to Small Firms Supervision (RASFS). This builds on the work with smaller firms to assess how they achieve the six consumer outcomes set out in the TCF initiative. The FCA will expect smaller firms to continue to strive to achieve these outcomes.

The RASFS programme is being implemented very similarly to how we previously assessed smaller firms. We intend having a ‘touch point’ with all C4 firms once every four years. This could range from a roadshow, an interview, a telephone call, an online assessment, or a combination of these. The exact interaction will depend on our assessment of the risk such firms pose to our objectives. To help us do this we are developing a risk-profiling tool to assess the risk to consumers each smaller firm could pose. These scores are based on the online reports firms submit through Gabriel, along with other data sources such as information from firm visits or our contact centre. All firms deemed to be ‘high risk’ and around 25% of firms deemed to be ‘medium-high risk’ will have a face-to-face interview. We will give verbal feedback at this interview, followed by a letter setting out any remediation points, which will need to be addressed by the firm’s senior management. Firms deemed to be ‘high risk’ after the interview will be subject to a follow-up supervisory visit. Those deemed to be lower risk may only be required to complete a formal online assessment once every four years. We will carry out visits to some of these firms to verify the results of this assessment.

2. Event-driven work Having fewer supervisors allocated to specific firms means that we will have more flexibility to devote resources to situations in firms where there is heightened risk to consumers; or where consumers have experienced some loss and we need to act quickly to stop the situation from worsening.

Case study: example of event-driven supervisory work

Issue: a financial advice network tells us it intends to acquire another firm operating in its sector.

Action taken: the case is passed to a supervision team to assess the appropriateness of the acquisition from a conduct perspective. The team identifies weaknesses in the network’s controls over its appointed representatives and asks for improvements. The acquisition is put on hold until the firm can demonstrate that its controls are sufficient to ensure its customers will be protected.

How this differs from the previous approach: our assessment will be focused on the risks associated with the firm’s conduct and, in particular, how the acquisition may affect the firm’s treatment of its customers. The FSA will have mainly focused on whether the acquisition risked the network firm’s financial stability.

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Foreword by John Griffith-Jones

Introduction by Martin Wheatley: Our vision for the Financial Conduct Authority

Chapter 1: The creation of the FCA: Spotlight on some of our new powers

Chapter 2: Protecting the perimeter

Chapter 3: Ensuring firms continue to meet our standards

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Chapter 4: Taking action against firms that do not meet our standards

Chapter 5: Building our understanding of the markets

Chapter 6: Maintaining effective relationships

Chapter 7: Accountability, transparency and measuring our success

Annex A: Specific questions for consultation

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