The Financial Conduct Authority (FCA) has announced some changes to the way it will supervise the firms it authorises. This could mean that some smaller firms are no longer subject to routine monitoring.
At present, for its supervision of firms’ conduct, the FCA classes all firms as C1, C2, C3 or C4. C1 firms are those deemed to present the highest risk, and C4 firms the lowest risk. The C4 category is by far the largest category, and most financial advisory firms are included in this group. C4 firms may only receive a routine inspection once every four years, and even then the audit might be conducted via telephone or via an online survey, rather than a formal inspection visit.
The new supervision regime is outlined by acting chief executive Tracey McDermott in the September 2015 issue of the FCA’s Regulation Round-up bulletin. Now, firms will simply be classed as ‘‘fixed portfolio’ or ‘flexible portfolio’. Flexible portfolio firms, i.e. those deemed to present a lower risk, will now only be supervised via thematic reviews and via ‘event-driven reactive supervision’ (where the FCA decides to investigate further after receiving evidence about a firm’s activities).
So this may mean that smaller firms are less likely to hear from the FCA. However, all firms must continue to work on the basis that the FCA could announce their intention to inspect the firm at any time, and that very little notice of this could be provided.
Any information a firm provides in a regulatory return, or in any other notification, could lead the FCA to believe that they pose an increased risk, and thus result in the firm being inspected under the event-driven reactive supervision system. Examples of information that could give rise to concerns include: changes in a firm’s product mix, rule breaches, high numbers of complaints, advisers ceasing to be deemed competent etc.
The FCA also conducts regular thematic reviews, where it assesses standards across a specific market sector, and these reviews usually involve gathering information from a wide range of firms, large and small.
Ms McDermott commented:
“We know we have to do more to ensure our resources are deployed efficiently, that we can act quickly but effectively and proportionately, using all of the wide range of tools at our disposal, and that we are able to continually evolve as our firms do.”
The FCA chief added that the firms’ section of the FCA website had been revamped, with the aim of making it easier for firms to access information about specific regulatory obligations. The homepage of the new FCA Firms microsite is divided into three sections:
• New firm authorisation – who needs to be authorised, and how to apply
• Tasks for regulated firms – information on appointed representatives, approved persons and variations of permission
• Obligations for regulated firms – information on treating customers fairly, giving investment advice, financial promotions, complaints and much more
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.