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During any visit that it makes to a firm, the FCA will expect engagement from the firm’s senior management and clear evidence that they are taking the matter under investigation seriously. The FCA has wide-ranging and extensive powers, and if firms do not engage with it correctly, they could find that their resources are tied up in dealing with the regulator and, at worst, that they face substantial fines or even immediate action to stop them carrying out new business.

What is the potential impact on your business? 

An early understanding of this issue is critical for Senior Managers and there are a number of possible areas of impact to consider:

• Is the engagement likely to lead to restrictions on the firm’s business, whether formal such as variations of permissions, or informal?
• What will the likely impact on resources be in terms of people required to deal with FCA enquiries, and the internal and external cost of doing so?
• Are there reputational issues that the firm needs to address quickly?
• Lastly, are any critical or high performers under scrutiny, or should they be, in a way that may seriously impact the business?

Are consumers potentially impacted?

This is a critical issue for consumer-focused firms. The FCA focuses on protecting retail clients and, with the main Consumer Duty implementation deadline having come into force on 31 July this year, it is now looking to ensure proper adherence to it. Depending on the nature of the issue, firms may need to conduct customer reviews to assess whether and how consumers are impacted, and potentially offer them redress if they are. If consumers are impacted, root cause analysis may be required and systems may need to be changed.

Senior Manager accountability is a key area

Firms need to be clear about who is accountable for the area under scrutiny. If things have gone wrong under that person’s watch, why is that the case and what does that say about how the business is overseen by its Senior Managers and about its compliance with SM&CR obligations? Thought needs to be given about how to deal internally with individuals who are potentially at fault, and how that fits with a parallel process with the FCA.

Issues that Senior Managers need to address will be;

A measured response to the FCA

The FCA has far-reaching powers, and the regulator should of course be taken very seriously. However, firms often do not get it right, being either excessively fearful of the FCA, or too combative and unyielding, and so a balance is needed.

It is important for firms to establish a relationship of trust with the FCA, ensuring that the FCA knows that the firm’s Senior Managers will take the FCA’s concerns seriously and will act responsibly in their engagement with the regulator.

Managing the FCA’s expectations

Part of setting the relationship with the FCA correctly is about managing its expectations of what can or should be delivered, and by when. It is important not to deliver answers before being ready to do so, whilst at the same time not unnecessarily frustrating the FCA.

Managing the FCA’s information requirements

FCA Supervision and Enforcement have the power to compel documents and information. The deadlines for provision of these can be tight, and compliance can be resource intensive and costly. Negotiating the precise terms of information requirements can be critically important in helping to reduce the stress on resources and the associated costs of compliance with the requirements.

It is advisable to review material before it is provided to the FCA so as to identify potential issues, as well as to identify privileged documents that are protected from disclosure. If there is sufficient budget, then the firm’s legal advisers would undertake that review, which has the added benefit of allowing firm employees to focus on firm business.

Firms cannot expect predictable activity levels from the FCA, which is currently an organisation in flux and under some pressure. This can result in frustrating levels of unpredictable activity. For example, there can be a period of FCA activity, or notification of activity, followed by long periods of inactivity, with little or no explanation.

FCA pre-enforcement powers

The FCA’s use of pre-enforcement supervisory powers such as Skilled Person reviews and voluntary requirements (VREQs) is likely to continue. The FCA started 48 ‘Section 166’ – or Skilled Person – reviews in the year to March 2023, returning towards pre-pandemic levels of 68 in the year to March 2021, and this trend can be expected to continue into 2024. Some of the persistent risk areas like financial crime and defined benefit pension transfer advice, as well as the use of new regulations like the Consumer Duty are likely to be the focus of such interventions, and we are also likely to see a focus on emerging sectors, for instance in crypto or other digital areas.

On financial crime, there is currently a focus on payments firms, which are being viewed as easier enforcement targets than the traditional banking industry. For many years, banks have been the target of regulatory action on financial crime, but the recent expansion in the payments sector has created correspondent banking-like risks that the FCA is concerned to address.

In the financial crime and Consumer Duty areas, Boards should be considering the risks that their business models present and asking their Senior Managers to produce detailed and reasoned risk management plans backed up by accurate, timely and actionable management information.

How can Thistle Initiatives help? 

Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with FCA supervision and enforcement support, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.