Beware the Injury Time Goal

So now we know. After a few weeks of post-election uncertainty, Referee Osborne blown his whistle, waved his red card and announced that FCA is indeed to “cease to exist in its current form”.

In spite of supposed protests from the Lib-Dem bench.

This should be no cause for rejoicing from firms. Aside from the major structural question of whether the Government’s proposed replacement system will work any better, firms now face a period of uncertainty to 2012 as the new structure takes shape.

During this lengthy injury time period, FCA will still have its full range of statutory powers and will be required to use them as it sees fit. Indeed senior staff will probably feel obliged to adopt a “business as usual” posture, for all the right reasons.

This could lead to a tightening of regulatory scrutiny, as FCA staff seek to ensure that they cannot be accused of taking their eyes off the ball in this closing phase of their match.

So firms should prepare to defend last-minute attacks from FCA, keen to net and show that they can still score. And transfer policy has already seen key FCA players turning up in the new team.

So put away those vuvuzelas. Remember – it’s not the match, it’s the tournament. And Fulcrum Compliance will be there, throughout the competition.

Non-Executive Briefing

It is an increasingly common truism that non-executive directors are expected to play a far greater part in the running of the firm.

FCA’s more rigorous vetting of new non-executives, and their internal process for so doing, has been well publicised. NEDs can also be expected to be interviewed as part of an ARROW visit. Such interviews follow a very similar format to those outlined in CP10/3.

It is essential that these interviews go well for both the firm and the NED. FCA needs to be reassured that the NED is aware of the firm’s risk and able to exercise “challenge”.

Fulcrum Compliance has experience of working with NEDs ahead of an FCA interview. This preparation has proven valuable in helping the NED prepare and has led to successful outcome.

The Chief Operating Officer of a client company described our work as “Very worthwhile indeed and of enormous help. Most of what we rehearsed came up”.

If you have an upcoming FCA visit or are considering appointing a new NED and would like to discuss how we can help them prepare, do get in touch.

Governance in Smaller Firms

Following from the above, much has been written on corporate governance and FCA’s expectations of firms.

However some of this informal guidance, with its emphasis on a bureaucratic structure of meetings, minutes and terms of reference, sits ill at ease with the way in which many smaller firms operate.

Whilst FCA is correct to focus on larger, systemic firms, it is unlikely that smaller firms will escape scrutiny, if only through the medium of a themed visit.

And those smaller firms will be expected to have appropriate and proportionate systems of governance in place. Moreover, FCA will expect these to be reflective of their concerns.

Small firms will need to have a governance structure which reflects their risks, evidence of its operation and of “challenge”, and a clear definition of their risk appetite.

Fulcrum Compliance can assist in this process, enabling you to present FCA with a coherent document which reflects your best practices.

Small Firms Financial Crime Review

FCA’s “Small Firms Financial Crime Review”, released at the end of May, lists a number of areas that all firms – irrespective of size – should consider.

Whilst the Review comes with FCA’s usual caveat that it “does not constitute nor should it be treated as formal guidance”, FCA says “we expect firms to make use of our findings”. To this end the Review gets added to the ever increasing pile of “soft” or “informal” guidance that Firms need to consider.

The Review majors on Anti-Money Laundering and Data Security. Some key messages are as follows:

AML

• Where firms have procedures in place, they are often not tailored to their specific circumstances;
• Enhanced due diligence procedures for higher risk customers are weak;
• Staff are unclear as to their obligations under both the Sanctions regime and Suspicious Activity reporting.

Data Security

• New staff should be vetted prior to being granted systems access;
• Data stored off-site should be encrypted;
• Firms should consider restricting the ability to copy data to portable devices.

All of the above need to be considered in the context of the firm and the risks it faces. It may well be the case that firms do not need to make any changes to their operating processes. However it will be important for firms to show their awareness of FCA’s findings.

Bribery & Corruption

Continuing the “financial crime” theme, firms will doubtless be aware of the new Bribery Act and be wondering what impact it has on their existing procedures.

Firms would be forgiven for assuming that this legislation is directed primarily at large corporate entities who have extensive overseas business relationships.

Whilst this assumption is not necessarily wide of the mark, it will be important for firms to at least consider their existing policies on gift & entertainment to ensure that they take account of the Act.