Conduct Risk

We wrote in January that Conduct Risk would be one of the FCA’s recurring themes for 2014.

Since then, we have been assisting clients in both the drafting of Conduct Risk policies and preparing for FCA themed visits on this subject.

There continues to be much uncertainty as to what FCA actually means by Conduct Risk. But it remains our view that this is to the advantage of firms, allowing them to define in their own terms how they understand Conduct Risk and what the threats / mitigants are – see our Article in the March edition of Compliance Monitor here.

Even if your firm is not selected for a Conduct Risk specific FCA visit, it is currently the pattern for questions on this area to be added into the general mix. Expect to have answers ready for questions such as “how are conduct risks identified and addressed” and “what consideration is there of conduct risk in developing the business’s strategy.”

It remains our view that firms that have considered these issues ahead of being asked will have a head start. Given its diffuse nature, Conduct Risk can take some time to get to grips with, even though it’s not inherently complex. Call us if you’d like to make some progress in this area.

Client Money

As FCA’s round of visits to client money firms draws to a close (assuming that it ever does close), some common themes emerge.

Acknowledgement of Trust letters between the firm and the client money bank are a continued source of error. They’re the first things the FCA look at. (Given the aggravations in dealing with the bureaucracy that major banking groups represent, FCA’s proposals in CP 13/05 for standard pro-formas must be welcome.) Check your letters now.

Firms which have been pro-active in training all of their staff on client money issues ahead of their visit have gained a tick in the box from FCA. Fulcrum Compliance has assisted a number of clients in this regard. This training needs to cover all staff involved, not just those directly processing the money or preparing the reconciliations. The aim is to give all staff an overview of the whole process, and where their part fits in.

Get in touch if you’d like to talk about training at your office.

Attestations

Has your firm been asked to provide FCA with an Attestation? The Attestation is a regulatory tool which FSA started to use, but which FCA has brought into centre stage.

The idea is to bind the individual singing on behalf of the firm much more closely to the regulatory outcome sought by FCA.

Fulcrum Compliance has worked with a number of clients who have had to make an attestation to FCA. There are some common themes that emerge:

• FCA can ask anyone to sign an attestation. Although it’s normal for the Chief Executive to be asked to sign, it doesn’t always follow. Depending on the subject matter, the Compliance Officer may be required to make the attestation;
• The wording of the attestation may be negotiable. Clearly you need to be on the front foot with your supervision team to get this to your advantage;
• Once it’s all over, it will be critical to retain the project documentation with a clear trail showing how you came to the conclusion that allowed you to sign the attestation.

The whole attestation process will focus the mind of the persons having to sign. But the attestation can be a beneficial – and cost effective – way of meeting FCA’s expectations on the particular issue.