New Year, New Start

As the Christmas and New Year celebrations become a distant memory, it’s now a good opportunity to focus on the key compliance issues for 2013.

In this issue of the Newsletter, we consider what are likely to be some of the key themes for regulated firms over the next 12 months.

Back to basics

The coming withdrawal of FCA from dedicated firm supervision means that firms will have increasingly rare contact with real people from the regulator – other than the remote relationship of the Firm Contact Centre.

This means that when a firm is selected for a theme visit, perhaps by nothing more than chance, the visit is an increasingly strange and unusual event – for all concerned.

The firm has forgotten what an FCA visit feels like and how to prepare, and the FCA staff conducting the visit have no background knowledge of the firm or its business model. The scope for misunderstandings is huge. And these misunderstandings can be expensive to correct.

The best preparation is therefore to make sure that basic building blocks are in place now. This means up to date manuals and procedures, and above all a monitoring programme that shows that whatever size the business, senior management have their finger on the business pulse.

Such programmes should not be onerous, but should address the key risks faced by the business and provide tangible evidence that management has in place some of the “three lines of defence” that FCA will want to see.

Senior Management Responsibility

It will come as no surprise to learn that FCA will continue to place great emphasis on the role of senior management in ensuring that the firm is run on sound compliance principles.

There were a number of high-profile individual enforcement cases in 2012, some of which did not lack for controversy, which indicated FCA’s continued appetite to take on high-profile cases and do more than just rattle sabres.

In large organisations, there had been some defence to be made due to the very complexity of the organisation, allowing directors to escape discipline on the grounds that they “did not know” and had delegated.

This defence cut increasingly little ice at FCA, the prevailing message being that even if you did not know, you should have known.

Directors of small firms do not have the luxury of a place to hide. Often the holders of multiple controlled functions, all regulatory roads lead to them.

If you are in this position, make sure that you have proper support in place so that you can evidence the proper discharge of these additional responsibilities that whilst perhaps not central to your business role, are critical to the proper compliance of your business.

Journey to the FCA – impact on applications

Much has already been written on the potential impacts on firms of the change to the Financial Conduct Authority.

We examined some them in October 2012 in our article for that month’s issue of Compliance Monitor – see the article by clicking here.

Now that the Financial Services Bill has been passed by Parliament, we can look forward to the go-live date of 1 April with some certainty. In the short term, there is not much that firms need to do in practical terms to effect their transition.

Most of Fulcrum Compliance’s clients will be grandfathered to the FCA automatically.

However we have become aware of increased time taken to process routine applications through FCA as they gear up for the new regulatory regime. FCA staff are all undergoing specific re-training and cross skilling. For example, staff not usually involved in say, field work, are being taken off other work so that they can broaden their work experience by attending supervisory visits.

We hope that this will have positive long-term benefits, but in the short-term it adds to the time taken to vary a permission or become authorised. The dislocation within FCA / FCA will certainly last beyond 1 April, as the new regime beds down.

The message for firms already regulated and contemplating a change in their business model, or for those considering authorisation for the first time, is not to delay decision making and to allow additional time for the process – whatever it is – to take place.

Retail Distribution Review – last knockings?

Firms with retail advisory permission will, by the time they read this Newsletter, have completed the key elements of business re-alignment to ensure that the firm is compliant with the principal provisions of RDR, effective as of 31 December 2012.

Undoubtedly the most important of these is to ensure that retail-facing advisers have re-qualified under the new exam regime. Any retail adviser who has not so qualified should no longer be giving retail advice!

There remains a small window of grace for those who have passed the exams but have yet to receive from their “Recognised Professional Body” (often the Chartered Institute for Securities & Investment) their Statement of Professional Standing.

Now firms need to send to FCA professional standards data for each of their retail investment advisers, as at 31 December 2012. This needs to be done using FCA’s preferred template by 29 January 2013. Having done all of the hard work, don’t forget to do this last thing!

Housekeeping – are you who you say you are?

Is your entry on the FCA Register up to date? It is in fact a requirement to check this at least every year.

It’s surprising how quickly this can get out of date, what with office moves and changes to personnel. Pay particular attention to contact details such as addresses, telephone numbers and complaints contacts – these can get overlooked.

Even if you think you’ve changed these recently, have another look. The ONA data entry system is not the most user-friendly, and changes you think you’ve made may not have been reflected. It only takes a moment to check!