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Principle 11: 6 tips for firms with no FCA supervisor

Principle 11 is important and the most frequently quoted principle in final notices. You must be open, honest, and transparent with the PRA and FCA. You need to be telling them what they would expect to know about.

First FCA expects you to have a relationship with them. This is different to how many other regulators operate. FCA expects you to be talking to them and keeping them up to date as your business develops, grows or changes.

If you have a named point of contact at the FCA, this is easier because you just pick the phone up, drop an email or drop something into conversation. The vast majority of regulated firms do not have a named supervisor and instead their first point of contact is the FCA contact centre.

Wholesale brokers usually have the wholesale supervision team as a point of contact. Although lately members of that team are being diverted away from wholesale brokers to fight fires in other sectors due to FCA being overrun with COVID-19 related issues.

1. Think of the mailbox as a real person

You can be forgiven for thinking your relationship is different because you don’t have a named point of contact. Principle 11 expects you to be keeping FCA up to date as your business changes, and as you identify issues.

You need to be managing your relationship with the FCA as you would manage any key stakeholder relationship. If you can possibly think of the FCA as you would a real person, it should transform how you think about what to talk to them about.

2. Context is everything

Assume nothing. Explain everything. We sometimes like to imagine the FCA is this agency with 22nd century technology and access to untold amounts of data and information.

I hate to spoil the illusion, but FCA is an organisation like any other in that internally it has competing priorities and relies on individuals in different departments speaking to each other. There may be partial truths in the latter statement, but they do not have all this information at their fingertips when you call.

Every time you contact FCA remember that the words you use are important, and the context you provide even more important. Even if you are talking to a specialist at FCA always explain what you mean by the terms you are using as they do have their own views and opinions so be clear about your own.

You know your business, the markets you are in and what your clients need and want. The FCA will not have this context.

3. Don’t wait

When to tell FCA something is a tough call especially if you are looking at something that could be serious. It can be hard to focus on facts when the imaginations of those around you are leaping to consequences.

In this situation you must stick to facts. Start with what you actually know: dates, times, numbers are all important. Then consider what you still need to know: often this is sadly a point when many decide they don’t know enough, need to conduct a review and then consider if notification is required. This is not open, honest, or transparent.

You are required – principle 11 – to tell the FCA about anything it would reasonably expect notice. In practice this means you must give FCA the heads up that you’ve seen something or identified a possible issue and are going to look into it and revert. It is quite acceptable to say you don’t know when they ask you something.

Give FCA the opportunity to ask questions, which might include asking you to scope your review in a certain way based on their experience with other firms. Work with FCA as you go through your review by updating them on your findings, asking each other questions as you go.

The end result of your review might be there is no issue. If so, this doesn’t mean you have raised your head above the parapet unnecessarily. In fact, it can work in the reverse – you are showing FCA proactivity, you are showing them you are looking for issues your monitoring is working. In turn FCA will feel they have had recent contact with you, they have a better sense of you and your business, than a company who hasn’t been in touch since they were first authorised.

4. Use the specialists

FCA has specialists that cover areas such as CASS (client asset protection), financial crime, markets monitoring, as well as a wholesale brokers team. All these teams have their own team mailboxes.

When considering who to contact, or if you should contact FCA, remember these teams. They specialise in their specific fields and can answer that technical questions about the rules.

You can use them to report updates or issues specific to their area of expertise. This meets the Principle 11 obligation which is to notify FCA, as opposed to a specific contact person such as contact centre or named supervisor.

So, if you are going to be late with your monthly CASS return (CMAR) then email the CASS team mailbox. If you are a wholesale broker charging both sides for all your ECPs then email the wholesale brokers team to say you are conducting a review. If you have spotted a discrepancy with your transaction reporting and a STOR, then tell the markets team that you are looking into that.

5. Be proactive

FCA receives applications for new permissions and changes to a senior manager appointment all the time. When they receive these applications, they look up the firm to see what they know about them. What FCA knows about a firm also helps them decide which firms to visit.

For your business you want to be sure FCA knows more about you than what you told them when you first applied for permission, or when they last visited you five years ago. This helps avoid some painfully awkward questions about Principle 11 and notifications rules more generally if you have not been in touch.

Use the contact centre email address to provide updates on changes such as to your organisation structure. Also tell them about strategic changes such as when you are targeting a different client base or offering a new service. This keeps them informed about your strategy and business model changes.

The same principle applies for the specialists. For example, you should email the CASS team mailbox when you take on a new custodian or have greater AUM or fewer clients – don’t wait for them to find out from your CMAR. If you are changing trade repository then let the Transaction Monitoring Unit (TMU) the date from which that changes takes effect, so they know to expect problems!

6. Never delegate

In many ways this is the most important tip. You should never rely on someone else to talk to the regulator on your behalf, either consciously or not.

This might seem obvious but there are occasions when an auditor or consultant is the one privy to sensitive information about your business. If you would be uncomfortable with say your auditor talking to your regulator about that issue, then get your message about the issue across to the regulator first. Give your perspective and your business context.

You own your business and communication about your business. You know the message and context you need to provide. Never let anyone else speak for you.

Please let us know if you would like to arrange training or coaching for your senior managers on how they should be managing their relationship with the FCA.


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