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Relating to a data driven supervisor

We reported in our blog about the FCA supervisory approach for 2021 that their new CEO intends to build an FCA that is “fit for a more digital future”. This stems from the vast investments in technology made by his predecessors. In doing so he intends to fundamentally change the FCA’s approach.

In this article we look at what might change and how your relationship with the FCA will change as a result.

What’s changing?

By using its technology investments FCA intends to shift towards more data-based supervision. It believes that by doing so it will more quickly identify problems or potential problems.

FCA has been making significant investments in the technology it uses. It is moving to a cloud environment and moving data to a data lake. Amongst some of the plethora of new hires, FCA has brought in data science expertise.

FCA has strengthened its internal surveillance function so that it can better identify issues, firms and individuals of concern. That intelligence will be passed on to specialist teams who have been recently trained to act on intelligence and information faster.

Changes in Supervision

Fewer firms will have a dedicated supervisor. The expensive luxury of teams of supervisors will be reserved for only the very large, significantly riskier firms. If you are one of these firms without a named supervisor have a read of our blog about how to manage your relationship with FCA when you don’t have a named supervisor.

As a result, there will be a reduction in the amount of proactive firm-specific supervisory activity. This means fewer people taking time to understand your business, clients, products, and services.

The trade off FCA is making is that it will have more people looking at all the firms it regulates and getting an arm’s length understanding of those businesses in a more efficient manner – through the data it receives.

The policy, supervision and competition functions have been combined into one big function under two senior managers. (The SMCR-related discussion about splitting responsibilities because spans of control are too wide, coupled with merging what should be an independent policy making function with supervision, and the loss of credibility that is giving rise to for an organisation that is trying to regain credibility are not lost on us, but they are discussions for another day!).

There are features of this mega merger of internal teams which make sense. For example, leveraging the success FCA has had over the years with its market oversight teams, who pay close attention to the data they receive from market participants to identify actual or potential market abuse.

The FCA has never been great at managing the data it receives. Nor acting on some more blinding obvious pieces of information, such as the alerts about London Capital and Finance.

Reading across the approach it takes to tackling market abuse to the majority of its activities could be a game changer. Perhaps an indication of an early success is in the Sapien Capital Final Notice which involved risks around fraud and money laundering and which appears to have been picked up by the FCA because of trading activity.

It would be remiss to not sign post that the financial promotions team has a new repeat breacher policy and more proactive approach.

What does this mean for you?

All of this means FCA is and has fundamentally changed how it operates. In the old days supervisory activity would involve a letter about an upcoming visit. These days you are far more likely to be subject to supervision oversight and know nothing about it.

The past decade or so the FCA, and PRA, have both been issuing regular messages about getting your reporting accurate, on time, and telling them about errors and omissions quickly. There have also been reminders about using Principle 11 to talk to the regulator about things in your reports that might otherwise come as a surprise to them.

Now is very much the time to make sure that you properly understand what is in your regulatory returns. As part of their reasonable steps your senior managers should already have asked for a walk through of every return, they are responsible for.

If there are returns for which you do not have a senior manager with responsibility, now is the time to get those allocated. Remember you should not have gaps or overlaps in terms of senior manager responsibilities so get those handoff’s clarified and documented.

Think through what FCA knows about your business. What updates have you given them about your strategy, business model, and approach since you went through the authorisations process.

When things change in your business then make sure you are talking to the regulator ahead of making those changes. Say that you are making a Principle 11 notification.

At Leaman Crellin we have a saying “mirror, signal, manoeuvre” meaning be really obvious to the examiner (FCA / PRA) about what you are doing. If you spell it out, they will have the context and better understand what you are doing.

Remember that all this data FCA says they are analysing is not just your returns, but it also has access to data held by the Ombudsman and Compensation Scheme. It is proactively inviting more whistleblowers to report directly to FCA. Plus, there is an abundance of publicly available information including your own website, your affiliates websites, news, social media used by your employees, etc.

What happens if they are looking at me?

If the regulator is looking at your firm, then you might get an email or phone call asking for information. Or invited for a meeting or visit.

Unless they tell you otherwise, don’t assume the worst. A core assessment the regulator is constantly making when talking to you is about Principle 11. Principle 11 is all about your relationship with the regulators.

Bluntly it is about your attitude towards the regulators and your regulatory history. For example, how quickly you address regulatory issues, the nature and extent of any breaches, and if you or your business has been subject to regulatory action in the past.

Principle 11 also include an assessment about your attitude. That means both overall as much as how timely, truthful and open you are. Do you always turn up to meetings with a lawyer in tow, or do you show a willingness to provide information when they ask, to field the most appropriate people when the regulator wants to talk. How willing and able are you in keeping the regulators abreast of current issues and concerns.

Every day the regulator is exercising judgement about matters affecting your business. Using Principle 11 effectively can make the difference between that judgement going in your favour.

Mirror, Signal, Manoeuvre

Be obvious about what you are doing. Provide context and be proactive.

Demonstrate your willingness to be open and transparent. If you say you are going to do something, make sure that you follow up on that commitment and tell them when you have done so.

Think about what you want to say and therefore who you need to engage – contact centre, supervision, CASS specialist, authorisations.

It is perfectly ok to script a conversation but equally be prepared to go off script and answer questions. Don’t overdo the scripting as it could infer you are hiding something.

You wouldn’t turn up for a job interview with a lawyer, so why would you with the FCA.

We have oodles of experience of dealing with the FCA, including in some pretty tricky situations, and we get good results. If you would like an in-confidence conversation with us, please do get in touch.


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