The honeymoon is well and truly over. Chris Cummings takes a look at the areas the FSA will be focusing on over the coming months
It’s hardly been much of a honeymoon has it? Since the FSA started regulating our market on 31 October 2004, we’ve seen a cooling housing market, the introduction of further regulation, this time for general insurance, and even been told how much the fees will be going forward. If we thought the wedding was expensive, just take a look at the housekeeping.
Anyway, they say the first few months of a relationship are the ‘honeymoon’ period. Ours is definitely coming to an end. The FSA has just published some of its plans for regulating the market. This won’t come as a surprise for AMI members as we’ve been flagging them for a while now. For those still ‘outside the tent’, the news should have finally reached you direct from the regulator.
FSA focus
So, where will the FSA be focusing its attentions and what will it be doing? It seems to me there are three key areas of attention and one thing we must ask of the FSA.
The first area of focus is catching the bad guys. This also goes by the name of ‘policing the perimeter’. I am very happy when the FSA focuses its resources here as first, it is a right and proper activity that plays very well to the regulator’s duty of care and protection of consumers from rogue elements in the industry. Second, it keeps them busy. Third, it demonstrates to those firms who invested time, effort and money, to put their systems and procedures in place, that it was a wise decision.
The FSA’s ‘perimeter’ project team, which includes both supervisory and enforcement staff, is investigating firms which may be breaking the law by conducting mortgage business following the start of the regime on 31 October last year. The list of firms being contacted is based on a number of sources, including the FSA’s database of firms that registered or applied for authorisation, but then withdrew. The FSA is also reacting to leads received from the industry and the public.
Just in case anyone thought the regulator was simply putting out a ‘spin story’, they recently piloted the ‘perimeter’ scheme in Edinburgh and Glasgow. This included over 100 visits to targeted firms. The crackdown in other areas across the UK is now being put into action.
Systems and controls
The second area of attention is ‘systems and controls’. I know this will not by now be an unfamiliar term for anyone in a regulated firm. While it would be hopeful to expect everyone to have read this part of the FSA’s handbook (known as SYSC), I am sure firms have a working knowledge of it and what it means. In short, it’s the procedure by which firms make the decisions they make and how these get communicated down the line – and trouble reported back. I like to compare it to the plumbing. When all is well, no-one notices it but when there are problems there are big problems.
The FSA has recently published its latest work on Financial Promotions. At 23 pages long it’s not a heavy read – however it does flag up some key concerns and very clearly indicates the regulator’s thinking in this area. All firms would be well advised to read it. One of its central messages is the need for good systems and controls in Financial Promotions. Who signs off the promotions? How are they qualified to do so? Can one person be sufficiently expert in all area of mortgages, buildings and contents, ASU, critical illness etc, if these are mentioned in the promotions? If not, and a team of people is used, how is consistency maintained? These are core questions as the regulator has stated a single poorly-executed advert could alert them to a deeper systems and controls problem.
Training and competence
The third area of attention focuses on T&C: Training and Competence. The regulator sees this as a useful ‘weathervane’ of how well a firm has engaged with regulation. I am sure all firms will have set out their T&C plans and updated the training of all staff to reflect the move from MCCB to FSA regulation. However, the crunch part comes with evidencing such a move. To repeat the often-said old compliance manager’s dictum: “If it’s not written down, it never happened”.
Ask yourself some simple questions: do we have a T&C procedure? Are we clear who it applies to (and at what levels: everyone from the MD to the back-office staff, not just advisers, will need a suitable T&C scheme)? Is it written down? Could we produce it within 48 hours if challenged to do so? Can we prove that all staff have a T&C scheme in place – with regular reviews and identified strengths and weaknesses?
These may seem like basic questions, but I ask them only to ensure all the “i’s are dotted and the t’s crossed”. It’s often the basic things that firms can fall over – not through deliberate inaction but simply overlooking the obvious. AMI has recently issued guidance to all members about setting up a T&C scheme – and we have amended it to update procedures for sole practitioners. After all, as a self-employed individual, who will appraise you? How will you make sure you have properly identified your development needs? Most of all, you must find the time to commit these to paper and prepare a plan. If sole practitioners need help with this, they should call the AMI helpdesk.
Realistic appraisal
I feel I have asked more questions than I’ve answered in today’s article. I do so only because of the sense I have that our honeymoon with the regulator is swiftly coming to an end. Firms need to take this opportunity to realistically appraise themselves: do they know enough about regulation and how the FSA operates? If the answer is no, call AMI today and we will be able to help. Alternatively, make best friends with the FSA’s new website. It contains a huge amount of information and has been revamped to make it easier to use. Like any relationship, the relationship between the regulator and the regulated needs work – and that does mean firms doing most of it.
