The FCA’s Changes in Approach to Supervision

Since March, 2014, the financial sector has seen vast changes in its regulation. But which were already there, and which have been implemented since new regulators, the FCA, took over from the OFT?

The FCA have published ‘What’s new and what’s not,’ a guide to the FCA’s approach to supervision. A prominent change is the FCA’s new three pillar supervision model, in place of the old Advanced Risk Responsive Framework (ARROW) model. The previous ARROW model was rooted in assessing products and their target audience, conflicts of interest and complaints. The FCA’s new approach focuses on:

      • Securing an appropriate degree of protection for consumers

 

      • Protecting and enhancing the integrity of the UK financial systems

 

    • Promoting effective competition in the interest of consumers.

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Regulated firms now abiding by the FCA’s Principles of Business will be supervised under the FCA’s model for the 10 principles of supervision:

      1. forward looking and more interventionist

 

      2. focused on judgment, not process

 

      3. consumer-centric

 

      4. focused on the big issues and causes of problems

 

      5. interfaces with executive management/boards

 

      6. robust when things go wrong

 

      7. focused on business model and culture as well as product supervision

 

      8. viewing poor behaviour in all markets through the lens of the impact on consumers

 

      9. orientated towards firms doing the right thing

 

    10. externally focused, engaged and listening to all sources of information.

Whereas the FCA’s principles of business offer an ethos by which firms are to operate, the principles of supervision outline the “issues and behaviours” the FCA will pay attention to. This will particularly focus on a firm’s:

      • Business model and strategy

 

      • Culture

 

      • Front line business processes

 

      • Systems and controls

 

    • Governance

The FCA’s changes to the sector have been widely welcomed, with the new supervision over firms and customer-centric approach taking a positive effect.

Read here more information on the FCA’s guide to supervision.