We have seen a number of firms this week caught by the latest thematic review, and this is very serious news for recipients of the FCA letter.
Anecdotally it seems that the review sample is far from random.
Firms who have blinked on the FCA radar (risk based compliance remember) are the ones who received this letter.
That’s why we advise never to phone the FCA to ask for clarification about anything, and to have all your communication with them, including Gabriel returns, handled for you by IFAC!
The letter asks firms to prepare for a request for their new biz book.
From that new biz book a file request will be made.
And from that file review, action will flow.
Files will either be suitable, unsuitable or unclear.
I can tell you now that across the industry 60% will be unclear, 20% unsuitable, and 20% suitable.
That is what the industry throws up time and again.
So prepare yourself for trouble if your files lie in that 80% section of the venn diagram that will be flipped up in Andrew Bailey’s new office at the top of 25 The North Colonnade.
And since the selection has already been skewed by sample selection from higher risk firms, I expect follow through and action.
If you haven’t contacted us for a preliminary and free and confidential chat about yours, then you should do so now.
We have a four point action plan audit for you to follow to ensure your practice does not fall into that group.
And the cost of a desk based preliminary review including feedback and a risk mitigation programme will likely be £500, or free to members.
If your file falls into the bottom quartile of the group chosen then the consequences will be dramatic for you.
Here are the key points for all firms to focus on – published by extract from the FCA business plan 2016/17
“We continue to focus on culture within firms, and will hold management to account where cultural issues lead to internal controls that fail to promote and support the right outcomes for consumers and the market.” (my italics)
“Action: thematic review on suitability was launched this week.”
Under a section called Outcomes we seek:
“Firms develop a culture of accountability at all levels and senior individuals are fully accountable for defined business activities and material risks.”
(Weak areas at risk: 121 staff reviews and training records. Both need to be ramped up, painful and show evidence of driving change)
“Firms and senior managers can explain principles of good conduct towards customers and markets and incorporate them throughout their business producing better consumer outcomes. “
(Weak areas at risk: your business model, especially any CIP or restricted proposition. These should be signed off as fit for purpose, and evidence of independence, including training and research should be on hand.)
“Firms take steps to proactively identify and address issues when things go wrong and can demonstrate that they learn from such events. “
(Weak areas at risk: revisit your risk mitigation programme as provided by on site audit or by FCA’s last visit, and follow through all recommendations on file checks, by changing process and keeping the evidence of change of process.)
And you can see from the above that culture is a big feature.
As your IFAC compliance manager I can take two things for granted from this:
Firstly that directors and proprietors generally think their culture is the right one.
Secondly that mostly the FCA will disagree with them.
A living proof is the SJP model –a high charging sales culture but heavily controlled and monitored.
And it is the control and monitoring that the FCA are enthusiastic about.
You need to convince the regulator that you too have heavy controls and monitoring.
That translates to a clear file checking and regular compliance audit regime.
FCA do not have an eye on your company’s bottom line.
FCA are not responsible for employing people.
They do not lose sleep over renewing PII terms.
They are not concerned with your capital adequacy minimums.
Nor do the FCA share any problem you may have in charging high costs to customers.
Their job is to ensure that you can prove suitability in a single file check, and that the right culture comes through the organization.
The continued success of SJP reminds us all that getting this right involves presentation of the facts in the right way to the regulator.
This is not easy, which is why most IFAs are better paid than accountants and solicitors.
Action one for Point one above – C stands for Culture
Follow through the recommendations from the last audit and send the actions back to john in order to receive an audit certificate.
Action two for Point two above – A stands for Accountability
Book your firm a compliance audit with John Downs if you haven’t had one in the last year.
Action three for Point three above – B stands for business model
Get your CIP checked and signed off as fit for purpose
Action four for Point four above – L stands for Learning.
Get your files uploaded on Bat for file checks – not just the good ones, but all of them so selection is random.
Follow through the recommendations given. (it is pointless asking for re-ratings on files, just follow through the action, and show that you are learning, as per point FCA four above - learning )