Compliance Corner: FSA vs. FCA

In this month’s compliance corner, Tim Chapman looks at the FSA’s transfer of authority to the FCA in respect of conduct regulation. He considers whether there have been any real changes so far.

Compliance Corner is our series of blog posts looking at hot topics and trends within compliance and risk. Each month we’ll be discussing a different topic and sharing our insights into the impact they may have on the industry.

This month, Tim Chapman looks at the FSA’s transfer of authority to the FCA in respect of conduct regulation and considers whether there have been any real changes so far.

The FSA vs. the FCA: seeking change or always the same?

FuturePastPresentSince the Financial Services Authority (FSA) migrated most of its responsibilities over to the 2 newly created branches of the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)on the 1st April 2013, each new body has received a myriad of positive, indifferent and sometimes negative feedback.

In this update I will focus on the FSA’s transfer of authority over to the FCA regarding conduct regulation relating to selling, management and handling of investments, as well as treatment of customers.

The FSA was often accused of being “asleep at the wheel”, particularly following on from Northern Rock. But has the FCA managed to embed itself more firmly in the compliance and conduct framework of financial services providers, or has it instead taken on the same helm and image as its predecessor?

The FCA: has there been a change?

Since the FCA’s inception it has committed itself to policing and monitoring firms’ conduct in relation to its consumers, narrowing focus and reactivity in comparison to the FSA which had a broader focus, including prudential regulation.

Some of the FCA’s new powers include being able to ban products with due cause, rather than investing heavily in lengthy consultations which do not address problems quick enough. This will avoid issues of rules not being monitored and adjusted quickly enough, and save faith in the marketplace as well as money. Admittedly, the FCA has already taken a more proactive stance on conduct and regulatory issues but it has also caused controversy with its continuing ‘Section 166’ reviews.

S166 reviews give the FCA the power to request that firms pay for a review into their own practices after receiving a certain number of complaints. Despite an explosion of activity last year, new reports show these reviews have actually slowed, bringing in to question their productivity and the FCA’s reactiveness in dealing with consumer complaints and public banking concerns. Their cost has also been questioned, and has highlighted whether the FCA is really functioning differently to the FSA.

However, the FCA has defended their continued use, stating its “limited supervisory resource” requires firms to commission and pay for s166 reviews in areas of concern. The FCA is unable to estimate how many s166 reviews will take place a year, which in itself raises concerns. Admittedly, no regulatory body has the fabled ‘crystal ball’ but highlights the question of whether the FCA is a proactive or reactive body; the former undoubtedly being the FCA’s aim.

What does the future hold?

Section 166 reviews are an embedded part of the FCA’s processes, and were likely to remain unchanged following their adoption of the process from the FSA. However, their effectiveness needs to be further highlighted in ensuring and rectifying public faith in the financial services industry, rather than these reviews merely being a costing exercise.

It is still too early to qualify whether general compliance and regulatory procedural changes have been promoted and embedded in the industry effectively, as this is as much down to the firms themselves as to the regulator. However, the FCA is approaching the market with both a supervisory and assisting approach, rather than merely being a watch dog.

Only time will tell whether the FCA can truly embed its principles in, and align itself closely with, both the marketplace and the firms it aims to regulate; and, ultimately, improve their compliance frameworks.

 

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