CIMIRF at Canary Wharf 19 November

Despite the problems with the Jubilee line we arrived safely at Canary Wharf to begin with a presentation from Jonathan Fischel of the Retail Firms Division FSA. FSA are well on track with authorisations although there are a very large number of smaller firms authorisations are moving steadily upwards as they did with mortgage firms at NM. This has been a major task with around 75% of applications raising regulatory issues of which half were investigated and remedial action taken.

Most of the firms will be supervised within the Retail division under Clive Briault apart from a small number of wholesale firms such as investment banking. Supervisors have been closely involved in the authorisation process with a full risk assessment although for most firms a short version was conducted with a phased risk assessment programme to follow. Issues identified during authorisation are being followed up now. All firms must have effective controls to comply with MCOB and ICOB and follow up is being carried out by firm’s compliance and internal audit functions. FSA cannot do it all on their own and will rely on compliance and internal audit staff to assist them.

Jonathan went through the FSA’s Retail agenda, which is not entirely firm focused but includes consumer awareness. For firms there are the requirements of financial soundness as enhanced by BASEL and the many regulatory reforms underway including depolarisation, Sandler products and the basic advice regime as well as new mortgage and general insurance regulation.

Treating Customers Fairly is a key part of their work and it is incumbent on firms to act in a responsible way. TCF does not remove responsibility from consumers and financial literacy has a key part to play. The TCF theme will continue for at least the next 2 to 3 years and is a long-term project for FSA. FSA expect TCF to be built into a firm’s strategy and the rules also require Principle 6 to be put into effect. However FSA cannot provide rules for every eventuality and want firms to move away from a tick box mind set. FSA also have to consider the impact of more rules in restricting competition.

Financial Promotions is a key area not just in firms meeting the rules but meeting high-level statement of clear, fair and not misleading. A checklist from Compliance does not quite hit the point and firms need to focus on the overriding requirement of clarity, fairness and not misleading.

Senior management need to build TCF into their entire strategy including administration, product design, promotion, remuneration of sales staff, information to consumers and complaints handling. From a pilot study with about 6 firms in July it was realised that although senior management are committed and see the advantages of TCF this was not always working in practice and the results were variable. In particular controls in firms need to reflect the TCF agenda. FSA are working on preparing case studies from work on financial promotions and complaints handling showing how TCF may work in practice. Firms must show what TCF means to them and do something about any shortcomings identified rather than wait for FSA supervision to identify problems. Common standards may also be more appropriately derived through trade associations.

Jonathan then went through the ARROW visits with firms, which focused on risks to the FSA’s objectives. Firms have been categorised according to the risks they pose. ARROW is being kept under review and the next round may include a sector approach for low impact firms. High impact firms will be relationship managed.

FSA are also trying to make it easier for firms to do business with them. Regulatory Services has been set up and should enable a much better service through a contact centre for queries. Many forms are being put online making it easier to deal with the larger number of firms now regulated and basic data forms such as applications for waivers are also being put online. For Mortgage and General Insurance firms assessments will be through two key elements from the baseline returns, accounts and financial soundness through to thematic reviews on firms.

Sarah Wilson’s speech of 30 September set out the basic approach to General Insurance regulation explaining FSA’s approach. There is a range of risks from quite low e.g. motor insurance to high e.g. medical insurance. General Insurance poses less risk than mortgages. Proper documentation is fundamental so firms understand their obligations and consumers understand what has happened. In the past there has been too much reliance on unwritten practice.

There followed a range of questions and answers including pre-submitted questions through the CIMIRF process. An open and lively debate followed with a team from FSA making themselves available at the last minute to field questions from the audience. We will aim to provide a list of questions and answers on the member website, which will be shared with FSA from whom we hope to obtain further clarification for future events and publication. Any answers provided must only be taken as informal guidance as each firm is responsible for complying with relevant rules and guidance applicable to their own situation.

Anthony Smith FCoI

Published: November 2004
By: Anthony Smith

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