FCA wins approval for approach but still has everything to prove

Advisers have welcomed new regulator the Financial Conduct Authority’s (FCA) risk-based approach to firm supervision but said it needs to deliver on its conduct focus to improve on its predecessor.

Last week Martin Wheatley (pictured), chief executive designate of the FCA, which will replace the Financial Services Authority, outlined the new regulator’s approach in a 60-page document, Journey to the FCA. The document sets out the FCA’s plans to supervise the IFA sector. It has divided firms into four categories, with advisers placed in the C4 grouping: ‘smaller firms, including almost all intermediaries’.

Light touch approach

It said it would take a ‘light touch’ approach to supervision, having contact with C4 firms once every four years. ‘This could range from a roadshow, an interview, a telephone call, an online assessment, or a combination of these,’ it said. ‘The exact interaction will depend on our assessment of the risk such firms pose to our objectives.’

The FCA said it was developing a risk-profiling tool to assess the risk to consumers that each firm posed, using scores from Gabriel submissions. It said firms deemed high risk, and around a quarter of firms deemed medium-to-high risk, would be subjected to a face-to-face interview.

High-risk firms would then receive a follow-up supervisory visit. Low-risk firms may only be required to complete a formal online assessment once every four years, it said, although the regulator would carry out visits to some firms to verify the results of the assessments.

Aj Somal, director of Brimingham-based Aurora Financial Planning, said the FCA was right to vary its level of supervision depending on the risk posed by firms. ‘Well-run firms with good, consistent records and very few complaints should be rewarded with light touch regulation,’ he said.

Focus on risk

The transition from the FSA to the FCA will be accompanied by a dramatic reduction in the number of relationship managers. The FCA has said this would give it resources to focus on areas where it believes there is a heightened risk to consumers, and adopt a more ‘event-driven’ supervisory approach.

In Journey to the FCA, it gave an example of how it would treat an IFA network’s plans to buy a rival as an illustration of how this approach could differ from the current regime.