global insurance management

Regulatory Reform Programme (2)

Nov 26 2012

Regulatory Reform Programme

Relevance:             All authorised firms.

Action required:     Consider your approach to the key areas of focus for the FCA:

  1. 1.     Treating Customers Fairly – does any part of your business model create a TCF risk?
  2. Do you fully understand the risks that your business faces and can you articulate the way you manage those risks?

We have now been issued with more detailed information regarding how the FCA intends to operate once the Financial Services Bill 2012 completes its path through Parliament.

In communicating the “Journey to the FCA” the FCA’s man-in-charge, Martin Wheatley has published a speech to accompany the issue of its “approach document”. 

The one big theme throughout the paper is that the consumer/customer/client comes first.

“Treating Customers Fairly” is not just “business as usual” and the new regulator is quite adamant that it expects firms to “put consumers at the heart of their business”.  In addition, Martin Wheatley states that conduct “should be demonstrated through the way they treat their customers, their behaviour towards each other and the way they operate in the market”.  We have been warned!

Each firm’s Senior Management is placed firmly in the spotlight and must ensure that the firm’s culture promotes fairness.  We are also reminded that the original 6 TCF Outcomes remain central to the FCA approach to regulation.

The full document can be accessed using the following link:

Some highlights from the document:

We know that the overall aim of the FCA is “to make financial markets work well so consumers get a fair deal” and to do this they will be working with three operational objectives in mind, which are to:

1)      Secure an appropriate degree of protection for consumers;

2)      Protect and enhance the integrity of the UK financial system; and

3)      Promote effective competition for the benefit of consumers.

How will the FCA achieve its objectives?

  • Combination of new and retained powers;
  • Policy interventions based on a deeper understanding of consumer needs and behaviour;
  • Earlier engagement with firms and trade associations on risks and thematic reviews; and
  • Adopting a new approach to supervision.

FCA’s Supervision arrangements:

  • The FCA will supervise a firm according to one of four conduct supervision categories the firm falls into;
  • The list of firms in each category is still to be finalised but essentially it means:


banking and insurance groups with a very large number of retail customers and universal/investment banks with very large client assets and trading operations;

Fixed portfolio


firms across all sectors with a substantial number of retail customers and/or large wholesale firms;


firms across all sectors with retail customers and/or a significant wholesale presence;

Flexible portfolio


smaller firms, including almost all intermediaries.

  • C1 and C2 firms will be classed as ‘fixed portfolio’, which means they will have a nominated supervisor;
  • The vast majority of firms will be C3 and C4 firms and classed as ‘flexible portfolio’, which means they will be supervised by a team of sector specialists and not have a nominated supervisor – just as the FSA currently supervises smaller firms;
  • C4 firms are likely to have some form of direct contact once every 4 years;
  • C4s will have their business models assessed; how the firm runs its business, how it identifies and takes action to reduce risks to the business. The FSA has already embarked on this approach, known as the Revised Approach to Small Firms Supervision (RASFS).

Other points of note:

  • Firms and individuals already regulated by the FSA will not need to reapply to become regulated by the FCA and PRA.  Firms will be automatically transferred to the appropriate regulator at Day One.
  • Firm reference numbers and individual reference numbers will remain the same.
  • The Consultation Paper (CP12/24) issued on 12 September 2012 set out details of how firms can disclose its authorisation status.
  • There will be only one Register for all firms, as there is now. It will be accessed via the FCA and the PRA websites.
  • Gabriel and ONA, the online systems for reporting regulatory data and applications and notifications respectively, will continue to be used.
  • Applications made to the FSA but not completed by Day One will not need to be re-submitted. The application will be transferred to the appropriate regulator automatically.
  • Applications for authorisations will be subject to a new Business Model Threshold Condition, which will require a firm to demonstrate an appropriate, viable and sustainable business model, given the nature and scale of business that they intend to carry out.
  • FCA is committed to bringing more enforcement cases and tough penalties; holding senior managers accountable for their actions; pursuing criminal prosecutions and getting consumers compensation.
  • FCA will publish a central handbook (or rulebook). Most provisions within the FSA’s Handbook will be incorporated into two new handbooks, one for the FCA and one for the PRA.
  • FCA communication with firms will improve. There will be more regional workshops and roadshows to clarify expectations and cover the subjects firms want help with.

There is much more detail in the published document and there may be some benefit obtained from reading through it.  However, the overriding message picked up on is that the FCA will be a regulator that will be more intrusive and actively involved in products and their promotion in target markets; all on behalf of the consumer.

Therefore, it makes sense for the Senior Management of firms to maintain, in some instances increase, their understanding of the risks that they have to contend with in running their business and also in the market in which they operate.  And then to take action to mitigate them!

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