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Status: You are viewing the version of the handbook as on 2005-06-30.

MIGI 10.2 Framework

What is the FSA's approach?

MIGI 10.2.1G

We first described our approach to regulation in A New Regulator for the New Millennium, which we published in January 2000. We have continued to explain our progress and any new developments in our approach to regulation in a number of subsequent progress reports.

MIGI 10.2.2G

We have four statutory objectives which enable us to prioritise our efforts and focus on the most significant risks we face as a financial services regulator.

MIGI 10.2.3G

The FSA's four statutory objectives are:

1.

Maintaining confidence in the financial system;

2.

Promoting public understanding of the financial system;

3.

Securing the appropriate degree of protection for consumers; and

4.

Reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

MIGI 10.2.4G

In setting our regulatory priorities, we assess the risks posed to our objectives by the firms we regulate. We quantify the risks posed by individual firms, taking into account the effect of factors such as prevailing market risk, product risk, and most importantly, customer risk. All risks identified are measured in terms of their severity if they occur (their impact) and the probability of their occurrence. The outcomes of this process are used in deciding how to supervise each authorised firm.

How does the FSA monitor small firms?

MIGI 10.2.5G

A small firm with a basic business model, a local retail client base, low turnover and no recent history of regulatory problems is likely to be 'low impact', and its regulatory relationship with us will reflect this. These firms do not have a dedicated FSA relationship manager but are able to deal with us, using a dedicated contact centre or via the internet.

MIGI 10.2.6G

Certain communications with us can take place using a system called 'Firms Online'. Once you have registered for Firms Online (see www.fsa.gov.uk/pages/Doing/Regulated/Firms/), you can use it to:

view from your 'firm profile' - a summary of the data we hold on your firm ('standing data'), including addresses, approved persons, regulated activities etc;

use electronic forms to notify us of changes to your firm's standing data, or apply for regulatory transactions such as rule waivers, variations of permission and changes in approved persons; and

(from July 2005) access your firm's RMAR (see Part I, Chapter 11) and submit periodic regulatory information to us as required by the Handbook.

Details of the Firms Online system are available at: www.fsa.gov.uk/pages/Doing/Regulated/Firms/.

MIGI 10.2.7G

An important part of the supervision of low impact firms is the receipt and monitoring of data returns and other notifications. Firms are required to send us periodic regulatory information via the 'RMAR' (see Part I, Chapter 11). We use this information to assess firms' financial soundness and identify potential breaches of regulatory requirements. We are unlikely to carry out routine visits to low impact firms. Instead, we may make visits in response to risks identified from regulatory data or other information sources. In addition, the firm or its business may be included from time to time in our sector-wide projects (thematic work), which monitor general compliance standards and investigate cross-industry risks.

What is the FSA's supervision stategy for small firms?

MIGI 10.2.8G

We have developed a supervision strategy for small firms which includes the elements above. Its primary focus is on mitigating the risk posed to our objectives by financial and compliance failures by a substantial number of low impact firms within a sector. Although individually small firms are low impact, collectively the impact of these firms may be much greater.

MIGI 10.2.9G

The overall strategy includes:

  1. (1)

    gathering information on all firms;

  2. (2)

    focusing resources on thematic work and where appropriate reacting to any issues that arise;

  3. (3)

    helping newly authorised firms to raise their own standards; and

  4. (4)

    helping good firms to maintain standards.

MIGI 10.2.10G

Where a firm is non-compliant, we will take enforcement action where we consider that is appropriate. Where firms show a lack of awareness of regulations we will try to help these firms to help themselves, for example, by providing regular guidance updates on our website and by means of a 'good practice guide'. We will also encourage these firms to increase their level of training and to make use of trade associations, product providers, auditors and consultants.

MIGI 10.2.11G

Where a firm is compliant, we will try to help it maintain high standards. Such a firm provides a benchmark of good practice that can be spread more widely within the total population of firms.

MIGI 10.2.12G

The following chapters of this Guide are also relevant:

Training and Competence - Part II, Chapter 3 and Part III, Chapter 4

Reporting and Notifications - Part I, Chapter 11

Record Keeping - Part I, Chapter 13