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SUP 1A.3 The FCA's approach to supervision

Purpose

SUP 1A.3.1G

The FCA will adopt a pre-emptive approach which will be based on making forward-looking judgments about firms' business models, product strategy and how they run their businesses, to enable the FCA to identify and intervene earlier to prevent problems crystallising. The FCA's approach to supervising firms will contribute to its delivery against its objective to protect and enhance the integrity of the UK financial system (as set out in the Act). Where the FCA has responsibilities for prudential supervision, its focus will be on reducing the impact on customers and the integrity of the financial system of firms failing or being under financial strain. In addition, when consumer detriment does actually occur, the FCA will robustly seek redress for consumers. This approach will be delivered through a risk-based and proportionate supervisory approach.

SUP 1A.3.2G

The overall approach in the FCA supervision model is based on the following principles:

  1. (1)

    forward looking and more interventionist;

  2. (2)

    focused on judgment, not process;

  3. (3)

    consumer-centric;

  4. (4)

    focused on the big issues and causes of problems;

  5. (5)

    interfaces with executive management/Boards;

  6. (6)

    robust when things go wrong;

  7. (7)

    focused on business model and culture as well as product supervision;

  8. (8)

    viewing poor behaviour in all markets through the lens of the impact on consumers;

  9. (9)

    orientated towards firms doing the right thing; and

  10. (10)

    externally focused, engaged and listening to all sources of information.

The scope of the supervision model for firms

SUP 1A.3.3G

The FCA supervision model risk assessment process applies to all firms, although the detail required may vary from firm to firm. For example, some firms may experience a highly intensive level of contact although others may only be contacted once every four years. Firms judged as high impact are likely to require a more detailed assessment. A peer review process within the FCA assists consistency and will be focused on firms and sectors of the industry that could cause, or are causing, consumers harm or threaten market integrity.

SUP 1A.3.4G

The supervision model is based on three pillars:

  1. (1)

    the Firm Systematic Framework (FSF) - preventative work through structured conduct assessment of firms;

  2. (2)

    event-driven work - dealing with problems that are emerging or have crystallised, and securing customer redress or other remedial work (e.g. to secure the integrity of the market) where necessary; and

  3. (3)

    issues and products - thematic work on sectors of the market or products within a sector that are putting or may put consumers at risk

SUP 1A.3.5G

In order to create incentives for firms to raise standards and to maximise the success of the FCA's supervisory arrangements, it is important that a firm understands the FCA's evaluation of its risk so that it can take appropriate action.

SUP 1A.3.6G
  1. (1)

    The FCA intends to communicate the outcomes of its pillars of supervision to each firm within an appropriate time frame. In the case of firms in which risks have been identified which could have a material bearing on the FCA meeting its statutory objectives, the FCA will also outline a remedial programme intended to address these.

  2. (2)

    The FCA considers that it would generally be inappropriate for a firm to disclose its FCA risk assessment to third parties, except to those who have a need or right to be aware of it, for example external auditors. FCA risk assessments are directed towards a specific purpose - namely illustration of the risks posed by a firm to the FCA's statutory objectives and to enable the FCA to allocate its resources accordingly. Using a risk assessment for any other purpose has the potential to be misleading. The FCA therefore discourages firms from disclosing their assessments, unless they are required to make them public under relevant disclosure obligations.

The nature of the FCA's relationship with firms

SUP 1A.3.7G

As many firms will not have dedicated, fixed portfolio resource, the first point of contact for many issues for such firms will be handled by the FCA's Contact Centre, with the aim being that fewer issues and queries will need to be referred to the supervisors. To support all firms the FCA will also provide regional workshops and road shows to clarify its expectations on these risks and issues that are particularly important to the FCA.

The nature of the FCA's relationship with the PRA

SUP 1A.3.8G

While respecting each regulator's different statutory objectives and mandates, in undertaking its supervisory activity the FCA will co-ordinate and co-operate with the PRA as required and necessary in the interests of the effective and efficient supervision of regulated firms and individuals. Both regulators will coordinate with each other as required under the Act, including on the exchange of information relevant to each regulator's individual objectives. However, the FCA and PRA will act independently from one another when engaging with firms, reflecting an independent but co-ordinated regulatory approach. Maintaining effective working relationships with the PRA will be vital to achieving the FCA vision. To this end, and as required under the Act, the FCA will maintain a memorandum of understanding with the PRA which will set out how the two organisations will work together.