D1: Regulatory supervisison & the risk-based approach

Product intervention & governanceFCA will be more proactive & intervene earlier.  Powers could include intervention rules & product pre-approval.Super-complaintsFCA to be able to review & react to detailed submissions by consumer groups.  OFT only receive these complaints currently.Competition powersFCA 'to promote effective competition in interests of consumers': firms must compete for business by offering better services, value and products that customers want & need prices offered are in-line with costs firms will innovate & develop new products over time 'Supervision' is term used to describe day-to-day regulatory relationship with authorised firms; monitoring & regulating firms to ensure compliance.FCA adopted risk-based regulatory approach.  Requirement for firms to manage risk & establish appropriate control systems is constantly mentioned.

Approach to supervisionGeneral principles: firms encouraged to 'run on foundation of fair treatment to customers set out in TCF initiative'.  System will be more 'pre-emptive'.Supervisor organisation: some larger risk firms might have an assigned supervisor, others contacted every 3-4 yrsFirm categorisation: firms contacted in 2013.C1(large banking & insurance groups) to C4(smaller firms, inc. intermediaries).Risk framework: replacing extg ARROW system.  Based on 3 pillars: Firm Systematic Framework (FSF) - entails business model & strategy analysis, embedding of TCF inc. governance & culture to answer 'are customers' interests at heart of how firm is run?' Event-driven work - how FCA will allocate supervisory staff to situations & firms of heightened risk, i.e. whistle-blowing Issues & products - FCA look at reviews of issues & products as they take place

Approach to supervising small  firmsC4 firms experience least intrusive regulation.  New framework comprises: supervised by team of sector specialists subject to 'touch point' once every four years - road show, interview, phone call, online assessment FCA will use online reports submitted through GABRIEL high-risk and 25% of medium-risk firms interviewed.  Verbal feedback with ltr suggesting remedial action req'd. high-risk subject to follow-up visit

Earlier interventionFSA 2012 confirms regulatory initiatives to shift to tackling 'root causes'.  Eg:Banning products (retail sector): temp product intervention valid for up to 12 mths without cost-benefit analysis or consultation FCA req'd to consult on principles under which it can use power relates to retail customers only Withdrawing misleading financial promotions: FCA able to take action disclose fact action has commenced req'd to alert firm to its proposed course of action & allow representation by firms before publishing Publication of enforcement action: FCA bring more enforcement cases & press for tougher penalties & more willing to pursue individuals inc. senior mgmnt allowed to publish fact warning notice has been issued.  Power available to FCA & PRA must consider factors inc. whether publication of info would be unfair Gov't can repeal early warning notices power if not in public interest

cont...Market intelligence gathering & research: Policy, Risk & Research Division in FCA will be radar of organisation create common view to inform supervision, enforcement, & authorisation functions rely on consumer groups, media, market monitoring & analysis, and whistle@fca.org.uk Authorisation & approvals:FCA focus on proposed business model, governance & culture, as well as systems & controls firm intends to put in place: product governance end-to-end sales process prevention of financial crime FCA work with PRA to consider applications to approve individuals to roles which have impact on firm's conduct.  Assess they have good understanding of how to ensure good outcomes through: corporate culture conduct risk mgmnt product design

Accountability FCA to report annually to Gov't & Parliament oversight of work by Gov't appointed board Act contains provision of independent reviews on efficiency & effectiveness of use of resources req'd to make a report to Treasury in event of regulatory failure & where this was due to FCA actions obligation to publish a report & desirability of transparency should not impede or prejudice ability to pursue enforcement investigations Engagement with consumers FCA to build better understanding of consumer behaviour, needs & experiences engage more with consumers directly, inc. social media, consumer bodies, road shows, focus groups, face-to-face collect & analyse consumer info; i.e. ombudsman complaints

Transparency & disclosure FCA req'd to put in place the 4 statutory panels to build on FSA's approach & develop more effective ways of getting feedback on proposals publish more info about views on markets & comparative performance of a firm recognise restrictions on disclosure exist in UK & EU law where disclosure not compatible with FCA objectives; not req'd to disclose

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