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What to expect from the FSA’s small firms review

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  • 11/01/2012
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What to expect from the FSA’s small firms review
It's a call some advisers might be dreading and, for many firms, it could compound the challenges they already face in 2012.

Over the coming weeks and months, the FSA will be contacting a select group of ‘small’ firms – those, according to the FSA Handbook, with 25 or fewer advisers – to inform them they are to undergo a regulatory review, concentrating on the risks they face and the processes they have in place to counter them.

The reviews will follow a series of ‘Business Risk Awareness Workshops’ the FSA has already begun hosting across the country, where the regulator has been telling advisers what to expect and how to prepare.

Kevin Morgan, managing director of Consilium Financial Planning, said he expects the tone of the reviews to follow those of the FSA’s treating customers fairly (TCF) projects.

“The FSA is looking to make sure everything is ship-shape before the Financial Conduct Authority takes over,” he said. “I’ve got no problem with it and we’re busy getting ourselves ready for the brave new world in 2013.”

Compliance experts have also been briefed and, according to SIFA, the governance element of the regulator’s reviews will cover accountability, management process, decision making and oversight, with the culture element covering behaviours, motivation and communication.

When assessing controls, SIFA believes the FSA will be looking for evidence of training and competence, management information and supervision.

The reviews will take the form of either a face-to-face or telephone interview, or an online or paper-based assessment, and will be compulsory for anyone asked to do them.

While he broadly welcomed the regulator’s initiative, Simplybiz managing director Matthew Timmins warned advisers of the FSA’s interest in their investment processes.

“One of the big areas of focus will still be investment suitability and whether the output of the advice matches with the clients’ attitude to risk,” he said.

“Are they in a suitable vehicle? Have the advisers followed a proper process? Is it consistent across the business?”

Firms found to have significant risks may have to undergo further supervisory work after the review, with more detailed discussions about the problems and the actions the FSA expect them to take.

Perhaps the most rigorous element will come with the FSA’s verification work, when it will go into greater depth with a random sample of firms, looking into customer files and processes and procedures.

Even though the purpose of this will be to check its own approach, the FSA will nevertheless provide firms with feedback about what it finds.

The last time the FSA called

Although the FSA has been keen to draw a clear line between the two, the latest round of regulatory reviews follows in the footsteps of its much-publicised TCF assessments, which began in 2008.

Like the small firm reviews, they too began with a series of roadshows where advisers were given a clear idea of the FSA’s expectations regarding the fair treatment of customers, followed by an interview with a member of FSA staff over the phone or face-to-face.

The questions revolved around leadership, business decisions, controls, recruitment/training and reward, designed to establish the approach of management within businesses.

Up to a quarter of the firms assessed then received follow-up visits, both to verify the process and, in some cases, address any concerns raised, with more detailed discussions and scrutiny of a larger file sample.

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