Supervision of Flexible Portfolio Firms

Most firms will fall under the flexible portfolio framework. Pillar I work will not be undertaken for flexible portfolio firms due the market based nature of flexible portfolio supervision.

For flexible portfolio firms, the focus will be as follows:

a) Event-driven supervision (Pillar II)
The FCA aims to identify and prevent consumer detriment and threats to
market integrity before they happen. Event-driven work focuses on
situations in firms which have resulted in creating a heightened risk to
consumers; or where consumers have already experienced some loss and
swift action is required to prevent the situation from worsening. In this
situation, The FCA will take swift and robust action, including securing
redress for consumers. Where firms do not work with the FCA voluntarily,
any decisions made as a result of their actions will be enforced.
The FCA uses a number of sources to identify potential risks or problems
including:
 Information received from the firm itself, either via regular base line
reporting or ad hoc reporting on changes or significant events;
 Data analysis;
 Whistleblowers; and
 Consumer complaints.
The FCA’s response to an event will depend on the nature and size of the
problem, including skilled persons reports. If it is evident that the risk has
occurred in more than one firm, then the FCA will engage with the industry
as a whole to ensure all firms mitigate the risk, consumers are protected
and poor behaviour is rectified.
Should an event occur in your firm, then the FCA will expect you to fix the
cause of the issue, as well as the symptom and to have a comprehensive
and credible plan of action to mitigate the risk. In some cases, the firm may
need to formally attest that risks have been addressed and demonstrate
that appropriate outcomes have been achieved.
To support this process, the FCA also performs baseline monitoring with the
regulatory data that firms are required to submit. The data is used to detect
risks such as identifying financial drives which may lead to firm’s behaving
in a way that harms consumers and markets.
b) Issues and Product Supervision (Pillar III)
This work is based around the FCA thematic reviews, where they
examine emerging risks, new products and other issues that are
common to multiple firms or sectors.
These are identified through analysis of each sector and the proactive
supervision work.
Where an issue is identified, then the FCA will conduct a thematic review
with a number of firms to assess the issues and respond accordingly.
Following on from the review, the FCA will issue results of the review and
guidance to firms in the industry or sector. The FCA expects firms to
consider and take action, as necessary, as a result of their findings.
The FCA will also carry out studies to analyse the effectiveness of
competition in different markets and may where necessary intervene to
promote more effective competition.