The FCA’s approach to supervision

The FCA aims to carry out in-depth, structured supervision work with firms that
they consider to pose the greatest risks to FCA objectives. Therefore, the
extent of the FCA supervisory relationship with the firm will depend upon:
 their assessment of the potential impact to consumers and other
market participants, of the risks posed by the firm; and
 the probability that these risks will materialise.
The combination of impact and probability factors provides a measure of the
overall risk posed to the statutory objectives. This is subsequently used to
prioritise risks and reach decisions on what, if anything, the regulatory response
should be.
If you are deemed high risk, then it is likely that there will be a continuous
regulatory relationship. This is so that the FCA can develop and sustain a
detailed understanding of the risks posed. This will include risk assessment,
visits and “skilled person” reports, together with ad hoc and regulatory reporting.
The majority of firms are likely to pose low risk individually; however, collectively
the risk posed may be higher. The FCA has, therefore, decided to introduce
baseline monitoring to collect information required on individual firms and at
industry level. This will involve obtaining standard information from firms on a
regular basis.
The FCA will adopt a pre-emptive approach, based on making forward-looking
judgments about firms’ business models, product strategy and how they run
their businesses.
The overall approach in the FCA supervision model is based on the following
principles:
1. Ensuring fair outcomes for consumers;
2. Being forward looking and pre-emptive;
3. Being focused on the big issues and causes of problems;
4. Taking a judgement based approach;
5. Ensuring firms act in the right spirit;
6. Examining business models and culture;
7. An emphasis on individual accountability;
8. Being robust when things go wrong;
9. Communicating openly; and
10. Having a joined up approach.
1. Pillar I – For the largest firms and groups. This is firm-specific, proactive
supervision.
The FCA will engage with firms to assess whether they have the
interests of customers and the integrity of the market at the heart of their
business. This is a forward looking approach using their judgement to
address issues that could lead to damage to consumers or markets with
clear personal accountability for firms’ senior management.
2. Pillar II – Focus on crystallised or emerging risks based on the FCA’s risk
appetite. This is event-driven reactive supervision.
This approach involves dealing faster and more decisively with problems
that are emerging or have happened and securing customer redress or
other remedial work, where necessary. This will include ensuring that
there are mitigating actions in place to prevent further damage and
address the root causes of problems. If necessary, the FCA will use their
powers to hold the firm and individuals accountable and to gain redress
for unfair treatment to customers. This will cover issues that occur
outside the firm assessment cycle and will use better data monitoring
and intelligence.
3. Pillar III – A thematic approach, based on highlighting or investigating
industry-wide issues
This involves fast, intensive campaigns on sectors of the market or
products within a sector that are putting or may put consumers at risk.
These could be issues like a trend for a particular business practice or
problem with a certain product.