Many of you will remember when FSA chief executive Hector Sants was widely quoted last March as warning “be afraid, be very afraid”, pertaining to a view that the regulator needed to increase its activity on supervision and enforcement.
It appears that he was as good as his word and, currently, not a month goes by without numerous reports of FSA enforcement action against IFA firms.
This is underpinned by an evolving approach to regulation and supervision at Canary Wharf, with a remit to pursue market abuse and inadequate management far more aggressively.
A new army has been recruited, supported by a substantial increase in staffing and training – 537 new regulators have been added to the FSA team in the past year.
Advisers actively engaging in fraudulent activities have always been in the headlines but there are increasing reports of individual directors of small firms and sole traders being fined for failing to have appropriate systems and controls.
In the past, the general belief was that small firms fell below the radar for FSA reviews and would only be visited reactively if they were referred to the regulator regarding an issue.
However, this position has very much changed and the FSA now has the resources to be proactive, with every firm targeted to receive a visit at least once within a three-year period on treating customers fairly.
There is a danger that advisers with a spotless record, who have perhaps never even experienced a complaint against them, could be lulled into a false sense of security by believing this means they are doing all the right things. However, such firms can risk being caught out if they are not able to adequately demonstrate they are fulfilling their regulatory responsibilities.
Contrary to Mr Sants’ declaration, there is no need for IFAs to be afraid as long as they are well prepared and fully understand their regulatory responsibilities.
There is, of course, an abundance of professional support available to help ensure firms meet all of the requirements, which, in turn, should provide not only a more secure regulatory platform to operate from but can also often lead to increased business opportunities and efficiencies.
In considering their position, principals first need to be brutally honest about their firm’s capabilities, experience and strengths.
Three key areas where directly authorised firms commonly may not have the required structure are training and competence supervision, file checking and management information.
Companies should ensure there is a procedure in place for the ongoing supervision of its advisers to monitor their competence.
Businesses require a file review procedure – a suitable percentage of advice needs to be checked and a sound audit trail needs to be documented.
Management Information is strongly linked to TCF and the quality of management information and how it links into procedures needs to be assessed.
“Be prepared, be very prepared” should be an obvious mantra for principals of small firms but sadly this is not always the case when the FSA come knocking.
It is wise to invest additional time in preparing your firm for a visit and even if one does not occur, you will still ultimately benefit from the activity. Now is the time to be prepared, not afraid.
Keith Richards is distribution and development director at Tenet Group