The FCA has revealed details of a new intensive supervisory framework designed to target firms with “serious” governance failures.
Firms guilty of the most serious failings in standards could be placed under a new “enhanced supervision” programme by the regulator.
Action taken against a firm under enhanced supervision will vary depending on the circumstances. However, a statement from the FCA, published this afternoon, says typically it will involve boards committing to specific measures to fix problems highlighted by the regulator, with the FCA then reviewing how effective the solutions are.
In the event the regulator deems the measures ineffective, the firm could then face binding requirements for action from the FCA, though the statement says these could be applied from the outset.
Where the regulator thinks oversight from an independent person would be valuable it will require the firm’s board to bring in a suitable person using Section 166 powers. The firm will have to meet that cost.
The new approach will be applied to firms when they present a serious risk to the regulator meeting its objectives.
The triggers for enhanced supervision include repeated conduct failing and a poorly functioning board (see below).
The statement says: “Enhanced supervision helps the FCA to address weaknesses in standards, governance and culture in firms. In some cases, enhanced supervision will be followed by an enforcement investigation.
“However, it is important that regulators use judgement, rather than a set of consequential processes, to determine what regulatory tools and powers are appropriate. Enforcement investigations may therefore begin without a firm having been placed in enhanced supervision.”
What could put a firm into enhanced supervision?
- The observation of numerous or especially significant conduct failings or repeated failings that when examined individually might not be considered serious;
- Occurrence of failings in several business areas, as this is seen as an indicator of wider cultural issues within the firm;
- A poorly functioning board, for example failing to challenge executives or take a lead in considering conduct;
- Evidence of control areas such as risk, compliance and internal audit being poorly managed, under-resourced, or unable to make their voices heard at board level;
- Evidence of weak risk management;
- Evidence of other weaknesses in the way in which the board and senior management influence key cultural factors.