If you work for a business regulated by the Financial Conduct Authority, the financial regulator’s actions and priority areas give you a good steer as to where your attention should be focused.
It’s worth noting, then, that in the first few weeks of 2020, the FCA has already issued a ‘Dear CEO’ letter as well as two portfolio letters addressed to chief executives.
What can these letters tell us about the Authority’s current priorities – and what do they mean for the areas your board should be focusing on this year?
What are FCA Dear CEO and Portfolio letters?
The regulator writes Dear CEO letters when it wants to bring chief executives’ attention to a single area it considers high-risk. Portfolio letters take a deep dive into an entire market.
Writing in Money Marketing, Simon Collins of legal and compliance firm Konexo says that the letters ‘provide a clear line of sight for FCA intentions over the coming months’, suggesting that the regulator is telling financial services firms that ‘it is not satisfied the profession has done enough to minimise customer harm events’.
What does this mean for your board’s priorities?
Although the letters cover different subjects, there is common ground and some consistent themes between them.
The first Dear CEO letter, aimed at wholesale insurance firms, focuses on non-financial misconduct – something sparked by stories of inappropriate conduct at Lloyds of London, raising wider issues of corporate culture, including concerns around a lack of diversity and inclusion. (An issue, as we reported recently, where boards have been criticised for a lack of progress.)
The portfolio letter hones in on suitability of advice, as well as some specific issues that potentially impact advice firms’ sustainability.
The second Dear CEO letter covers issues specific to the asset management industry around product governance and responses to the FCA’s asset management market study alongside EU withdrawal and accountability issues.
Taken as a whole, the three letters have clear messages for regulated boards about where their time would be best spent to align with FCA priorities.
The financial regulator plans to assess how effective current governance approaches are, as well as reviewing firms’ success in implementing the Senior Managers & Certification Regime, a structure designed to increase accountability firm-wide.
We reported just last week on Financial Reporting Council calls for FTSE100 businesses to up their game on governance. If this is something your firm is struggling with, knowing that it’s in the regulator’s sights may focus attention on improving your performance here.
- Technical resilience and cyber-risk
The regulator is also keen to understand how firms are managing their technology risks. Security should be key for every board; this is also something we’ve looked at previously. The board plays a central role in a business’s digital transformation efforts, and security should be a paramount consideration when choosing new technology.
- Avoiding harm to customers
This is an ongoing priority area for the FCA. Corporate culture is again vital here; putting in place a culture where fair treatment is central to your ethos will help to ensure that the risk of harm to consumers is minimised.
Boards have often been accused of falling short when it comes to this compliant culture – if this is familiar, your board may want to make this a priority.
Of course, all these issues are often closely inter-linked. You can help to avoid harm to consumers by ensuring your systems and technologies are robust – and by swiftly addressing any issues that arise; cyber-breaches, for instance.
Preventing consumer harm doesn’t just mean making plans to proactively treat customers fairly, it also demands that the board puts in place clear plans for when things go wrong.
Although the execution of these plans may be an operational matter, the strategy that determines your firm’s approach is firmly a board issue.
For regulated firms, the FCA’s actions are a good bellwether of their priorities and the areas where they will be most closely scrutinising the businesses under its remit. It may be worth reviewing your board’s approach to them, to ensure you remain one step ahead.
Creating a compliant culture
A compliant culture, where ethics and the ‘right’ behaviours permeate the entire organisation, is the holy grail for boards looking to meet regulatory requirements. But this can be tricky to achieve.
If this is something your business struggles with, you can download a copy of our whitepaper, How to embed a compliance culture into your business. The paper is free, and you can download a copy from our resource library.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.