The Financial Conduct Authority carries out regular ‘thematic reviews’ into areas of the financial services industry.
What are these reviews about and what do they entail? Importantly for Compliance teams, what might prompt one – and what are the potential implications for your firm if a review is announced within your sector?
Why does the FCA instigate thematic reviews?
For the regulator, thematic reviews are a central element of its activity. The FCA website says that they ‘form a significant part of our approach to supervision’.
Thematic reviews are used to ‘assess a current or emerging risk relating to an issue or product across a number of firms within a sector or market’.
We’ve reported previously on several reviews the FCA has carried out, among them its 2019 review of the debt management sector and its 2016 review of general insurance.
What is the objective of a thematic review?
The review will usually aim both to find out what is happening in the market and identify any current issues, and to identify potential solutions to address these issues. The FCA’s thematic reviews are sometimes also referred to as ‘issues and products’ work or ‘cross-firm’ work.
The thematic review process can be applied to a wide range of situations, firms or groups of consumers.
They are often instigated in response to concerns about a particular sector failing to abide by the regulator’s ‘Treating Customers Fairly’ ethos or another key area of its regulatory guidelines.
A thematic review aims to allow the regulator to investigate key risks that have been flagged or it has spotted. If specific risks are identified, further detailed work is carried out into the particular area of concern.
Thematic reviews are just one of the tools in the FCA’s supervisory ‘toolbox’, alongside its risk management approach, operational framework, mystery shopping activities and Skilled Persons’ Reviews.
The regulator may also seek attestations from senior management in firms with specific issues, and put in place enhanced supervision for firms where they have particular concerns.
What does a review comprise?
The thematic team will conduct desk research into the issues identified, as well as carrying out site visits to individual firms. They work with industry practitioners and trading professional bodies to understand current practice, concerns and potential solutions.
The site visits that thematic reviews can entail are what tends to worry firms the most.
The prospect of an FCA visit can be stressful, although there are steps you can take to prepare, as we outlined in our blog, Are you prepared for a visit from the regulator?
Keeping up with the FCA’s news can help you to learn about any upcoming thematic reviews. You can sign up to the regulator’s monthly Regulation Round-up for a summary of its recent activity and upcoming priorities.
Of course, just because the Authority is doing a review of your sector, it doesn’t mean that they will be paying you a visit. But an understanding of its priorities is beneficial beyond planning for a potential visit: knowing the issues the regulator is focusing on will help you to align your compliance efforts and prioritise the issues the FCA sees as important. Read more about 7 FCA priorities you need to be aware of in 2020.
How to stay one step ahead of an FCA thematic review
The regulator may never review your sector. It may already have done it. Or it may be planning a review in the near future.
Whichever is the case, keeping abreast of the FCA’s focus areas is one way to ensure your approach is in line with regulatory priorities.
A few key steps you can take:1. Understand the FCA’s priorities
As we mentioned above, a grasp of the regulator’s priorities is important. As well as the seven areas we highlighted above, the FCA’s annual Business Plan is also a good source of guidance.2. Have a robust risk management strategy
If your operations, product development, marketing and customer communications processes are robust and compliant, with an eye to minimising risk and regulatory compliance breaches, you are likely to be in a good place if the FCA decides to review your sector.
3. Identify areas where you potentially perform less well
Are there areas where you know your regulatory compliance could be improved? Do your financial promotions approvals meet FCA standards? Are your approaches around some of the FCA’s ‘pet topics’ – ensuring communications are fair, clear and not misleading, for instance – up to scratch?
Prepare for an FCA visit
If a thematic review in your sector does result in a visit for your firm, how can you prepare?
Our guide, How to prepare for an FCA visit, has a wealth of tips and advice for firms in this situation – and will also be of interest to any firm wanting to ensure they are following best practice approaches. You can download a free 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.