Last week, New Model Adviser reported that the Financial Conduct Authority had visited five SIPP firms. The firms in question were identified as being at a higher risk of not being able to respond to potential compensation claims.
This seems like a good opportunity to have another look at our advice on preparing for a visit from the regulator.
If the FCA visited your firm, how would you cope? How prepared is your firm for a regulatory visit?
What were the recent FCA visits about?
In October, New Model Adviser reports that the FCA wrote a warning letter to the chief executives of SIPP providers about potential compensation claims.
In the weeks following this, the Authority apparently visited five firms it considered were at risk of not having sufficient professional indemnity (PI) insurance cover for possible claims.
Why might the FC visit your firm?
The prospect of an FCA visit to your firm can be daunting. But a bit of forward planning can help you to be prepared if it does happen.
Understanding the reason behind the visit is a vital first step. The regulator might visit a firm because:
- It’s carrying out a sector-wide thematic review
- It has particular concerns about your firm (as in the case of the visits NMA reported on)
- There are issues with, or complaints about, your financial promotions
Whatever the driver, if you know why the FCA is coming, you can be better prepared.
Will you know if the FCA plans to visit your firm?
Yes, you will.
If the regulator plans to visit, your CF10 will receive a letter advising you of the proposed visit.
Only in very rare situations – for example, when fraud or other serious wrongdoing is suspected – will the FCA turn up unannounced.
What is the possible impact on my business of an FCA visit?
Potentially, the impact could be very serious.
A visit might result in fines, the suspension or withdrawal of your financial promotions or a ‘Section 166’ review. In the most extreme cases, it could result in prison sentences or the compulsory withdrawal of your products from the market.
All of which, of course, could cause long-term reputational damage to your business.
But, although any of these are possible, it’s usually more likely that the regulator will be satisfied with what they see.
And there’s a greater likelihood if this you’re well-prepared for the questions they ask and the things they want to see.
What happens in an FCA visit?
The regulator’s objective is to understand your firm and your business model. They will want to know about your business plan and objectives, and how you are working towards them. What are your processes and procedures; are they robust and do they measure up to FCA requirements?
If there are any areas where they have concerns – for example, if your financial promotions have been non-compliant in the past – they will focus on these. In the case of financial promotions, for example, the regulator would want to know things like:
- What approval processes do you have to make sure non-compliant promotions aren’t issued?
- How do you manage the review and withdrawal of financial promotions?
- What is your record-keeping like? Do you have a compliant audit trail of your review and sign-off procedures for financial promotions? Are full version histories and copies of the final promotion kept on file?
- How do you approach compliance for digital marketing, including your website and social media? This is often overlooked when it comes to compliant processes, but in fact digital financial promotions need to adhere to the same guidelines as promotions via any other channel.
How can we prepare?
There are lots of ways you can take a proactive approach to FCA compliance, even without the prospect of a visit.
Keeping an eye on the regulator’s plans and objectives; ensuring your risk management strategy is robust and enforced; making sure your documentation and record-keeping is up to scratch; producing compliant financial promotions.
Free guide on preparing for an FCA visit
If a visit from the regulator is imminent, you have a real impetus to get organised.
If this is the case – or if you just want to be prepared – you can download our guide, How to prepare for an FCA visit, written by compliance expert Christopher Hall.
It has a wealth of tips on preparing for the FCA if they decide to visit your firm, along with 13 questions you should ask yourselves before the regulator arrives. The Guide is free, and you can download a copy here.
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.