8 best practices to maintain FCA compliance
30 April 2021
There is no better time to brush up on your FCA compliance practices. With SMCR regulation now underway and the FCA having recently revised their guidance on how to treat vulnerable customers, as well as new initiatives and focuses emerging around mis-selling, cryptoassets and claims management, it is clear that the world of regulation is constantly updating and changing.
As the priorities of the regulator become ever more demanding and complex, how can businesses best meet their obligations to maintain their FCA compliance?
Ensuring stringent conduct in the UK’s financial services sector
Sound governance and clear regulations are imperative in the high-risk industry of financial services, especially in our modern-day era of rapid digitalisation.
The Financial Conduct Authority (FCA), overseeing nearly 60,000 firms within the market, sets the gold standard for financial regulation in the UK. They are responsible for protecting customers, encouraging healthy competition and increasing the overall integrity and transparency of the UK’s finance sector.
Unsurprisingly, this has placed increased pressure on businesses.
The importance of complying with the FCA regulations
With consumers being understandably cautious about where to invest their money, FCA compliance not only helps to establish trust and confidence – thus stimulating competition and growth - but it also provides a stark reality check for businesses offering different types of financial services.
Conversely, non-compliance may instigate a wide range of enforcement and disciplinary actions for those failing to follow the rules, including suspensions, court orders, damaging press releases or even substantial fines. All of which could have a devastating and long-lasting impact on brand reputation.
Since adherence with the FCA regulations is non-negotiable, and the potential consequences of a breach too great to risk, firms need to be on top of their governance and compliance at all times.
How to remain FCA compliant
By following the right procedures, understanding your key responsibilities and maximising the benefits afforded by today’s regulatory technology, your business can more effectively maintain compliance amid the FCA’s shifting priorities. Here are our eight best practice recommendations:
Check all criteria has been met for FCA authorisation
For new businesses entering the financial services market, the first crucial step towards FCA compliance is to become officially registered with the regulator, completing all necessary reports.
As part of this, an approved person should be appointed in line with the Senior Manager Regime to oversee all FCA actions and decision-making. They will need to be deemed as ‘fit and proper’ and must be background checked.
Since the FCA will also need a detailed overview of your business’ purpose and how it intends to make money, transparent cash flows and robust systems will need to be in place to indicate whether the firm is viable and well managed enough to meet the minimum threshold conditions.
Understand FCA regulations and what is expected of you
Once you are registered with the regulator, you will need to ensure you understand and stay up to date with your FCA obligations.
A good way to do this is to read widely about any regulation that may affect you and your firm, such as SMCR and Training and Competency requirements. Ensure to follow the FCA’s announcements and updates and become familiar with the FCA website and handbook which outline their expectations.
Establish a strong culture of compliance
The FCA expects full visibility of how senior management decisions are conveyed to the wider business and how leaders deliver the ‘tone from the top’. With corporate governance, ethics and culture being cornerstones of FCA compliance, individuals on the Board have a crucial responsibility to guide employees based on their own behaviour.
This begins with a solid communication structure, as policies and procedures will be regularly scrutinised by the regulator to ensure information sharing is active and consistent throughout all levels of the organisation. Training and incentives can also help, as can software by making compliance tasks easier and outcomes more effective.
Remember, FCA regulations are not something that can be adhered to, ticked off and then forgotten about. The FCA want firms to approach compliance as something that is a moral duty as opposed to a tedious exercise. It’s about always striving to do the right thing and having measures in place to support this.
Own your responsibilities
When it comes to FCA compliance, the regulator’s stance is firm: compliance is your responsibility and you must also be prepared to accept accountability if misconduct occurs.
Not doing so runs the risks of the FCA taking action against you. Peter Johnson, for example, was fined for not acting with integrity as well as for misleading the regulator within his role as Compliance Officer at Keydata Investment Services.
If you own your responsibilities and work with the regulator, you will be contributing to the FCA’s vision of an improved culture – one where everyone working in financial services embraces compliance and accountability to improve the industry for the better.
Prioritise client feedback
With a key focus for the FCA being the fair treatment of customers, it is not surprising that how a business handles feedback from clients is an important part of meeting FCA obligations.
Feedback may concern shortcomings that need to be addressed, such as GDPR failings, as well as highlighting room for improvement in areas such as the customer experience.
Whether client responses are positive or unfavourable, feedback is a valuable asset and as a result, the FCA requires management to routinely collect this information whilst teaching customer-facing staff how to appropriately deal with any criticism.
Regularly upskill staff
The regulatory landscape is ever-changing which means financial services firms cannot afford to stagnate. As new methods and practices emerge for staying on top of FCA compliance requirements, it’s imperative that staff keep up to speed.
Under SMCR, for example, almost all staff must be trained in the conduct rules. This further feeds into creating the improved culture that the FCA envision; staff should be competent within their roles and feel empowered to support compliance efforts.
Regular training and workshops can help with this by developing staff, as well as ensuring employees understand their current responsibilities as regulations evolve over time. Refresher courses can also help to boost existing skills, fill any knowledge gaps and reduce the likelihood of a compliance breach. Testing can also help with ensuring that staff have a good understanding of their FCA obligations.
Vast amounts of documentation are a given when it comes to regulatory compliance. The FCA is no exception since it requires sufficient records to fulfil its supervisory commitments.
Such records should include information pertaining to financials, risk exposure, learning and development, competence, third-party contracts, recruitment and supervision, and should be kept for a minimum of five years before being deleted or destroyed.
After all, it is rarely enough to simply comply. SMCR, for example, dictates that firms must also be able to provide evidence of their compliance.
Another consideration is to ensure that all documentation is stored securely, which brings us swiftly to our final recommendation.
Invest in compliance RegTech
While FCA compliance ultimately remains your responsibility, RegTech has become an integral part of automating the many and onerous tasks associated with meeting the FCA’s standards, driven in part by the rising costs and complex demands of regulatory compliance.
Not only does compliance management software help to cut costs but it also streamlines processes, securely stores sensitive documentation and delivers valuable insights through data and analytics functionality. By improving efficiency, reducing hassle for customers and highlighting compliance gaps, RegTech is an undisputed source of competitive advantage and is pivotal in supporting firms to remain compliant with the FCA.
Discover how to meet your FCA compliance obligations in the key priority area of the Senior Managers and Certification Regime by visiting our latest SMCR resource hub.
SMCR resource hub
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