For many firms, current working methods, processes and procedures are far from ‘business as usual’. Most financial service firms have had to adapt to a new world of remote working and social distancing; nothing is the same. However, those changes are the simple bit, the complicated part is continuing with business transitions in a compliant manner, even though customers are looking at new ways of working with firms and buying products. And all this while staff and compliance teams are spread across multiple locations. As we work through to whatever the new normal is, it is becoming clear that what is certain is that ‘business as usual’ is a long way off for many firms. The exception to this is the Regulators – especially the Financial Conduct Authority.
While the FCAs final ‘outputs’ are the conclusion of many months of analysis and consultation its recent flush of decision notices show that it is ‘business as usual’ as far as it is concerned.
Firms need to rethink their processes for oversight and challenge
- First, we received a notice of a £64m fine, which would have been £91m were it not for an early settlement discount, in respect of a bank failing to fully rectify failings in their mortgage arrears handling activities. We also learn, in the decision notice, that a ‘step 2’ penalty of £152m was also considered.
- In the same week, we learn of a £37m fine, which might have been £54m (if an early settlement was not applied) and where a step 2 amount of £163m was considered, for anti-money laundering failings.
- And we now see the FCA has highlighted significant failings in advice practices via a damming report on the equity release advice market. How can that sector get it so wrong? Advice processes should have been perfected over the last several decades, especially as that sector has had so much experience from mis-selling scandals. Despite, that the conclusions were, a number of firms did not always sufficiently take into account consumers’ personal circumstances, didn’t challenge consumer reasons for looking at equity release and weren’t always able to evidence that their advice was suitable.
So, while many firms are content to ‘pat themselves on the back’ for managing through the crisis there is no let-up in BAU for the FCA, and there should not be for regulated firms either.
So, what is the message for risk and compliance teams? Tempting as it might be, there is no time to bask in the glory of keeping business rolling while staff are spread far and wide, now is the time to double efforts. FCA decision notices often show that firms take misguided comfort from their well-documented systems and procedures. Ironically, comprehensively documented policies and ‘oversight’ outputs often give a false sense of security and are not ‘challenged’ because no one thinks to question the status quo. Firms need to rethink their processes for oversight and challenge. Business owners and those responsible in businesses, board risk/compliance committees or boards depending on the size of the business, need to consider how to improve the independence of oversight functions and challenge. Not surprising then that the best third line is often an independent external company, eliminating the issue that sometimes things just get a little too comfortable! Afterall, do you really want the oversight functions attending the same summer barbeque as those they are checking!
