FCA publish Approach to Supervision and Approach to Enforcement

On 21 March 2018, the FCA published two consultation documents setting out its Approach to Supervision and its Approach to Enforcement. The documents are designed to provide more clarity and detail about the FCA’s approach to regulating authorised firms, and follow on from the FCA’s Mission, in which it committed to publishing documents that explained its approach to regulation in greater depth. The consultations are open until 21 June 2018, with final documents expected later in 2018.

Approach to Supervision

The Approach to Supervision document sets out the FCA’s purpose of, and approach to, supervising firms and individuals.

There are interesting insights into the structure of the FCA supervision teams. The document notes how the FCA supervises most firms as portfolios of firms which share similar business models. These portfolios are analysed and a strategy is agreed regarding action to be taken on firms posing the greatest harm. The FCA has stated that they dedicate a supervision team to each of the small number of firms with the greatest potential impact on consumers and markets. Interestingly, the document does not repeat Andrew Bailey’s recent commitment to consumer credit firms that there will be a named supervisor for each portfolio of firms.

The Approach to Supervision also sets out the FCA’s supervisory principles, which it sees as complementary to the Principles for Business contained in the FCA Handbook. Interestingly, these do not align directly with the FCA’s supervision principles set out in SUP 1A.3.2 and may reflect the FCA’s updated thinking. Although some of the key themes in the existing principles are retained (for example, forward looking and consumer-centric), there is a reflection of the FCA’s increased emphasis on culture and governance, as well as individual (as well as firm) accountability.

Chapter three focuses on the FCA’s priorities and focus, and provides more detail about what and how the FCA prioritises issues generally, and in relation to particular markets. It emphasises that the FCA’s supervisory approach focuses on business models, culture and individual responsibility.

Finally, there is more detail about how the FCA supervises and its decision-making framework. The document provides further detail about how the FCA identifies harm, diagnoses issues, approaches the exercise of its remedy tools (more detail on this can be found in the Approach to Enforcement document below) and evaluates its supervisory activities.

It is not entirely clear from the paper the extent to which the FCA will incorporate the Approach to Supervision into the existing SUP 1A chapter of the FCA Handbook.

Approach to Enforcement

The Approach to Enforcement document sets out the FCA’s purpose of, and approach, to enforcement explaining how that approach aligns with its Mission.

The document reflects the FCA’s commitment to achieve fair and just outcomes in response to misconduct. According to Andrew Bailey, FCA Chief Executive, the “overriding principle is to provide substantive justice, aiming to achieve fair and just outcomes in response to misconduct and to ensure our rules and requirements are followed“.

Interestingly, the FCA recognises the inefficiency of severe penalties and sanctions alone in reducing and preventing serious misconduct and concludes that misconduct should be better detected and subsequently more efficiently investigated. To that end, the FCA works with both regulators and law enforcements agencies in the UK and overseas, as well as international regulators and makes full use of all intelligence and data collected.

Chapters three and four of the document provide more detail on the process followed when opening an investigation and the sanctions and remedies available to the FCA once the investigation has come an end. The FCA notes that the timeliness of the investigations determines the public perception of the work undertaken and equally recognises that it is important to be open and transparent when mistakes are made and regulatory action is not sufficiently efficient.

More information on the FCA’s approach to enforcement can be found in the FCA Enforcement Guide, the Decision Procedure and Penalties Manual and the Annual Enforcement Performance Account. The FCA is planning to review its Penalties Policy, as well as its Enforcement Guide, with consultation papers coming out later this year and in 2019 respectively.