A reader recently commented on media releases from various regulatory bodies, complaining that it contains fancy sounding, but confusing terminology for the normal adviser who is only really interested in how changes will affect him or her, and what he/she is required to do.
Alan Holton of Compliance Monitoring Systems recently drafted a summary of the Financial Sector Regulation Bill in which he clarified some of these phrases:
When performing its function, the Financial Sector Conduct Authority (FSCA) must have an approach that is primarily pre-emptive, outcome focused and risk-based.
A pre-emptive and proactive approach will mean that the authority will not be confined to responding to complaints but will conduct on-site visits, thematic reviews, off-site reporting and even do some mystery shopping. A pre-emptive approach means addressing risks at their source such as the organisation’s culture, governance and structural interventions.
An outcomes-focused approach means that organisations will be required to demonstrate delivery of TCF outcomes. There will be on-site and off-site testing of TCF commitment and in particular, the testing of complaints handling.
A risk based approach will entail a focus on leadership’s insight into and accountability for addressing conduct risks. In particular, whether or not risk management frameworks are geared to identify and manage conduct risk.
The Bill contains guidelines on how the Conduct Authority should proceed in such matters. We will discuss this in more detail in future articles.