The FCA’s approach

The FCA aims to use forward-looking and judgement based regulation. Regulation is carried out using a combination of methods including regular assessment of firms’ conduct, regular project work based on sector risk assessment and direct response to events as they arise. The frequency and intensity of firm assessment is linked to the nature of the business undertaken and the size of the firm.

In determining priorities and their regulatory response the FCA considers the risks posed by firms to their statutory objectives.

Senior management must take active responsibility for the way their firms conduct their business. This is reinforced by the Senior Managers and Certification Regime which applies to Insurance Intermediaries from the 9th December 2019. Responsibility for compliance is assumed to start at the top. It is the chief executive (or equivalent managing body) who is seen to have control of the business and they (the principal) need to understand and appreciate the obligations that the regulations impose.

The principal cannot pass liability on to the compliance officer. The principal may not be the only person to hold responsibility and certainly with larger firms he may appoint directors and or senior managers with individual responsibility for controlled functions. Controlled functions are those roles in the business that are specified in the supervision guidance in the Handbook and are the backbone to how the FCA see businesses being controlled and managed.

The business must:

• have proper systems and controls in place;
• have individuals responsible for controlled functions approved by the FCA; and
• adhere to guidance of good business practice.

To achieve these requirements the business should incorporate them in its business objectives and planning.

Regulation should be seen as something which helps businesses grow rather than something that will hinder them.

The FCA adopts ‘principle based regulation’, which means that firms need to meet the overarching principles for business (PRIN) and also examine consumer outcomes. This should provide firms with greater flexibility although they will need to think how they should meet FCA rules and guidance.