Regulation  

‘Ignorance’ of new FCA power to intervene on recruitment

The chief executive of adviser support company Adviser Advocate said he was “shocked” at how many providers and advisers were unaware of the stringent threshold conditions for becoming and remaining an authorised firm.

He pointed to an amendment to the threshold conditions in the Financial Services and Markets Act 2000, which passed into law on 1 April.

The wording change in the criteria for required resources from ‘adequate’ to ‘appropriate’ gives the FCA greater powers to question appointments across the industry.

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Mr Leeson said: “If there has been communication from the FCA, it has not been effective because the sheer number of people within insurance companies who had not heard of these changes is indicative of how far reaching the ignorance is.

“I am shocked that providers have not been writing to advisers, making sure they understand the rules and offering support. It suggests that insurance companies are not as close as they should be to advisers.”

A spokesman for the FCA said: “The change in wording from ‘adequate’ to ‘appropriate’ lends greater clarity to the standards that we expect of people holding controlled functions within the approved persons regime.

“When assessing applications for individuals to hold controlled functions we have always expected that, from a firm perspective, these non-financial resources are adequate for their particular business.”

The spokesman added that individuals who failed the test could appeal to the FCA’s regulatory decisions committee.

Conolly Tunnard, compliance consultant for London-based OAC Actuaries and Consultants, said: “The FCA is moving away from an emphasis on financial adequacy towards asking questions such as: Have you got the right business model? Are you organised properly? Have you got the correct resources in terms of talent?

“We can safely assume that there will be more action on an ongoing basis, with the FCA undertaking more reviews of firms to ensure they are meeting all the threshold conditions”

Charles Portsmouth, director of international accounting and consulting network Moore Stephens, said there was a risk that smaller firms would adopt a “head in the sand” mentality when it came to interpreting the rules.

He added: “Firms must be proactive in making sure they comply with the conditions. The notion of ‘these rules do not really apply to me’ is possibly prevalent among smaller advisory firms.”

John Everett, principal of London-based financial services regulatory consultant Bovill, said the expanded threshold conditions would ultimately “make it easier” for the FCA to take action against firms it does not like.