FCA: We’ve changed ‘tick-box’ approach, now you must too

Firms must not react to regulatory supervision “with tick box compliance” and should instead focus on a culture of doing the right thing, the FCA has said.

Clive Adamson, director of supervision at the FCA, issued the warning as he unveiled four guidebooks outlining the regulator’s “fundamentally different” approach to supervision to an audience of chief executives at a briefing last night at Canary Wharf.

He said the guides – one each for C1, C2, C3 and C4 firms – are designed to explain the regulator’s thinking on supervision one year after its inception, and should help firms understand how to comply with its new “outcomes focused approach” to supervision.

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He said: “Had we written these guides a year ago I think they would have been somewhat long winded and a bit vague. We waited in order to get clarity.”

The guides, which are each between 25 and 32 pages long, set out a summary of conduct supervision activity, 10 supervision principles, expected interaction with the regulator and supervision examples in practice for firms in each of the four size categories.

Mr Adamson warned that firms should now be focusing on their business models and whether structures and cultures within them posed risks to the outcome for customers. He added firms should “focus on how the business is run not controlled”.

He said: “While the industry has criticised the former FSA for what they regarded as a tick box supervisory approach, equally we are asking the industry not to react to what we’re about by themselves adopting a tick box compliance approach.”

He warned the challenge many firms were facing was how to “evolve current business models into ones that must be safer from a conduct perspective”.

And he said a firm’s culture should not be a “fluffy view about corporate aspirations or value statements” but should rather be “much more hard-edged and embedded in business practice that defines how decisions are made through the firm at critical points of engagement with the customer”.

Mr Adamson added that the FCA was “very optimistic” that firms could achieve an alignment of the firm, market and customer’s objectives but admitted it was only possible if the regulator could “build trust with the industry”.

He said: “It’s very important we are a listening and engaged regulator that understands the journey firms are going through. And we accept that this will take time.”

Robin Fieth, chief executive of the Building Societies Association, said the guides were “a clear and straightforward summary of the FCA’s approach to all sizes of firm”.

He added: “We need a conduct regulator that acts in a clear, transparent, consistent and proportionate fashion and on the back of plain simple principles and rules with real focus on the customer outcome.

“I am delighted to see the back of bureaucratic box ticking as will our members be I’m sure.”