In a 13-page paper, Tackling Serious Failings in Firms, the regulator said enhanced supervision would be a formalisation of how it will supervise the industry in practice.
According to the paper, the introduction of enhanced supervision – which the regulator said it only expected to use in exceptional cases – was intended to address the Parliamentary Commission on Banking Standards’ recommendation last December of a special measures tool.
The paper said: “Our supervisory approach is focused on the root causes of failings in firms. Where a serious failure of standards poses a risk to our objectives, and our normal approach may not enable us to tackle these issues in a timely way, the firm will be made formally subject to enhanced supervision. We expect this to occur only in exceptional cases.
“Key features of the approach will be a review of the supervisory strategy and, where necessary, we will require formal commitments from the firm’s board to address underlying issues. This will include consideration of the use of other tools and powers, including the imposition of requirements under s55L of the Financial Services and Markets Act.”
The regulator outlined six key failings that could lead to enhanced supervision, including significant and repeated conduct failing.
The FCA said that once a firm was placed in enhanced supervision, supervisors would ensure there was a plan in place to return the firm to normal supervision by a specified date.
Six key failings
An observation of significant conduct failing or repeated failings that when examined individually might not be considered serious.
Problems in business areas.
A poorly functioning board.
Evidence of control areas such as risk compliance and internal audit being poorly managed or under-resourced.
Evidence of weak risk management.
Evidence of other weaknesses in the way the board and senior management influence key cultural factors.
Adviser view
Nick McBreen, an adviser with Worldwide Financial Planning in Cornwall, said: “Regulation is a rolling treadmill of changing requirements which seem to be concentrated on failure and default. If there are failings, it is a concern for everyone in the business, but the regulator needs to do more to motivate the industry and help everyone raise their game. We know the regulator is not a business coach, but maybe something that would help us reach our goals and inspire us might be better than a paper which just looks at the negatives.”
