Law firm slams FCA’s new small firm focus

Law firm CMS is critical of the Financial Conduct Authority’s new strategy, deeming the promise of a sharper focus on small firms as little more than a statement of business.

Yesterday (8 December) the FCA announced a shake-up which will see two divisions created from next April, allowing a clearer distinction between large and smaller firm regulation.

The main structural changes include bringing together the authorisations and supervision divisions with specialist supervision functions such as financial crime and client assets, creating two distinct units.

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It was also confirmed, following widespread speculation, that several executive committee members, including Clive Adamson, will leave the regulator.

Simon Morris, a partner at law firm CMS, said: “Coming only 18 months after launch, and with policy and markets unchanged, ‘Our Strategy’ echoes the familiar themes of the original ‘Road to the FCA’ manifesto.

“In fact, it’s not a strategy at all, because a departmental reshuffle and a promise of a sharper focus on small firms, amount to little more than a statement of business as usual.”

Law firm Clifford Chance is currently examining the way the FCA briefed a highly sensitive story to the Daily Telegraph; the outcome of which is expected this week.

In April, chancellor George Osborne publicly reprimanded the FCA for disturbing markets with its briefing, stating that he was “profoundly concerned” after the story sent insurance shares spiralling, before the FCA rushed out a statement clarifying the review.

FCA chief executive Martin Wheatley admitted the regulator’s handling of the probe into so-called zombie insurance funds that caused a ‘disorderly market’ was not the FCA’s “our finest hour”.

Mr Morris said: “That said, it’s a convincing backdrop for the coincident departures – before the official investigation is published – of the two hapless individuals who inadvertently leaked the FCA’s business plan earlier this year and sent insurers’ shares tumbling.”

Andrew Tyrie, chairman of the Treasury Committee, added: “Serious concerns have been raised – not least in Parliament – about the way that the FCA has approached its responsibilities since it was formed in April 2013.

“The Treasury Committee and others will need to examine in detail the FCA’s strategic review, and this consequent restructuring, to see whether they address the concerns raised.

“The FCA needs to exercise judgement to secure much better outcomes for consumers, not least by engaging more with the regulated community, by increasing competition and, where necessary, enforcing higher standards. It is on that basis that the review should be judged.”

He added that it is also “crucial” that the FCA learns any lessons to come out of the Clifford Chance report.

Mr Tyrie added: “The Treasury Committee was instrumental in ensuring that the apparent major error by the FCA in March 2014 was subject to independent external review.

“The committee intends to take evidence on both the pre-briefing inquiry and the strategic review in the coming weeks, initially from Mr Davis on his report.”