Pimfa has said improvements are needed from the Financial Conduct Authority to stop firm failures and in turn reduce the cost of the Financial Services Compensation Scheme levy.
In a paper released today (July 20) entitled ‘Together We Grow’, the trade association said there has been a “sour debate” about the increased cost of the FSCS levy to well run firms, “who are ultimately left to compensate customers of failed financial institutions.”
While noting that stopping disorderly failures is a long-term mission requiring buy-in from both the regulator and the financial services sector, Pimfa said the aim of its paper is to concentrate on how the industry can mitigate against failure, improve the supervision of firms and reduce the size of the FSCS bill.
Pimfa acknowledged the FCA had made progress in the way in which firms are supervised, notably through plans to improve and update its processes, including investing in enhanced data solutions.
However, it said the FCA’s supervisory methodology remained "unclear", and that the process is not "transparent".
Pimfa’s head of regulation, policy and compliance, Alexandra Roberts said this showed there is still much to do “as firm’s often feel that the regulator doesn’t fully understand them and that better communication is needed.”
“A more data-led approach to supervision is certainly welcome, but this is a long-term project and we do not know how wide the positive impact will be and when we will start to see the benefit,” Roberts said.
According to Roberts, the last few years have seen a shift towards a more robust and resilient industry as it and the regulator faced unprecedented events such as the pandemic.
But she stressed it remains important that both the financial sector and the FCA continue to work together to ensure the risk of disorderly firm failures is mitigated against.
“The last two years have shown we can work together more effectively. We must continue to do so and improve,” she said.
Among its recommendations for the regulator, Pimfa called on the FCA to update its 2019 document “FCA Mission: Approach to Supervision” which describes why and how the FCA supervises.
Pimfa said the regulator should lay out its vision for “supervision in the future” and provide the methodology used to supervise and risk-assess firms.
It also asked the FCA to outline how, if any, the events in the last two years have impacted the way the FCA thinks about supervision.
In light of plans by the FCA to invest in enhanced data solutions to bolster its resilience, Pimfa said that while this is positive, data requests need to be relevant to the sector they are requested from and that blanket data requests can easily backfire.
It also said the regulator should minimise ad-hoc data requests as firms may have difficulties gathering the data in a tight time scale and this could lead to lower quality data.