Member Article

July was a busy month for the FCA in publishing guidance, policy and rules which have a significant impact on a firm’s relationships with its senior managers and staff. 

On 30 June, and towards the beginning of the “crypto winter”, Sarah Pritchard, Executive Director of Markets at the FCA gave a speech to the City UK Annual Conference entitled “Finding Opportunity in a World of Uncertainty”. In summary, her message was that every action to be taken by firms should have three core aims: reducing and preventing serious harm; setting and testing higher standards (in ESG and D&I); and promoting competition and positive change, and that the FCA’s role was just “like raising a family,” where “boundaries, consistency and agility are crucial to ensuring the integrity of markets.”

While there was no direct mention of senior management or other staff responsibility (or culpability) in her speech, the touchpoints for the FCA’s attitude towards individual responsibility all are there: she says that the FCA “will be watching the market and have set clear expectations” that firms will take steps to comply; and it is a truism that firms cannot demonstrate compliance without the positive acts and support of their staff.

At the end of July, the FCA released the final rules on its new “Consumer Duty.” This update is not the appropriate place for a detailed discussion of the new rules pursuant to which firms are expected “to not just prevent harm, but to show that they are actively trying to meet their customers’ needs – in product design, in how products are described and sold and in post-sale customer service.” More detail and analysis may be found here, on Shoosmiths’ “Consumer Duty Hub.”

For present purposes it suffices to say three things: first, even though a majority of the rules become effective at the end of July 2023, every affected firm must have completed its implementation plan by now. The deadline was October 2022 (this was an unexpected last-minute addition); even firms which do not themselves directly have “consumer” clients may be effected by the Duty; and every affected firm must appoint a board-level “champion” to take responsibility for a firm’s compliance and oversee the roll-out and success of the firm’s compliance (again, this was an unexpected, last-minute addition).

The challenge for firms, therefore, is not merely implementing a new set of rules (including a new FCA Principle), it is that firms must identify the board-level “champion”, agree KPIs and deliverables with that “champion” and (most likely) re-write that person’s job specification.

Some of us familiar with the FCA’s previous forays into board-level “champions” in areas such as use of artificial intelligence and conduct & culture will be cynical about the actual positive impact of having a “champion”, but exceedingly wary of FCA’s forbearance towards firms which cannot demonstrate the appointment and culpability of one individual as champion of the rule in question.

Two final points on the “champion”:

1. on the basis of previous experience, the FCA will regard the role as one appropriate to a board member not otherwise directly involved in regulatory compliance: this is not a CCO role; it is a role the FCA will expect board members with “front office” executive roles to assume. The FCA has published guidance that it expects the champion to be a NED, although there are circumstances where it could understand the champion being the board Chair. Every NED and director will need to be familiar with the rules, the risks to the firm and the firm’s implementation plans and to be able to “hold the executive management’s feet to the fire” robustly. Training for all is key to ensure that each board member has the appropriate MI at his/her fingertips;
2. as our employment colleagues see regularly, staff members who are “under-performing” do decry the support they have received from their employer to ensure that they did (over-)perform: performance is a two-way street. Having a “champion” and giving the “champion” responsibility counts for little unless that “champion” has a support network and ecosystem to enable them to champion their particular cause. 

Generally, the FCA also is publishing more guidance on and requirements in relation to vulnerable consumers and the cost of living crisis. The FCA’s supervisory and enforcement agenda over the coming period will most likely focus on what firms’ management is doing to ensure that business lines, new (and existing) products and services and communications protect vulnerable consumers.

 

Link to article