In April this year, the CEO of the Financial Conduct Authority, Nikhil Rathi gave a speech as part of UK Fintech Week in which he detailed the FCA’s plans to establish a 'regulatory nursery' in the autumn of this year to ensure keener oversight of newly-authorised firms. Unveiling the plans, the FCA chief explained, "Currently, firms gain regulatory status and are treated in the same way as a firm with a long track record. The regulatory nursery will keep us in close contact with firms immediately post-authorisation so we can provide support and, where we need to, intervene earlier to steer firms in the right direction."

More detail is provided in the FCA’s 2021-2022 Business Plan where it details that the scheme will be a “robust gateway for new firms”, with higher standards and a “more intensive assessment and greater scrutiny of firms”. The scheme symbolises the desire by the FCA, to oversee newly-authorised firms, to ensure that they are complying with the rules and, significantly, to “identify potential harm early”.

Last month, approximately 30 firms chosen to take part in the pilot were contacted and from the information provided to these firms we have learned more about how the early oversight regime will work once it is extended to all newly-authorised firms. Firms will be allocated a dedicated team and a named supervisor at the FCA who will be the consistent point of contact for all queries within the initial 2-3 year estimated time frame. While this is quite an undertaking, it’s easy to see the logic behind the move from the FCA. If firms are set up the right way from the start, they will continue using the tools they have learned at the outset and this early compliance mindset will be embedded within their company culture.

The scheme can search out the inconsistences and gaps; where there is lack of involvement amongst senior management or in identifying those who are not delivering on their promises. It’s certainly a positive and welcome step within the industry, to flag up these concerns post authorisation allows time for any inconsistencies to be ironed out early. A step towards better communications and a regular conversation with the regulator will ensure firms are more aware of their regulatory obligations. It is, however, not a substitute for a firm’s own compliance function and, as the regulator itself recognises, firms may still require external compliance support.

Firms taking part in the scheme may find themselves questioning whether to build their compliance structure in-house or outsource their requirements to an external service provider. These decisions are dependent on the type of operation and the manpower contained within it. There simply may not be the scope or expertise in-house to manage this function internally, in a similar way to a legal or audit function. An experienced compliance consultant can fulfil this role and work with the firm to liaise with the regulator during this period of oversight. This creates a call to action for firms to decide what course of action they will take. During the oversight period, the FCA will be asking questions about governance arrangements which may be the catalyst for firms to reach out to an external service provider.

CCL Compliance has over 30 years of experience in providing compliance advisory services, working with clients to guide them through the complexities of financial services regulation. Our services include making recommendations where any gap areas may exist and suggestions for efficient remediation. We take the time to understand the needs and objectives of a business and provide it with efficient and practical solutions. We work alongside start-ups and well-established organisations, helping them to understand what is required by the regulator and working with them to deliver the necessary compliance tools, policies and procedures, manuals, and training in order to build their compliance framework.

The FCA’s new initiative does pose the question, however, as to whether the FCA has the resources to implement the project and provide ongoing support and supervision in an effective manner. The legacy of this scheme will be dependent on how well it is delivered and how sustainable it is in the long term but there is no doubt that there are significant benefits for start-up firms and the wider industry, as well as for consumers.

The FCA’s pilot scheme is certainly a positive step within the industry. For firms who are looking to work with a compliance consultant, it is important that they select the right provider and work together to give the regulators greater visibility. This key partnership will provide the newly-authorised firms with an in-depth understanding of their compliance obligations and the tools they need to build a sustainable compliance framework.

If you would like to discuss the impact of this article in more detail please reach out to Stuart Holman directly.

 

Stuart Holman

Managing Director – Consulting Services
London

TEL: +44 (0)20 7638 9830 MOB: +44(0)7464 548 060
EMAIL: sholman@cclcompliance.co.uk

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