The FCA is going through a series of internal changes (as set out in its 2022-23 Annual Report) and these may influence the pattern of its supervisory interventions and enforcement work. If you are tasked with managing your firm's supervisory and enforcement risk then you'll want to read the tea leaves.
New ways of working
- On the FCA's Data Strategy, it initially forecast spending £120m; from 2019 to 2021 it spent £103m and in 2022-23 it spent a further £33m, primarily on speeding up its case management and triage processes so as to intervene faster on high-risk areas; extending its Single View capability to all sectors to identify outliers and "problem" firms faster, sourcing new data to deliver faster insight and delivering data literacy training to all employees.
- The FCA reports that it has introduced a new approach, which it calls the "Path to Harm", so as to "model how harms develop and find the opportunities to intervene earlier". The model "identifies early warning signals of a developing harm and the data we can use to turn those signals into actionable intelligence", which it says is "helping us to identify earlier opportunities for interventions and action to be taken". (Perhaps this has borne early fruit on client assets in the form of the FCA's review of over 3,000 CASS audits alongside other data sources like regulatory returns, then follow-up with firms on over 1,100 CASS concerns and use of regulatory tools to resolve issues.)
- The FCA repeats its desire to leverage data and technology in the service of assertive interventions. It says it is "improving how we assess and allocate supervision firm case work and design digital tools to improve consistency" and investing in tech that has "improved our ability to analyse significant amounts of data" in the service of intervening and preventing harm at scale.
This new focus on use of data and models is likely to alter the territory within which the FCA will spot issues and the pattern of its decision-making when it comes to intervening. For example, it may result in more frequent identification of issues that are more sector-wide and systemic; more frequent identification of issues arising within specific business units (and smaller firms); and faster and more volatile preventative interventions (with the attendant risk of them being insufficiently informed - careful management of all supervisory contact will be essential).
With any luck, the FCA's case management and data analytics improvements help speed the progress of interventions and enforcement cases through the FCA's pipeline. (It's much needed according to the Upper Tribunal.)
More settled roles
The FCA has offered more clarity on where the different interventions/enforcement work sits. And it looks like the Enforcement team is keeping control of supervisory interventions work (some were wondering where this would land in the wake of the RDC reforms and the FCA's newly assertive supervisory appetite).
The Enforcement team contains:
- The Threshold Conditions Team (TCT) which works on Threshold Conditions cases. These include failures to meet standards, failures to submit required Returns or Attestations, failures to pay fees, and the FCA's Use It Or Lose It (UIOLI) work to remove permissions from firms that don't use them.
- The Interventions team, which works closely with the FCA's Supervision, Policy and Competition Division (SPC). The Interventions team opens an intervention case when SPC raises concerns with the Interventions team. The Interventions team takes action ranging from informal engagement through to obtaining undertakings or VREQs or using own-initiative powers.
The FCA has formed the Financial Promotions and Enforcement Task Force (FPET) to "intervene more assertively against financial promotions breaches". The FCA's systems now analyse approx. 100,000 websites each day to identify scams, following which the FCA issues take-down requests. These efforts have seen early success - see the chart here.
And the FCA has established a new department to "lead our cross-FCA strategy on ARs and high-risk casework". The FCA's supervisory interventions Jul 2022 - Mar 2023 have seen principals terminating relationships with 153 ARs and 618 IARs. In the last year, 44% of new firm applications from former ARs were withdrawn or refused following FCA assessment; the FCA conducted at least 23 enforcement cases into principal firms re AR issues, and had 4 Skilled Persons reviews on principal firms in the AM space focusing on ARs.
So these areas could stay pretty active for a while yet.
Vague on ESG?
On the other hand, it's difficult to interpret the FCA's rather opaque statement that it has "worked to embed ESG considerations in all aspects of our regulatory activity. We have done this so we can intervene quickly where practices do not meet our expectations and take appropriate actions." Perhaps the proof will be in the pudding …
Give me the numbers
Read more about the FCA's rising case numbers and whether all these cases are bearing fruit in the areas of:
- Threshold Conditions, Interventions (OIREQs and VREQs) and Enforcement.
- Policing the perimeter and addressing unauthorised entities.
And as a bonus, learn more about the FCA's hiring spree.