13 questions to ask compliance before the FCA visits your firm

May 16th '17

If your firm is told to expect a visit from the Financial Conduct Authority (FCA), your first reaction is probably one of slight panic.


  • Why is the regulator visiting?
  • What do they need to know about the firm?
  • Are there specific issues they’re concerned about?
  • What do I need to do to ensure the firm presents itself well?


The good news is that firms can do a lot to plan for an FCA visit. Preparation is the key to a successful outcome – and being prepared will certainly lessen your apprehension about the upcoming visit.


Here we examine in more detail some of the areas you should be discussing with your Compliance team:


 13 questions to ask compliance before the FCA visits your firm:


  • How does our sales process work?

One of the things the regulator will be looking for is assurance that you have clear processes, understand them and follow them. The sales process is a good example, as the FCA is very keen to ensure firms are ‘treating customers fairly’ when it comes to their marketing communications. Financial promotions need to be ‘fair, clear and not misleading’ and the sales process that supports them needs to reflect this.


Make sure you are clear on what your sales process currently looks like. Identify the measures you have in place to monitor its effectiveness.


  • What management information reporting is in place? 

Ensuring that firms are monitoring and continually improving their processes is important to the FCA. They will want to know what management information (MI) you gather and what you do with it to measure and refine the effectiveness of your operations.


  • How do we identify and record risks to the business?

Any risks, whether operational or borne out of your financial promotions and customer communications, need to be identified, recorded and responded to. Again, the regulator will want to see that clear processes for this are in place.


  • How are management decisions communicated to staff?

An efficient and compliant financial services operation needs to make sure that all management priorities, decisions and instructions are clearly conveyed to employees. This covers not only the more tangible elements – operational procedures and firm policies – but the less tangible ones too.


  • What sort of culture does the firm have?

How does management communicate and demonstrate the behaviours the firms expect around ethics and corporate governance?


The regulator will want to see that employees, partners and any third parties are clear on how things are done, operationally and culturally.


  •  How does senior management get input/feedback from clients?

Seeking, analysing and acting on client feedback is important – it enables firms to identify any shortcomings and continually improve their customer service. Find out how your firm does this, if you don’t already know. Ensuring feedback is responded to and issues arising are dealt with is as important – maybe more – than carrying out the research itself.


  •  If we use external advisers, how are they monitored and supervised? 

The FCA is keen to ensure that advisers working as representatives of regulated firms, are appropriately monitored and their activity supervised. You will need to demonstrate how you achieve this with any external advisers you use. Find out how you keep checks on their activity and their methods of operation, systems and processes. They need to comply with regulatory requirements in the same way that you do.


  • What training arrangements do we have in place? 

Whether it’s procedural or cultural, training is an essential element of ensuring your firm is equipped to comply with the FCA’s guidelines. You will need to be able to answer questions about the training you have in place, how you ensure it is understood and embedded into your ways of working, and how you keep track of competence and understanding.


  •  How do you monitor ongoing competence? 

Remember competence is not just having the appropriate qualifications; it includes achieving a good standard of ethical behaviour and having the skills, knowledge and expertise needed. ‘Ethical behaviour’ is an important concept to the FCA, but a very subjective one. Evidence and examples of your firm’s behaviour can help to make this more concrete – you will need to find out what processes you have in place around this before the regulator’s visit.


  • How are financial promotions monitored, approved and archived? 

Having a clear process for financial promotions approval is likely to be one of the key things the regulator is looking for. Often, a visit will be prompted by an issue with a financial promotion, as this can be the most public manifestation of your firm’s activities. The regulator will want to see that you are meeting its requirements around marketing compliance reviews. Record-keeping is also an area the FCA is very hot on: is your financial promotions audit trail and archiving up to scratch?


  • Do we keep records of staff recruitment, training, competence assessment and staff supervision?

Another area where the regulator is very keen to see accurate record-keeping is staff training, recruitment and ongoing management. As above, it’s very important to evidence that employees are told and shown the right ways to deal with customers; your expectations around the way your business is conducted; and your communications with customers. Make sure you can evidence that recruitment and training are carried out compliantly.


  • What compliance services do we have in place when working with a third-party supplier?

The regulator requires that any third parties are managed with the same degree of thoroughness as your own operations. If you outsource to third parties, have you done due diligence on all your suppliers? These third parties are not necessarily regulated themselves. How do you work with them? Have you checked that they have the appropriate controls and support?


  • If we rely on an external supplier or consultant for compliance support, how does senior management engage with them?

Increasingly, the rise in regulation and lack of compliance expertise available means that firms are having to rely on external consultants and contractors to fill the skills gap. But you cannot simply outsource and take a ‘hands off’ approach. Senior managers need to demonstrate that they have a handle on what your external providers are doing. Find out how your firm deals with this.


  • How do we document senior management decision making?

Decisions made by the firm’s top leaders are what drive your operations, strategy and culture. How are these decisions made – and how are they documented? Accurate audit trails of management choices are important in identifying how your firm decides on its approach and ways of working. The regulator will want to see accurate and complete board minutes, for example, or other records of management discussions and decisions.


A visit from the FCA can be a daunting prospect – but by talking through the answers to these questions with your Compliance team, you should be well prepared for anything the regulator wants to know.


We’ve teamed up with Perivan Technology, to create a free guide on HOW TO PREPARE FOR AN FCA VISIT. It contains a wealth of tips on how you can be ready for the FCA if they decide to visit your firm. The guide is free, and you can download a copy here.


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