Conduct regulation, roundtable and discussion

Conduct Regulation
30 January 2014
Mutual One Limited is a subsidiary of Baker Tilly Business Services Limited.
Mutual One Limited (No 3497117) is registered in England and Wales, registered office 255 Farringdon Street, London EC4A 4AB.
The term "partner" is a title for senior employees, none of whom provide any services on their own behalf.
The FCA Approach
Conduct Regulation
Key Conduct Risks
The FCA Approach
Conduct Risk goes far beyond the six Treating
Customers Fairly outcomes
The key principle for firms to consider is
Principle 6: A firm must pay due regard to the
interests of its customers and treat them fairly.
The FCA Approach
The FCA’s approach to conduct risk is based on:
• Governance and Culture
• Product Design and Governance
• Sales and Transactions Processes
• Post Sales Handling
Conduct Risk Regulation
Oversight Structure
Reward and
• Right persons in the right positions – alignment of skill sets
• Persons need to have correct training – specific to their roles
• Persons need to feel able to identify, highlight and challenge
areas where they feel there is undue conduct risk.
• There is a need for clarity in the firm’s strategy and risk appetite
• All stakeholders need to understand how the strategy and firm’s
conduct risk appetite links to the business model, products on
offer, the distribution cycle, and operational approach.
• Board
• Sub-Committees
• Working Parties
• Embedded within change management processes.
• Reward and remuneration applies to all levels of the firm, from
Board to Distribution functions.
The Conduct Regulation
What is required...
What ‘good’ looks like...
Ensure that the firm’s customer culture is
demonstrably at the heart of the business
•Strong leadership from the top
•Consistent message throughout control
•Responsibility and accountability at all levels
Have proper regard to regulatory principles as
well as rules
Firms actively embracing FCA guidance through
its handbook, policy statements and speeches,
rather than waiting for regulation to be
enshrined in rules.
Ensure the Board has assurance and can trust
the information they are given
•Robust Management Information
•Feedback across the three lines of defence
Constructively debate conduct risk issues to
fully understand all products and services.
•Comprehensive minutes – quality not quantity
•Recognising weaknesses and showing how
they’ve been addressed.
Provide regular training to all levels of seniority
within the Society
•Tailored to the needs of a role, not generic
Conduct Risk Regulation
Product Design
• Ensure that products are designed with the customers needs in mind – has
the voice of the customer been heard?
• Product approval been given based on an assessment with compliance with
all relevant regulation.
• Stress Testing completed
• Post implementation reviews are performed
Conduct Regulation
Sales and Transaction Processes
Lessons Learnt
•Define and document the Society’s strategy
•Review the strategy regularly
•Firms should have adequate and appropriate MI in place
•MI should be reactive to new an emerging risks
•Distribution channels should be aligned to the strategy
•There should not be an over reliance on, and inadequate
oversight of payment and product technologies
•Explanations of products should be clear and transparent
•Terms focused on appropriate customers outcomes
Sales and Advice
•Information about customers, including attitude to risk, needs
and objectives is obtained.
•Suitability and affordability reflect the customers requirements
and capability to service their commitments
•Provision of advice through trained and monitored advisors
Conduct Regulation
Post Sales Handling
• What is being done to ensure that post-sale service issues are monitored and
dealt with in a timely manner?
• How are customers informed of changes and options available during the
product’s life-cycle?
• Are there unreasonable barriers to prevent transfer or switching by customers?
• Are the impact of changes in the wider environment on products and
customers being monitored?
• What are the processes and costs for customers who want to switch or transfer
a product?
• Does the firm, as far as is reasonable, keep in contact with customers (and not
just to market new products)?
Key Conduct Risk Areas
The key Conduct Risk areas include
Culture and Senior
Systems and Controls
Sales and Advice
• Much of the recent enforcement action has been associated
with the specific business areas senior management
responsibility have often been part of the problem
• The key risk is that poor systems and controls lead or
contribute to regulatory compliance failure
• Sales and advice are major FSA enforcement areas and
represent key risks in terms of poor conduct risk.
• The FCA have the powers to require the withdrawal of
advertisements, with recent focus being on advertising via
social media.
Key Conduct Risk Areas
• Conduct of Business regulation is moving
towards a more intrusive approach with the
regulator getting more involved at the product
design stage.
• It is reported that Mutuals have an excellent
record in relation to complaints but with levels
of complaints rising the matter is coming under
both regulatory and media scrutiny.
• What systems and controls are in place to
reduce the Firms customers being used to
further financial crime, including initial due
diligence and on-going monitoring
Key Conduct Risk Areas
Regulatory Relations
• The FCA will consolidate the more towards a
more interventionist regulator and it will
become more important to concentrate on
your relationship with the regulator.
Engagement with
• Failure to know your customers may lead to a
lack of understanding of customers views
and needs.
Post-sale barriers
• The risk of unreasonable procedural barriers
that inhibit switching; make it difficult to stop
recurring transactions and causing
administrative delays
Management Information
• Appropriate frequency
• Appropriate level of detail for the audience – could be multi-tiered in larger firms
Appropriate • Aligned so it measures performance against risk appetite
Focussed on outcomes
Forward looking – flag upcoming risks, not just what has happened
Trend Analysis
Root Cause Analysis
• Drive future decisions / strategy
• Drive Process Change
Acted Upon • Pro-active customer redress (not necessarily financial)
What about you?

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