May 2013 Update

4th June 2013

Key Persons Risk
FCA have helpfully published a few issues to be considered on the topic of key individuals and the planning procedures you can create to reduce key person risk.

What is a key person?
A key person is a staff member who holds vital information and knowledge about the day-to-day running of your company. They can be anyone that works for the firm and it is imperative to note that, key persons are not always the most senior staff members in the regulator’s eyes!

Key persons risk in regulated firms
Some regulated firms are over-dependent on certain individuals, which can cause problems when these individuals leave or cannot complete their normal tasks. Some firms do not recognise the risks to their business until too late.

How do you reduce your company’ key persons risk?
You can put procedures in place to:
• identify the key tasks that each staff member carries out at your company and, importantly, understand why they are key, and whether they have shared with someone else, how to do these tasks in their absence;
• assess the potential problems that could occur if a key person was to leave;
• put in place a plan to reduce the risk; and
• conduct a regular review of key persons risk and take action where necessary.

Firms can create procedures to reduce risks. These include:
• training (so that the skills of the key person can be spread more widely);
• storing copies of key documents at more than one location;
• encouraging key people to share responsibilities by introducing revolving roles or work shadowing; and
• regularly testing staff on their understanding of key areas of the business.

Keeping important documents can assist firms in reducing risks. These could include:
• board minutes;
• business contingency plans;
• business plans, action plans and risk maps;
• strengths, weaknesses, opportunities and threats analysis;
• comprehensive office manuals giving step-by-step instructions on how, when and/or by whom each task is completed.


The End of ‘Tick Box’ Compliance
In an attempt to shed the perception of a ‘tick-box regulator’, the FCA may drop some of its more prescriptive rules and guidance for firms, as it pushes a more client-focused agenda.

Clive Adamson, director of supervision at the FCA, told a financial services conference in London during May, that the regulator wants the industry to move away from “tick-box compliance”, put clients at the heart of firms' business models, and focus on culture rather than just internal controls. In response to a question about whether the change in approach to looking more at business models, rather than a list of regulations, would mean the FCA wipes away some of the rules that have built up over time, Adamson said there was potential for change.

He said: “It’s possible. Yeah. I think there are completely different views for example about the height of our handbook,” adding that if you printed out the FCA’s handbook it would create a very tall pile of papers.

He said the book of rules had grown partly because of demands from various parts of the industry for more rules and guidance, even though other groups want fewer rules. This conflict, he said, creates a “difficult nut to crack” for regulators.


Management Behaviors
FCA have laid out a 'management behaviour framework' for firms that sets out the management actions the regulator believes will help your firm treat customers fairly. FCA uses this framework to help them assess whether firms are able to demonstrate that they are treating their customers fairly. In turn you can use it to assess how your company is doing.

Key areas to consider:

• How does your company champion the fair treatment of customers to staff while ensuring that it is integral to the way the firm carries out its day-to-day business?
• How do you manage and control your business?
• How do you ensure that recruitment and reward structures complement and support your firm's values?
• How do you educate and train customer-facing individuals to ensure that your customers achieve a fair deal?
• How do you measure performance and service standards?

Dealing with customers
• How do you ensure you provide your customers with clear information and/or suitable advice before, during and after sale?
• How do you ensure you deal with complaints fairly and that any lessons are learned to ensure you can try to avoid those problems in future?


How do I Assess a Person’s Competence?
The fit and proper test is a benchmark used to assess an individual’s suitability and competence to perform a function at a regulated firm. The most important considerations are the individual's honesty, integrity and reputation; competence and capability; and financial soundness.  Further detail is in The Fit and Proper test for Approved Persons (FIT) section of FCA’s Handbook

Ongoing competence
Firms must think about the knowledge and skills of all individuals at the firm and making sure they match up to the role they perform.

Key points to remember
• Knowledge and skills of the individual must match their role.
• Individuals cannot undertake regulated activities unsupervised until they are assessed as competent (even though they may have passed the appropriate exam).
• Once an individual is deemed competent you must monitor them to ensure they remain competent.  


Approved Person Fined
FCA fined an approved person £13,300 last month, for breaches of Statements of Principle 1 and 6.  The specifics of this ruling agains Glasgow-based intermediary, Mr. Jones, are;

Breach of Statement of Principle 1
Dishonestly altering certain historic client files, after concerns had been raised by a lender and the Authority, in an attempt to mislead the Authority as to the controls within the Firm when the applications were submitted.

Breach of Statement of Principle 6
Failing to act with due skill, care and diligence by failing to ensure that the Firm had appropriate controls to verify information submitted by clients, to support applications that led to the Firm being used to facilitate financial crime.


Financial Crime Conference
The financial crime regime seems to be changing constantly; for your company and other regulated firms in the area. Firms are not only challenged by organised and innovative financial criminals, our organisations also face pressure from the FCA to have robust systems and controls to manage the risks posed by financial crime.

The FCA are hosting a full-day conference compromising of presentations, panel sessions and opportunities to ask questions, chaired by FCA Senior Advisor Ron Baxter.  The conference will provide an opportunity for you to get an update on their strategy around financial crime and upcoming regulation, along with issues in combating financial crime. Presentations on the day will be from some of the top speakers in the financial crime community as well as a discussion on the Fourth Money Laundering Directive proposal, future supervision and law enforcement.

This will be relevant to Approved Persons generally and specifically Money Laundering Reporting Officers (MLROs). It will be held on Monday 1 July 2013 at The Brewery, Chiswell Street, London, EC1Y 4SD. Timing 09.00 - 17.00. Fee £435 + VAT (£522) interested parties can book on line.


FCA GABRIEL Online Training
A good opportunity to brush up on your skills – the FCA have updated their free online training provision in this area with an online training course is for GABRIEL (GAthering Better Regulatory Information ELectronically), the system for submitting regulatory data online.

The simple session gives you know how to:
- Register for GABRIEL;
- Set up and manage users;
- Prepare, validate and submit returns online;
- View system and policy help text for support, and
- Request to resubmit data.

This course is designed for all firms who are subject to reporting using GABRIEL. The course is accessed and taken online and, if required, you can pick up advanced learning topics such as: Firm and user administration. The course takes approximately 45 minutes. Access your course here: