2.4.2 Risk diagnosis, monitoring and prevention

Question 1

FSMA states that the FCA should maintain arrangements designed to enable it to determine whether persons on whom requirements are imposed by or under this act are complying with them. The way the FCA approaches this task incorporate 2 fundamental principles

Answer 1

1) Responsibility of. a firm’s amangement to organise and control the firm and maintain adequate risk management systems, with the aiming of complying with regulatory requirements
2) FCA will balance any burden of ]]r restriction based on firm with benefits, e..g will take proportionate action - meaning the FCA takes a risk-based approach to supervision- it focuses its resources on mitigating risks

Question 2

The ten principles which summarise the FCA’s approach to supervision

Answer 2

1) Forward-looking and interventionist
2) Focused on judgment, not process
3) Consumer-centric
4) Focused on the big issues and causes of problems
5) Interfaces with executive management boards
6) Robust when things go wrong
7) Focused on business model and culture as well as product supervision
8) Viewing poor behaviour in all markets through the lens of the impact of consumers
9) Oriented towards firms doing the right thing
10) Externally focused, engaged and listening to all sources of information

Question 3

The FCA needs to intervene in a practice way when it believes a firm’s action will pose a risk to the FCA’s statutory objective - requiring the FCA to adopt a more intrusive, confrontational style. outcomes-focused supervision model has 2 features

Answer 3

1) A significant enhanced analysis and risk identification capacity which focuses on business model risk and interacts with macroprudential analysis
2) Greater focus on outcome testing, rather than ensuring firms have appropriate systems and controls./ this approach requires earlier and more direct regulatory intervention.