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Intensive supervision
Practical Law UK Legal Update 6-501-8563 (Approx. 3 pages)
This article is part of the PLC Global Finance March 2010 e-mail update for the United Kingdom.
Speedread
On 12 March 2010, Hector Sants, CEO of the Financial Services Authority, unveiled the Regulator's new "outcomes based approach" to regulation, whereby it will intervene in regulated firms in a proactive way and will conduct "intensive supervision", which is a more intrusive and direct style of supervision involving the scrutiny of management decisions.
On 12 March 2010, the Financial Service Authority (FSA) unveiled its new approach to regulation in a speech given by its CEO, Hector Sants (UK financial regulation: After the crisis).
According to Sants the FSA will adopt an "outcomes based approach" to regulation whereby it will intervene in regulated firms in a proactive way, and will judge decisions on the basis of a firm's "business model and other analysis". This will lead to the FSA taking a view on issues that might be disputed by firms and this in turn will lead to greater engagement. In addition to this, the FSA will conduct "intensive supervision" which is a more intrusive and direct style of supervision involving the scrutiny of management decisions.
According to Sants this new approach will underpin how the FSA carries out both prudential and conduct of business regulation. The FSA's prudential reform agenda is already underway and the new approach requires firms to be much more proactive in their assessment of risks and in monitoring adherence to the revised prudential regulatory framework.
In relation to conduct of business, this new approach seeks to achieve the following goals:
- Making the retail market work better for consumers.
- Avoiding the crystallisation of conduct risks that exceed the FSA's risk tolerance.
- Delivering credible deterrence and prompt and effective redress for consumers.
These goals will be achieved by:
- Seeking to improve the long term efficiency and fairness of the market.
- Delivering intensive supervision of firms. The FSA will intervene earlier in the development of retail products and such interventions will involve it making a judgement on potential detriment which will be based on sound business model analysis and integrated firm-risk assessment.
- In the event that failure has occurred the FSA will secure an appropriate level of redress and compensation. It will also achieve effective credible deterrence by taking tough action against firms and individuals who have transgressed.
The new strategy will involve an integrated model of risk analysis and research which will see the FSA making judgements on firms' decisions and actively intervening in product design. The FSA will also be more willing to test outcomes through mystery shopping and on-site visits. The FSA will also improve the framework and delivery of redress to consumers, starting with a review of the complaint-handling standards of all the major banking groups.