13 December 2005
FSA ARROW VISITS SHOW ROOM FOR IMPROVEMENT
The FSA's Arrow visits are meeting the expectations of the financial services industry from a process point of view, but the application of the process by the FSA has been met with a lack of confidence, according to the first independent research into their impact.
136 firms from all segments of the financial services industry took part in the survey, conducted by Beachcroft Wansbroughs, the Manchester-based law firm. The survey examined the effectiveness of the FSA's Risk Assessment Framework (known as 'Arrow'). Arrow visits assess the risk that firms pose to the protection of the consumer, the promotion of understanding and maintenance of confidence in the financial system.
Beachcroft Wansbroughs' research showed that the way in which the FSA conducts the Arrow visits meets firms' expectations from a process point of view. In particular, the FSA scores highly in the following areas:
* 85% of firms stated that the notice period they received from the FSA about an impending visit was sufficient;
* 80% of firms confirmed that the FSA provided them with a preliminary briefing at the end of the visit;
* 77% of firms received their Risk Mitigation Programme ("RMP") within 3 months of the visit, and 67% of firms considered the issues raised in the RMP to be accurate;
* 75% of firms stated that the FSA appeared to have relevant experience of the firm's market sector.
However, when firms were asked for their individual feedback on the conduct of the FSA and the impact of the visit, more than half of firms were highly critical of the FSA. Firms felt they were unable to take a proactive approach to managing the visit, and some felt interviews were an interrogatory and confrontational process.
More than two thirds (69%) of firms were frustrated by the FSA's failure to provide guidance on how they could lower their risk assessment rating. 41% of firms were frustrated that guidance was not given by the FSA on prioritising actions required to improve their performance and service to customers, particularly as the findings from a visit will dictate the level of regulatory scrutiny that firms will receive in future from the FSA, can effect the capital requirements for firms and may even result in enforcement action being taken. Many respondents suggested that the FSA believes the larger the firm, the greater the risk of failure, regardless of the quality of management.
Mark Broadhead, Partner, Financial Services, at Beachcroft Wansbroughs' Manchester office commented: "Although the survey shows that the FSA is meeting the expectations of firms from a process point of view, the frustration and hostility felt by many firms towards the FSA is cause for concern. While most firms understand the need for Arrow, the way the FSA conducts itself during these visits has a significant impact on the way the FSA and financial services regulation is perceived by the industry. The FSA needs to address these issues if it is to be respected by those it regulates and be fully effective in achieving its stated aims. We hope that our report will provide the FSA with genuine and constructive feedback to assist in its current review and future developments of Arrow."
Mark Broadhead continued: "There are clearly tensions between the financial services industry and the FSA, some of which are the normal tensions one would expect between a world-class dynamic industry and its regulator. However, I believe additional tensions arise due to the framework of principles-based regulation the financial services industry has to work with. This only works if all parties work in partnership towards shared goals. One downside with the partnership approach is that it would remove a degree of certainty for firms and for the FSA and this could lead to further issues. In a regulatory framework where a breach of principles can lead to criminal sanction, certainty may be more important. A number of the tensions highlighted by the survey could be as a result of the problems associated with principles-based regulation and the lack of certainty this approach brings."
The results of Beachcroft Wansbroughs' research into the impact of the FSA's Arrow visits have been shared today with survey participants, the Financial Services Practitioners Panel and the FSA.
For further information, please contact:
Deborah Garritty or Emily Goehler, Bell Pottinger North
Tel: 01625 506444
Notes to Editors:
'Arrow' stands for Advanced Risk Responsive Operating Framework and is the abbreviation adopted by the FSA for its Risk Assessment Framework. The Arrow framework assesses the risks that regulated firms pose to the FSA's four statutory objectives, which are:
* Maintaining confidence in the UK financial system
* Promoting public understanding of the financial system
* Securing the appropriate degree of protection for the consumer, and
* Reducing the scope for financial crime.
The Arrow Framework follows a series of structured stages which are designed to focus an FSA supervisor's attention on the risks that really matter and to help regulated firms devise a strategy to address these risks.
Methodology: During September 2005, Beachcroft Wansbroughs surveyed 136 firms from all segments of the financial services industry: retail/personal banks, corporate/investment banks, insurance, securities and derivatives, building societies, friendly societies, IFAs and Lloyds of London. Respondents had head offices throughout the UK, with 36% based in London. 13% of respondents had head offices located in Europe. Further information is available from Mark Broadhead, firstname.lastname@example.org, 0161 934 3112.
Beachcroft Wansbroughs is one of the largest commercial law firms in the UK. With over 1,300 employees, including 730 professional staff, it provides fully integrated legal advice and litigation services from its offices in Manchester, Birmingham, Bristol, Brussels, Leeds, London, and Winchester. Its customer-focused service proposition reflects both the depth of expertise and the approachable nature of the firm and its partners. It is one of the largest law firms in the country to obtain the 'Investors in People' award across all of its offices.
Beachcroft Wansbroughs has built a specialist, multi-disciplinary financial services team, which recognises that financial services organisations want to buy integrated services from professionals who are industry-aware and add value to the way they operate. The financial services team is committed to providing advice in context to businesses and individuals that are regulated by the FSA. The team delivers inventive solutions to ensure individuals and regulated firms are fit for business. The team has a unique alliance of regulatory and commercial experience, combined with an integrated approach to legal advice which enables firms to face key challenges with confidence
The Manchester team currently includes 19 partners and 160 staff. Its partners have particular expertise and experience in financial services, commercial property, injury/risk, professional indemnity, corporate/commercial and employment law.
For further information please visit our website www.bwlaw.co.uk or call 0161 934 3000.