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5 February 2020

Background

The FCA published a final notice on 4th February 2020 refusing the application of FS Claims Ltd (‘the applicant firm’) who were seeking authorisation to conduct regulated claims management activities. The FCA reached the conclusion that the applicant firm was not ready, willing and organised to meet the threshold conditions, notably the following:

  1. Effective supervision (threshold condition two); and
  2. Appropriate human resources (threshold condition three).

This led to the FCA concluding that it was not satisfied that the applicant firm will be able to conduct the proposed claims management activities with integrity, contrary to the integrity operational objective, and in observance of the requirements under the regulatory system.

Rationale

Effective Supervision

Firstly, the FCA concluded that the applicant firm was unlikely to be effectively supervised due to the applicant firm’s repeated failure to respond to FCA information requests post-submission of its application. The FCA made a total of four separate information requests to the applicant firm and two telephone calls over a period of six weeks to obtain further information to no or little avail. When the applicant firm  responded to the FCA’s information request its representative informed the FCA that it was experiencing delays in responding to the information request as it is seeking to appoint a compliance consultancy to assist the applicant firm and the compliance consultancy it approached were experiencing delays due to a backlog of work.

Secondly, the FCA concluded that the applicant firm was unlikely to be effectively supervised due to having submitted generic compliance procedure documents and a generic compliance monitoring programme. This also undermined the reliance that the FCA could place on the provided documents to be reflective of the applicant firm’s business processes in practice.

Appropriate Human Resources

The FCA concluded that the applicant firm did not have appropriate human resources due to its repetitive delay and failure in responding to information requests. The FCA viewed that the delay in responding to information requests meant the applicant firm could not demonstrate it met its Threshold Conditions.

Key Failing

Ultimately, the key failing identified by the FCA was that the applicant firm did not appear to have conducted a risk assessment on its business model and identified key conduct risks inherent in the same and implemented a risk control strategy and compliance monitoring programme to review the effectiveness of the same on an ongoing basis. For example, the applicant firm’s business model included outsourcing file reviews to a pension transfer specialist, presumably to identify unsuitable pension transfer advice and formulate the basis of a prospective claim. The applicant firm did not appear to identify the risk of utilising a third party in this outsourcing capacity (e.g. that the third may not be competent and/or carry out their outsourced function suitably). Consequently, the applicant firm did not implement a risk control strategy such as conducting pre-appointment due diligence on the third-party pension transfer specialist and making arrangements, for example, for an appropriately qualified individual to review sample reviews completed by the pension transfer specialist to provide ongoing quality assurance. The lack of a risk-centric compliance framework was also reflected in the application missing key documents to demonstrate the applicant’s business processes to control key conduct risks such as a vulnerable customers policy and a client money policy setting out the applicant firm’s processes to appropriately segregate client funds and conduct internal and external reconciliations of the same.

Key Takeaways

It is imperative for applicant firms to identify the potential consumer risks in their proposed business models and construct a risk-centric compliance framework which provides a platform for positive customer outcomes to be achieved in the conduct of the proposed regulated activities. A firm’s compliance framework should never consist of template policy and procedure documents. Where a firm has limited resources and is only able to engage professional advisers to provide template documents, it is crucial that the firm appreciates that the templates solely provide a skeletal framework for the firm to tailor to accurately reflect its proposed business processes. A firm should endeavour to align its policy documents and its practice to avoid a policy/practice gap. This approach benefits the applicant firm in that an application that is supported by a documented risk-centric, firm tailored compliance framework is likely to be deemed complete at the offset or soon after submission and result in a more expeditious determination process.

 

Jourdain Tambo

Technical Director

 

 

 

By David Petty

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