Supervision of C4 Firms

When the FCA took over from the FSA, it introduced a new approach to supervision, albeit that for many small firms it may have been difficult to spot any practical difference. Most firms (around 25,000) will fall within supervision category C4 (with the largest firms falling under C1, currently 11 major groups) which in turn, subject to any intervening thematic review, results in a four-yearly assessment cycle – see Regulatory Roundup 44.

The FCA has now published a summary of its approach to the supervision of C4 firms which will be of interest to both the governing bodies and the Compliance Officers of such firms.

The aim of the regulator is to understand how a firm’s business is run, rather than simply looking at how risks are controlled, and lists the following areas to see how a firm puts the integrity of the market and the fair treatment of customers at the heart its business: Business model and strategy; Culture; Front line business processes; and Governance (see pages 11 – 13 of the summary for further details).

The publication also sets out the FCA’s approach to prudential supervision which involves categorising a firm as P1, P2. P3 or P4; most C4 firms will fall within P3 (P4 is used for special cases e.g. a firm in administration). Although the regulator will carry out comprehensive capital and liquidity analysis for P1 and P2 firms, it is confirmed that the prudential supervision of P3 firms is mainly through an alerts-based system, although there may be some targeted cross-firm work assessing if firms in a peer group are meeting their financial resources requirements.