Independent Regulatory Health Checks and Compliance Assurance review.

June 1, 2021

Financial services compliance is becoming increasingly more complex, and the regulatory landscape is continually changing and evolving. This can be seen through the regulatory fines imposed on firms both large and small, as well as the “Dear CEO” letters issued to the most senior executives of regulated firms designed to highlight compliance failings and holding senior management accountable, which is consistent now in the post SM&CR world firms live in.

The easiest and most efficient way to get comfortable that your firm is complying with all the applicable regulatory requirements is to undertake a focused “deep dive” independent FCA Regulatory Health Check of your current internal compliance systems and controls. Even if your business is in its infancy, an annual high-level Compliance Assurance review that your basic regulatory obligations are being undertaken correctly and all areas are being covered adequately, to make sure you are in compliance with your FCA Scope of Permission Notice, and your regulatory controls are appropriately documented, is a cost effective and prudent approach to help a firm monitor that it is on top of its compliance arrangements.

Having an independent review of your firm’s arrangements can be a very constructive process and gives you a benchmark on the effectiveness of your existing compliance arrangements in line with your peers, taking in to account any recent FCA fines, the focus of these fines, as well as FCA thematic reviews and areas likely to be of interest to the FCA in the near future. Having an independent set of eyes looking at your compliance arrangements from time to time is a useful way of making sure you are not blinded by only what you can see in front of you and provides the required level of independent challenge but also gives you a wider perspective on the areas that you believe are covered but cannot see.

A Health Check or an Assurance review is different from looking after your routine day-to-day compliance monitoring on the basis that it should focus on the high-level controls and the overall effectiveness of your existing compliance arrangements.  It also helps you assess whether your current compliance arrangements are up to date, adequate and fit for purpose. Most importantly, it helps you identify any compliance gaps and where relevant, makes recommendations on how to address any areas of non-compliance or procedures that need to be enhanced or updated. Following a review, any remediation work, updates, and enhancements can be undertaken by your compliance team or project assistance can be provided by the Effecta team.

How can a compliance consultant help?

Engaging a compliance consultant can help maintain and improve internal compliance controls and standards, reduce overheads, and mitigate compliance risks within a firm therefore allowing senior management to focus more time on its core business activities and delivering positive outcomes for clients.

A compliance consultant should help bring a fresh perspective on possible improvements to a firms established compliance practices, as well as being able to support immediate and medium-term resourcing needs by helping manage any regulatory projects or by providing interim compliance resources via a secondment arrangement or on-going compliance retainer services.

Effecta Regulatory Health Check

A FCA Health Check usually consists of an end-to-end review of the firm’s compliance infrastructure and processes, including all your related policies and procedures and other business and compliance records. A pre-visit discussion with the compliance and relevant senior management team would be followed up with an initial documentation request. The initial offsite review of the information requested would be followed by an onsite visit, where possible, including interviews with key members of staff and walk-throughs of key systems, culminating in a detailed report of findings and recommendations.

The documentation request and areas of general or specific review (depending on your business activities) can include the following:

  • Compliance documentation to include Compliance Manuals, Monitoring Programme and the associated policies and procedures
  • KYC/CDD, AML and Financial Crime
  • Compliance Registers
  • Remuneration Policy
  • Stewardship Code
  • Senior Management, Employees, Agents and Other Relevant Persons, to include the SM&CR regime
  • Significant Outsourcing Arrangements
  • FCA Regulated Activities in relation to your business activities.
  • Capital Adequacy, Financial Reporting and ICAAP (where applicable)
  • Controllers and Close Links
  • Marketing function and Financial Promotions
  • Business Continuity Plan
  • Training requirements and Staff Competency Assessments
  • Conflicts of Interest
  • Personal Account Dealing arrangements
  • Inducements, Gifts, Entertainments and Anti Bribery
  • Market Abuse
  • Whistleblowing
  • Appointed Representative review*

* One important consideration to note is that a Health Check review should also include any Appointed Representatives that you, as the principal firm, may have oversight for.

The Appointed Representatives regime is one area of the regulations that the FCA has been paying more attention to in recent years. Following an FCA review back in May 2019 of principal firms who “host” firms and with a number of Appointed Representative failures having taken place, the FCA found most principal firms within their survey “had weak or under-developed governance arrangements in place”

The Effecta team have many years of experience of the Appointed Representative regime and are well positioned to help you with a review and ongoing advice that may be required in this specific area.

Effecta Compliance Assurance review

An Effecta Assurance review will focus more on your scope of business and high-level controls and can be helpful when starting your business or reviewing any expansion plans or proposed new business lines.

This includes a review of your:

  • FCA Regulated Activities in relation to your business activities.
  • Capital Adequacy and Financial Reporting.
  • Non-financial reports and notification to the FCA.
  • Compliance documentation.
  • Compliance corporate governance reporting.
  • Senior Management systems and controls and compliance policies.
  • The compliance function itself to including independence and resourcing.

Our Health Checks and Assurance review services are usually provided on a one-off or annual basis with the scope of each Health Check or Assurance review being agreed in advance. These reviews can also be specifically tailored and focused to certain issues or concerns, if required.

The Effecta team has experience of undertaking these reviews for many types of regulated firms and if you would like to discuss our services or a bespoke review, please contact us.