Friday, April 10, 2015

FCA Fines and Prohibits Compliance Director from Performing Compliance Oversight

Regulatory authorities are increasingly taking enforcement action not only against the companies, but against individuals for lapses in compliance controls in financial firms. The Financial Conduct Authority ("FCA") has fined former compliance director of Financial Group, Stephen Bell, GBP 33,800 for weaknesses in the group’s compliance systems and controls. The FCA has also banned Bell from performing the compliance oversight function.

As the compliance director, Bell was responsible for compliance oversight for the Group’s network of firms. In particular, he was responsible for and implemented:
  • the application process of prospective appointed representatives ("ARs") and registered individuals ("RIs");
  • the firms' procedures to determine the competence of RIs to advise customers;
  •  the firms' training and competency scheme encompassing the design and delivery of the initial training for the ARs and RIs;
  •  the supervisory processes and procedures for ARs and RIs, setting up a structure of supervisory staff to provide field supervision of ARs;
  •  the file checking processes and procedures that were operated by the firms.

Bell failed to ensure that the firms took sufficient steps to assess whether ARs and RIs were suitable to act on behalf of the firms. The firms failed to properly assess prospective ARs’ business practices, or to ensure the integrity of the technical knowledge test they required RIs to undertake. Bell did not ensure that the firms carried out a suitable assessment of an RI's knowledge and skills in order to determine their competence before they began advising customers.

Bell also did not ensure that the firms properly and effectively supervised their ARs and RIs at all times. There was inadequate contact between ARs and RIs and the supervisory staff. The firms also did not adequately assess the performances of RIs to ensure that RIs remained competent. The firms’ field supervision was not sufficiently risk-based and annual visits by supervisory staff were not effective in identifying material risks.

In addition, Bell also failed to ensure that the firms established and maintained adequate compliance and file checking procedures, in accordance with the size and types of business conducted by the firms. The file checking processes and the methodology used did not sufficiently identify and assess the involved risks. The firms had failed to take appropriate action to control the significant risks relating to the accuracy and quality of new business information.

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