This is the third of our top three linguistic novelties in the Journey to the FCA. Our first was the change from “relationship management” to “fixed and flexible portfolio”, number two took us from ARROW to Firm Systematic Framework and here’s our third:
3) Large, medium or small, tier I or tier II, we intuitively categorise firms by size amongst other measures. Now there’s one more to add to the list. Which firms fall into each of the four conduct supervision categories – C1 to C4 – is yet to be finalised. The distinction, however, is as follows: C1 – “very large” asset or customer base, C2 – “substantial number” of retail or wholesale customers, C3 – “significant presence” in retail or wholesale and C4 – the rest of the smaller firms.
The larger your capacity for damage to retail or wholesales markets, the higher risk you are. However, C4 categorisation does not mean firms escape the regulator; being deemed C4, but high risk, will lead to a face to face interview with the regulator. This is also potentially the case for 25% of medium risk C4 firms.
Who should be fluent in the regulator’s vocabulary? Our view is that it is not only a requirement for compliance staff or approved persons. Marketing staff and product designers must also make sure they speak confidently to supervisors in these terms. Part of that means adding the FCA’s new terms to their vocabulary lists.
Scale has a major effect on firms’ risk to the market. It also impacts how firms deal with internal issues. Read this article on root cause analysis which touches on the difference scale makes to firms’ approach to complaints.
