Context
The FCA has published a Portfolio Letter in which it sets out its expectations in relation the importance of governance, oversight and leadership in helping achieve good outcomes. Although sent to the Payments sector, the governance commentary is a useful reminder for other sectors. The FCA explains its view that weaknesses in these areas are a root cause of many of the regulatory issues it sees, and that firms should ensure that their governance, oversight, and leadership meet the FCA’s expectations.
Key points to note and next actions
In particular, firms should:
- Ensure that their governance arrangements and systems and controls, including reporting mechanisms, are effective and proportionate to the nature, scale, and complexity of their business, and the risks to which it is exposed. Arrangements should provide effective and independent challenge to business and operational decisions, with Non-Executive Directors (where in place) playing a crucial role.
- Take a robust and holistic approach to distributor oversight. Firms should be actively monitoring its distribution network to ensure their compliance with relevant regulations and to minimise potential customer harm, and should actively address any shortfalls with distributors.
- Ensure that outsourced functions are working as intended and remain compliant with all relevant obligations.
- If UK-authorised, a firm must have its head office in the UK, and the Directors and other senior management who make decisions relating to the firm’s central direction, and the material management decisions of the firm on a day-to-day basis, should be based in the UK head office.
The letter also comments on the importance of operational resilience, particularly the unavailability of important business services.