Enforcement for two; a warning for all!

Enforcement actions for firms still seem to be coming thick and fast. RBS has been in the firing line yet again in the last week, as has NatWest, for failings in their advised mortgage sales business.

But, before you dismiss this as just more big fines for major banks, you need to look more closely at what's going on here.

Because in the details of the Final Notice lie a number of key pointers about what the Financial Conduct Authrity (FCA) expects from firms in terms of the strength of their governance and controls.

And it doesn't matter whether you are a bank, insurer, fund manager or advisory firm. Everyone needs to take note! After all, whilst the fine was for failings in the mortgage advice business, even the FCA conceded that there was no evidence that widespread detriment to customers had been caused. But it imposed the fine anyway. So, what had RBS and NatWest done to deserve such a penalty?

The answers go deeper into the firms' governance and culture, which is why everyone in the industry needs to take note and take a hard look at their own control frameworks.

Let's start with the big one. If you've had shortcomings in your processes and controls highlighted to you in the past by the regulators, make sure you address them adequately and quickly, or you will be held to account. The FCA proved this one with RBS and NatWest. Back in November 2011, the FSA highlighted issues with the firms' sales processes after reviewing their telephone and branch sales, but it wasn't until September 2012 that the firms were deemed to have started to address them. What made it worse was that the firms had assured the FSA in July 2012 that the improvements were well under way.

The key lesson here is that FCA Principle 11 should always be adhered to by all firms–open communications, which also, by implication, have to be accurate. Does everyone in your firm understand the importance of this?

If not, is there a training need that if met, could help to plug this gap?

Be warned - the FCA will still find you accountable, even years after the events in question took place.

The next lesson is – make sure your internal controls are used effectively.

Compliance departments and those in first line management roles in many firms will use mystery shopping as a tool to test the effectiveness of sales processes, and the suitability of the recommendations. RBS and NatWest demonstrated to the FCA that they had conducted mystery shopping and that this had found shortcomings in the advice processes. In particular, mortgage staff giving personal opinions about the future movements of interest rates. The control was clearly there – but how was it being exercised? It appeared, according to the FCA, that supervisors did not recommend sales advisers were de-authorised in every instance where significant failings were found.

And that suggests an area where again, focused training could help.

Another area is the effectiveness of sales quality controls.

The FCA specifically highlighted that the business quality unit looking at mortgage sales was looking strictly at compliance with the internal sales process. But it was not testing the quality of the sales against regulatory requirements. As a key component in the lines of defence, this left the firms exposed, as they lacked a benchmark against which to measure the efficacy of the sales.

What was the root cause of these failings? Primarily it appears to be the way that procedures were structured, but if sales quality teams are to assess files against the relevant compliance requirements (in this case, primarily MCOB), they will not be able to do so.

Unless they are appropriately trained.

The final point I want to make is this. How up to date is the training for your advisers?

Since the introduction of the Retail Distribution Review, professional standards amongst the adviser community have risen, but what about internal training? RBS and NatWest were discovered not to have instigated a training programme to back up new sales processes until September 2012, after the publication of an internal audit report.

The question for all firms is; when new products, services or procedures are introduced, how effective is your training programme?

So there you have it – four key areas where the FCA is prepared to probe firms quite closely. These were applied in the instances of RBS and NatWest to mortgage sales, but could equally be applied to any firm in any sector selling any product.

And notice how in each of the areas, the risks can be mitigated in part by training.

It really is that important. It won't take away the risk of enforcement on its own, but if each of the training areas above had been addressed, it's possible that the sanctions against RBS and NatWest could have been less severe.

But this raises more problems. How do firms make sure the right staff are getting the right training at the right level, and at the right time?

Easier said than done, you may say. And you'd be right.

Except that there are a plethora of training providers out there offering everything from one hour webinars, through half and full day conferences to qualifications of varying levels.

Many of whom can now be found at Industry Events Online.

You can use the Industry Events Online advanced search facility to identify the right types of courses from a variety of subject areas and territories. So, now the amount of management time that has to be spent designing and implementing training programmes can be considerably reduced. If this has been a barrier in the past, then take a look at this facility, because it could be a major help to you.

By implementing the right training programmes in the right areas, when the FCA comes knocking.


Martyn Oughton    

By Martyn Oughton a Professional Member of the International Compliance Association (ICA).  Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.

To keep up to speed with new events and blog posts sign up to the Industry Events Online weekly newsletter.