The One Guarantee that No One Looks For

What comes to mind when you see the word guarantee? I’ll bet you think of something that you can rely on, something that won’t change, and quite possibly, something that costs money too.

Well, there’s one guarantee that’s made the headlines in the last few days. And it comes at a price too. But unlike many guarantees this isn’t one that people would seek out.

The compliance guarantee

Yes, that’s right. This is the term used to describe when the FCA requires an attestation from directors or other approved persons. They are usually required to attest either that certain rules are being complied with, or that a certain course of action required by the regulator, will be taken.

Usually, the request from the FCA for an attestation follows on from an investigation. So by this time, the firm has had areas of its operation identified where the regulator feels that improvements need to be made.

As a regulatory tool, the FCA has been using attestations consistently for a while. But data on their use has not been freely available – until now.

Hitting the headlines

On 13 February 2015, the FCA published its first set of data on the numbers of attestations requested. The intention is that the FCA will publish this on a quarterly basis in future, but the first set of data covers from the end of 2013 to the first part of 2015 (based on quarters of the FCA’s year, which runs from 1 April to 31 March). A whole year’s figures make for interesting reading.

Not just for the big firms

The FCA groups the firms it regulates into four categories; C1, C2, C3 and C4. As you can probably guess, C1 firms are the biggest, and those that cause the greatest risk to the FCA’s objectives, and C4 are the smallest/lowest risk firms.

The bias in terms of how many attestations are issued isn’t quite where you’d expect it to be. It’s actually in the C2 bracket where the biggest number have been issued; 34 in total against 15 for C1 firms and 5 apiece for C3 and C4 firms.

This indicates a few things which we should all be aware of.

Everyone is at risk

The FCA has shattered any illusions that attestations are only ever requested from larger firms. Granted the numbers are greater for the top two categories, but this could just be a reflection of where the FCA has been weighting its activity.

The key point is that even though they are small in number, the size of the firm does not appear to be a barrier to attestation requests being made.

No industry sector is immune

The data has also been split down into a matrix of both industry sector and firm category. And the news here is that no-one can rest easy.

There isn’t a single sector that has escaped with no attestations being requested for the year. Regardless of whether they are retail, wholesale, insurance, pensions or consumer lending firms, someone in each of these sectors, regardless of size, was asked to make an attestation in the last year.

The message is therefore very clear. The FCA has been using attestations as a regulatory tool, and will continue to do so where it feels one is needed – and that could be for any firm.

Something to prepare for

The question then is, what can firms do to be prepared for an attestation request when it arises? This is quite a difficult one to answer, because until you know which individual has been asked to give the attestation and what they have been asked to attest to, then you can’t start to prepare.

Except, you can because there are some pre-emptive actions that could help. And bear in mind that attestations are required of an individual personally, not the firm collectively. This means that the individual is personally accountable and at risk of further action if the attestation proves to be false. So they will need all the help and support that the firm can muster.

Look for the warning signs

Theoretically, attestations can be requested with little warning, but quite often, they follow on from work that the FCA has done or is doing, either on a firm-specific or thematic basis. So in your firm, what is the FCA asking for information about the most? Which topics do they seem most concerned about?  Which thematic reviews are going on at the moment? And which ones has your firm been asked to participate in? This should give some clues as to where an attestation request could possibly come from, giving a chance for information about control effectiveness, and any remedial actions that need to be taken, to be gathered.

Understand what this means

The importance of an attestation needs to be understood. It’s effectively the giving of a personal guarantee to the FCA that a particular course of action will be taken, for example, or that historic actions have been fixed. If the directors and approved persons in the firm don’t understand how attestations work and what they mean, then steps need to be taken to make sure they do understand.

And the most effective way to do that is through training

There are a number of training providers who run courses to help senior management understand the approved persons framework. A key component of this is what attestations are and how they should be approached.

It’s essential that those who carry out controlled functions understand what it means to have an attestation requested of them. Granted, much of the work to support the attestation may be delegated, but they will still need to “direct the traffic” to make sure they have enough supporting information to be able to sign.

And those in the control functions (e.g. risk and compliance) will need to understand attestations too, so they can provide the right level of support and guidance.

So if you’re looking for some training to help your approved persons, go to Industry Events Online’s search facility and see what’s available. 


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.

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