Currently firms are supervised in accordance with their conduct categorisation which ranges from C1 to C4 with the latter firms being subject to a much lighter regulatory touch (firms will have received a letter from the Regulator confirming their classification). Supervision work is divided into three ‘Pillars’:
- Pillar 1 involves proactive firm supervision
- Pillar 2 is event-driven reactive supervision
- Pillar 3 is based upon issues and product supervision
Last December the FCA published ‘Our Strategy‘ which set out the outcomes from its strategic review which had been approved by the Board in the previous month – see Regulatory Roundup 61.
As part of its ‘sharper focus’ was the proposed removal of the distinction between C3 and C4 firms and supervising firms on a more risk-based model.
The latest FCA Regulation round-up advises that the FCA is making further changes to its supervisory model which will include a move away from the C1 – C4 conduct categories. Instead firms will be categorised as either ‘fixed portfolio‘ or ‘flexible portfolio‘.
Fixed portfolio firms will continue to be subject to firm or group-specific supervision (Pillar 1) while flexible portfolios will be subject to Pillar 2 and Pillar 3 only as in “flexible portfolio firms will be proactively supervised through a combination of market-based thematic work, as well as communication, engagement and education activity aligned to the key risks we have identified for the sector”.