The Financial Conduct Authority (FCA) regulates over 58,000 financial services firms and financial markets in the UK. To do this effectively, the authority needs timely and accurate data from firms to identify malpractice and take appropriate action.
This is why the FCA’s reporting requirements exist—to ensure it has the information it needs to perform its role. It’s also why the FCA levies tough penalties on firms that fail to meet their reporting obligations.
While the FCA has always taken an active approach to regulation, the authority has increasingly targeted firms with investigations and regulatory interventions in recent years. UK firms in the retail and wholesale sectors have been hit particularly hard by these interventions.
FCA Regulatory Reporting
To avoid regulatory action, firms should make sure they fully understand their reporting obligations and have strong controls in place to meet them. The FCA has a host of reporting requirements depending on the type of financial firm.
For example, financial advisory firms are now required to report on:
- Professional standards data to identify whether your firm’s advisers hold appropriate qualifications.
- Their charging model, including service rates, a profit and loss account, details of training and competence, and adviser charging and client data.
- Ongoing data for complaints against retail investment advisers.
- Adviser competence data including any competence or ethics issues that arise.
A full list of reporting requirements is available on the FCA website.
However, understanding these requirements is only a small part of the battle for a financial services firm. The greater hurdle is developing and maintaining comprehensive systems and controls to ensure thorough data collection, secure data storage, and comprehensive reporting.
Naturally, the FCA demands accuracy, completeness, and consistency in all regulatory reporting—and failing to deliver this can lead to considerable fines. The FCA has stressed the importance of ensuring systems and controls are tailored to each firm’s activities and include robust reporting capabilities that meet their obligations.
In December 2019, the senior managers and certification regime (SMCR) was expanded to include all FCA-regulated firms. This was accompanied by more stringent requirements, which emphasize individual accountability and clear reporting lines.
In subsequent guidance and statements, the FCA also implied it would increasingly investigate and take action against individuals—particularly senior managers—for breaches of SMCR requirements.
What are the requirements? As a starting point, SMCR requires financial firms to report the following events:
- Employment of a new senior manager that will undertake a Controlled Function
- Any new information that may impact a Senior Manager’s fitness
- A senior manager has broken a conduct rule (within seven days)
- Any employee has broken a conduct rule (annual reporting)
- Changes to a Senior Manager’s Statement of Responsibility
- New authorizations under the Certification Regime
In addition to these specific requirements, all FCA-regulated firms must report issues that the FCA would reasonably expect to be notified about. While this may sound simple, it places a lot of onus on individual firms to proactively determine the types of activity the regulator might be interested in and ensure it is thoroughly recorded and reported.
As a result, meeting SMCR reporting requirements is less straightforward than it seems—it requires comprehensive data collection and reporting capabilities, which can be tough to develop and maintain.
The FCA’s Reporting Enforcement Policy
In recent years, the FCA has increasingly cracked down on regulatory reporting issues. Even in cases where no misconduct is detected, the FCA has made it clear that it will take action against firms that fail to meet their reporting obligations.
What are the potential penalties? While the FCA lists a small fee for late filings (£250), it notes that financial penalties may be much higher and run alongside other enforcement actions.
On 28 March 2019, the FCA fined Goldman Sachs over £34 million for breaching provisions of Supervision Manual (SUP) 15 and 17, and Principle 3 (Management and Control). Over ten years, the firm failed to report over 200 million transactions accurately.
The FCA determined that Goldman Sachs had failed to:
- Organize and control its affairs in compliance with transaction reporting requirements.
- Maintain sufficient controls to detect or prevent transaction reporting errors promptly.
- Maintain the accuracy and completeness of counterparty reference data.
Other significant reporting-related fines include:
- A £27 million fine of UBS AG in March 2019 for failing to manage changes affecting transaction reporting processes or adequately test to ensure the completeness and accuracy of reports.
- A £409,300 fine of Linear Investments Limited, a brokerage services firm, for failing to maintain appropriate controls to detect and report potential market abuse.
Barriers to Effective FCA Reporting
As many financial services firms have discovered, meeting the FCA’s reporting requirements isn’t trivial. Some of the most common barriers to effective FCA reporting include:
- Ineffective controls for regulatory reporting, lack of ongoing monitoring, and poor quality technology infrastructure.
- Lack of controls to ensure the completeness, accuracy, and timeliness of reporting.
- Inefficient manual record-keeping processes that are prone to human error and hinder compliance reporting.
- Lack of regulatory reporting technology that could help to reduce the manual effort and operational costs of data collection and reporting, improve visibility, and reduce errors.
In short, many firms struggle to meet their reporting obligations because they rely on cumbersome manual processes. These processes are slow, labor-intensive, and prone to human error—all of which run the risk that FCA reporting will be incomplete or inaccurate, resulting in possible regulatory action.
5 Steps to Better FCA Reporting
A financial services firm can meet its FCA reporting requirements by following four simple steps:
- Ensure the firm’s policy remains current with the latest FCA and SMCR reporting requirements and all relevant processes and policies are up-to-date.
- Establish and maintain strong data collection and reporting controls that ensure all necessary data is captured and stored.
- Provide thorough and up-to-date training for all staff, so they know precisely what their obligations are for data collection, reporting, and escalating possible malpractice.
- Ensure ongoing monitoring of collected data to identify and correct anomalies and highlight conduct-related issues that must be reported to the FCA outside of annual returns.
- Implement robust reporting systems that produce accurate, FCA-ready reports.
Of course, while these five steps may be simple, they aren’t always easy to implement and maintain. Relying on manual human-centric processes leaves firms at risk of data inaccuracies, reporting errors, and missed obligations—which can result in unwelcome regulatory action.
Technology Holds the Key
Technology-enabled data collection and reporting systems can reliably satisfy FCA requirements without requiring a huge amount of manual effort. MyComplianceOffice Role Monitoring and Assurance (RMA) enables financial services firms of all sizes to track everything needed for FCA and SMCR reporting.
The solution makes it easy to:
- Identify senior managers and certified persons.
- Define, create, list, map, and assign roles and Senior Management Functions (SMFs).
- Provide certifications based on regulatory requirements.
- Ensure individuals are qualified for their role using attestations and approvals from managers.
- Add results of background and violation checks against employees to the certification process.
- Maintain and assign responsibility for key decisions and processes to competent individuals.
- Notify regulators upon role termination or changes.
- Create accountability maps on the platform and submit them to regulators.
The solution is easy to implement and simple for HR, compliance teams, and employees to use. By automating data collection and reporting, RMA saves time, increases efficiency, and reduces errors in the reporting process.
Most importantly, by ensuring the accuracy and timeliness of FCA reporting, RMA protects financial services firms and individuals from regulatory fines and risk.
For more information about how RMA can benefit your firm, visit our service page.