FCA to Managers- your word is my bond
The FCA have stated their intention to make “substantial and important” changes to the controversial attestation process. Attestation is an informal tool, with unclear legal backing. While the Agency has no formal powers to force attestation, a refusal to comply is almost certain to trigger more intrusive investigation. Director of Supervision Clive Adamson’s letter to practitioners clarifies the FCA’s use of the tool, and pledges greater consistency in its application. The FCA envisages four broad scenarios in which it may request managers to attest:
1) Notification- a promise by an individual to monitor and inform the FCA of emerging risks which are not currently likely to impact consumers or market integrity
2) Undertaking- a request to take specific action within a defined timescale, in relation to a risk not currently likely to impact consumers or market integrity
3) Self-Certification- an attestation that more significant risks have been mitigated or resolved
4) Verification- an attestation that more significant risks have mitigated or resolved and that appropriate verification has been undertaken
The scenarios cover a wide spectrum, enabling the pinpointing of an individual responsibility for specific and general risks from their emergence to extinction. The FCA implicitly recognise that the process may be burdensome for firms, with the potential to unhelpfully realign business priorities, “It is not our intention to create onerous or additional assurance processes within firms which go beyond what the firm sees as reasonable”. However, even when employed with documented proportionality and consistency, attestations are the first step in an enforcement process where sanctions are clearly targeted at individuals. September 2013 saw the first use of the statements as evidence for a breach of the rules when Rabobank was fined £105m. for contravention of the FCA’s Principle 2. The breach was triggered by a 2011 attestation that the bank’s supervision of Libor submissions was fit for purpose. Attestations have to be made with Principle 2 equivalent “due skill, care and diligence”, in absence of which the attesting individual may be guilty of a criminal offence, even if they no longer work at the firm under investigation. The FCA’s increasing use of attestations is a pragmatic response to the difficulties in enforcement outlined by the final PCBS report, which concluded that senior employees at banks had “dodged accountability for failings on their watch by claiming ignorance or hiding behind collective decision-making”. Cheap, quick, effective, flexible and targeted- it is easy to see the attraction for the regulator. Consequently, and in tandem with the promised of enhanced governance, it is very likely that attestation will be the first weapon of choice in the regulator’s armoury.
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