The FSA will visit small IFA firms as a deterrent to anti-treating customers fairly (TCF) behaviour.
The regulator will select a representative sample of firms at the start of next year and hopes to eventually interview all small IFA businesses on their application of TCF.
It will choose about a quarter of small firms, perhaps by region, and conduct telephone interviews or short visits before selecting firms for further investigation if the interviews raise concerns.
The body will speak to senior management and staff in its extended visits and focus on the business’s systems, controls and files. FSA membership fees will cover the cost of the interviews and firms will then be given feedback within a few weeks of the visit.
However, the FSA is keen to stress the scheme does not suggest the regulator expects only small firms not to comply with TCF.
Jonathan Fischel, head of investment in the small firms division of the FSA, says: “What we’re looking to do here is actually have more direct, personal contact with firms. Everything we’ve done with firms suggests they benefit a lot from that and engage with it really well.
“If we take the TCF deadline at the end of March this year, we actually phoned around 300 small investment firms to measure at what stage they were at. Although the results weren’t great, about 50% were meeting the deadline, we do think the firms we spoke to did benefit from that conversation. They engaged with us well and made more progress.
“There are small firms who might not want to engage with us and are less keen on TCF. The fact that those firms will know they will be assessed and visited, and it will be sooner rather than later, will be a much more credible regulatory deterrent to that sort of behaviour.”
Small firms make up 90% of FSA-regulated firms. The FSA uses data supplied by firms and other sources to give an overview of each small firm and to spot industry trends, in particular to identify issues that might pose risks to consumers.
The FSA has set a deadline of the end of December 2008, by which time it expects all firms to demonstrate they treat their customers fairly.
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"While these efforts will not come without some additional cost, this is far from being a false economy – in fact, the Panel sees it as something of a win/win proposition. This strategy will incentivise those smaller firms motivated to comply; and act as a meaningful deterrent to the laggards that either seek to do otherwise or who try to fly under the FSA's radar.
"The FSA's new chief executive officer Hector Sants, and Stephen Bland, director of the small firms division, should be applauded for their vision and determination to move this initiative forward.
"The Panel would urge smaller firms to view this news in a positive light; and to work with the FSA in helping make our influential sector an overall stronger and healthier one."
Mark Rothery is chairman of The Smaller Businesses Practitioner Panel.
"I really welcome the fact that the FSA is to visit small IFA firms, I think it can only be a good thing.
"The FSA can be of great help on a one-to-one basis when making visits to firms.
"But I trust that small firms within networks will be visited in equal measure, rather than treating networks as “large IFAs” and mainly just visiting their head offices.
Adrian Shandley is managing director of Premier Wealth Management.IFAonline
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