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FSA - CP 12/34 - Regulatory Reform: FCA Handbook Updates


Credit unions, as some of the smallest dual-regulated firms, are likely to experience difficulty in navigating the new regulatory framework, especially initially.  As such, it is vitally important that full clarity is provided as to the extent of each of the new bodies’ responsibilities and concerns.  In this respect the Threshold Condition guidance as set out is not appropriately clear.  We feel that a clear distinction between requirements to FCA-only and dual-regulated firms – perhaps by breaking requirements into separate sections – would address this.

Likewise, we are concerned to ensure that considerations of proportionality are given their due prominence in the drafting of handbook regulation as this is of vital concern to the continued development of small but growing sectors such as ours.  

Consultation questions

Q1. Do you have any comments on how we propose to cover the FCA’s new supervisory approach in the revised SUP 1?

We are satisfied with the measures proposed in the new SUP 1A to cover the FCA’s new supervisory approach.  Given that the majority of this material is provided in statute, we appreciate that there is only limited scope for discretion on the part of FSA / FCA and that the material that has been drafted seeks to provide full clarity as to the FCA’s new supervisory approach and extra powers.

We are particularly pleased that reference is included under 1A.1.4 G to the FCA’s principles as set out in the Act, particularly the principle of proportionality.  It is critically important for small firms – particularly small, dual-regulated firms – that proportionate treatment is maintained in order to ensure that the burden of regulation does not unduly hamper the execution of their business.  Since credit unions represent a small sector, their potential to cause significant consumer detriment or to undermine financial stability is limited and any regulatory burden should be commensurate with this.

In this regard we would suggest that the rule cited might be presented in a clearer format – perhaps by breaking down the list of principles into sub-sections – in order to emphasise the importance of proportionality.

Q2. Do you have any comments on our proposals to amend SUP 7?

We are happy with the proposed amendments to SUP 7 which are effective in setting out the new circumstances in which the FCA can use its own initiative imposition of requirements power. Particularly welcome here is the clear requirement that the FCA must consult the PRA in any instance where it proposes to impose requirements on a dual-regulated firm.

Q3. Do you agree that the COND sourcebook should be retained in the FCA Handbook?

Yes – we agree that the COND sourcebook is a useful reference point for firms seeking authorisation and that it should be retained.

Q4. Do you agree with the amendments to COND as set out in the Instrument at Appendix 5?

Our only comments relate to the clarity of the split between FCA and PRA threshold conditions, as per the answer to Q5 below.

Q5. Do you agree that the Instrument sufficiently draws the distinction between the guidance that applies to dual-regulated firms and that which applied to FCA-only regulated firms?

We think that the distinction between dual- and FCA-only regulated firms could be made a little clearer within the guidance.   By dealing with both groups of firms simultaneously in the same passage it becomes quite difficult to maintain a clear view of where the distinction lies.  

By contrast, the HM Treasury draft secondary legislation which is underpins the guidance is clearly defined with separate sections dealing with the FCA-only and dual-regulated firms independently.  While this approach necessarily results in some duplication between those areas which are included in both, it leaves it beyond doubt which areas relate to which firms.  Indeed, in order to avoid confusion the draft guidance repeatedly refers back to the relevant FSMA sections and we think it would be much easier to achieve the same result simply by arranging the guidance along the same lines.

Credit unions, as perhaps the smallest sector subject to dual-regulation, are likely to have difficulty in getting fully to grips with the new framework, particularly in the early stages, and it is important in minimising the burden of this change that every effort is taken to minimise the complexity of information which sets out the requirements of the new regime.  Key in this will be making every effort to draw as clear as possible a dividing line between the PRA and the FCA and their respective bounds of responsibility.

Q6. Do you have any comments on the proposed guidance to the new Business Model TC?

Our concern here also relates to the delimitation between the two bodies and the extent of FCA authority in relation to dual-regulated firms for whom the PRA will lead on assessing compliance with its own threshold conditions.  

The guidance as it is drafted, though the legislation is clearly more specific in relation to FCA-only regulated firms, seems to apply more or less the same expectations to both sets of firm albeit with a several vague statements concerning the limits to the FCA’s concern in relation to PRA-regulated firms in paragraphs 2.7.5 - 2.7.7.  

Given that these requirements flow from separate legislative provisions and that they also make reference back to overall objectives, we feel that more could be done to clarify exactly which elements of a firm’s business model the FCA will be concerned with in respect of dual-regulated firms.  As above, credit unions are among the smallest of the dual-regulated firms and are likely to find difficulty in navigating the new regulatory framework.  Therefore the more clarity that can be provided on the extent of each body’s responsibility the better – perhaps, as in relation to wider TCs, FCA-only and dual-regulated firms might be treated in separate sections.  

Q7. Do you have any comments on our draft statement of policy on using the power of direction?

No comment.

The full response can be doanloaded on the right