Regulation – Safety in Numbers?

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Do any of the following mantras sound familiar?

– But that’s what they do for all their clients
– My supplier looks after x% of the market, so they must be right
– Everyone’s been doing it that way for x years and no-one has picked this up before

These examples – and others like them – are regularly put forward by firms as reasons for following a given process or adopting certain decisions in relation to their compliance with the rules. They all have one thing in common. They are not good reasons.

While it makes perfect sense not to stand out from the crowd when it comes to regulatory decisions, the concept of comfort in numbers is just an illusion. Some very large suppliers have been found to be following procedures that turned out not to be compliant – does the number £126m sound familiar? Plus, of course, firms cannot pass on their own regulatory responsibilities to their providers. So a robust approach to engagement with suppliers to ensure you are comfortable with their approach is essential. You might even find that you are in good company here as well, since greater emphasis on governance is filtering through into these behaviours. A good supplier will welcome constructive discussions which lead to a compliant (and, if possible, pragmatic) set of processes and outcomes.

On the other hand…

We have seen firms come up with decisions based on the belief that, basically, the FCA has got it wrong. Sometimes they are bolstered by legal opinion, for example quoting Lehman case law out of context to justify a decision which suits the firm. Other analyses have pointed out that certain elements of the rules lack logic or pragmatism and therefore need to be bent into a better shape.

We don’t recommend this approach. Even if the rules seem completely out of alignment with the way that business is actually done; even if the result expected could be better achieved by other means; even if …Well, you get the point. Rules might change, if the industry can make effective and client-centric arguments for their amendment. Until then, this is not a good way in which to be an outlier.

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