Scenario:
A retail advice firm sought our support to strengthen its second-line monitoring aligned to its Compliance Monitoring Plan. Given the lack of in-house expertise, the client asked us to utilise our regulatory and sector experience to provide independent assurance on critical parts of the plan which were deemed high risk and where the firm valued assurance that the standards they were operating to were aligned to regulatory requirements and industry best practice.
Before engaging Square 4, we discussed and explained our ‘retained services’ proposition, which included fully ‘Outsourced’, ‘Co-sourced’ and ‘In-sourced’, the client opts for the Outsourced model whereby Square 4 first undertakes a risk assessment, develops a risk-based monitoring plan and then execute against the plan using our reporting methodology, templates and branding.
Activities:
- Discovery: We invested time upfront getting to know the business via an on-site visit and through a number of stakeholder meetings and a review of core policies, processes and reporting. This included Square 4’s dedicated client relationship manager together with our regulatory and sector subject matter experts.
- Governance: We reviewed the firms’ Compliance Monitoring Plan and fed back on areas for consideration and inclusion. We agreed with the firm, subject to a quarterly review by both parties, that we would concentrate resource effort over the year on six key areas; Suitability, Governance, Due Diligence of Investments, Complaints, Financial Promotions and work undertaken in relation to Consumer Duty. This was shared with, and approved by the firms’ Risk Committee.
- Compliance Monitoring: Prior to each review we defined the scope of the review which was shared with the SMF16 for input and approval. As an example, the initial review was focussed on Suitability of advice. The scope of the review included reviewing the advice standards and a risk-based review of advice which had been reviewed by the firm’s first-line quality assurance. We identified a number of gaps and areas for improvement and provided the firm with a range of recommendations. All recommendations were presented to the SMF 16 and to the Risk Committee.
- Remediation: Upon receipt of our review findings we supported the firm to enhance their control environment. This included some changes to the advice standards and communications to the advisers and supervisors including sharing examples of good and poor practices observed from the file reviews.
Result:
Square 4 delivered independent monitoring around a key area of regulatory risk. The firm got assurance from a firm active in the retail advice market, which was well received by the SMF 16. Furthermore, the reporting and timely actions taken by the firm, and the oversight of the Risk Committee enabled that they could evidence robust governance and ‘reasonable steps’. In addition to the retained compliance support, we have supported the business with knowledge share and expertise with their Consumer Duty implementation, training to their SMT, insight on regulatory developments and support with FCA reporting.
Key highlights include:
- Robust independent monitoring aligned to 3 lines of defence
- Knowledge upskill to Compliance and other stakeholders around the business
