SUP 1A.4 Tools of supervision

In order to meet the statutory objectives and address identified risks to those objectives, the FCA has a range of supervisory tools available to it, including the power to impose financial penalties.

These tools may be usefully grouped under four headings:

1. (1)

   diagnostic: designed to identify, assess and measure risks;

2. (2)

   monitoring: to track the development of identified risks, wherever these arise;

3. (3)

   preventative: to limit or reduce identified risks and so prevent them crystallising or increasing; and

4. (4)

   remedial: to respond to risks when they have crystallised.

Tools may serve more than one purpose. For example, supervisory powers can be used to address risks which have materialised or to assist in preventing risks from escalating. In the first instance they are remedial; in the second, preventative.

Some of these tools, for example the use of public statements to deliver messages to firms or consumers of financial services, do not involve the FCA in direct oversight of the business of firms. In contrast, other tools do involve a direct relationship with firms. The FCA also has powers to act on its own initiative to impose or vary individual requirements on a firm (see SUP 7) and to ban or impose requirements in relation to specific financial promotions. The FCA may also use its general rule-making powers to ban or impose requirements in relation to specific products, types of products or practices associated with a particular product or type of product. The use of the FCA's tools in its oversight of market practices, in ensuring the protection of client assets and for prudential supervision of FCA-only firms, will also contribute to the integrity and orderly operation of the financial markets.

The FCA uses a variety of tools to monitor whether a firm, once authorised, remains in compliance with regulatory requirements. These tools include (but are not limited to):

1. (1)

   desk-based reviews;

2. (2)

   liaison with other agencies or regulators;

3. (3)

   meetings with management and other representatives of a firm;

4. (4)

   on-site inspections;

5. (5)

   reviews and analysis of periodic returns and notifications;

6. (6)

   reviews of past business;

7. (7)

   transaction monitoring;

8. (8)

   use of auditors; and

9. (9)

   use of skilled persons.

The FCA also uses a variety of tools to address specific risks identified in firms. These tools include:

1. (1)

   making recommendations for preventative or remedial action;

2. (2)

   giving other individual guidance to a firm;

3. (3)

   imposing individual requirements; and

4. (4)

   varying a firm's permission in another way.

For further discussion of the FCA's regulatory approach, see publications on the FCA's website.