Poison-tipped Arrows cause for concern

Firms from all segments of the financial services industry took part in a recent survey, conducted by Beachcroft Wansbroughs' financial services division, which examined the effectiveness of the Financial Services Authority's Risk Assessment Framework (Arrow). Arrow visits assess the risk that firms pose to the protection of the consumer, the promotion of understanding and maintenance of confidence in the financial system.

The research showed that the way in which the Arrow visits are conducted meets firms' expectations from a process point of view. In particular, the FSA scores highly in the following areas: 85% of firms stated that the notice period they received from the FSA about an impending visit was sufficient; 80% of firms confirmed that the FSA provided them with a preliminary briefing at the end of the visit; 77% of firms received their Risk Mitigation Programme within three months of the visit, and 67% of firms considered the issues raised in the RMP to be accurate; and 75% of firms stated that the FSA appeared to have relevant experience of the firm's market sector.

However, when firms were asked for their individual feedback on the conduct of the FSA and the impact of the visit, more than half of the firms were highly critical of the FSA.

More than two-thirds (69%) of firms were frustrated by the FSA's failure to provide guidance on how they could lower their risk-assessment rating. Forty-one per cent of firms were frustrated that guidance was not given by the FSA on prioritising actions required to improve their performance and service to customers, particularly as the findings from an Arrow visit will dictate the level of regulatory scrutiny that firms will receive in future from the FSA, can effect the capital requirements for firms and may even result in enforcement action being taken. Many respondents suggested that the FSA believes the larger the firm, the greater the risk of failure, with regard to the quality of management.

While most firms understand the need for Arrow visits, the way the FSA conducts itself during these visits has a significant impact on the way the FSA and financial services regulation is perceived by the industry. Clearly, the frustration and hostility felt by many firms towards the FSA is cause for concern.