FSA warns firms to act on compliance advice

The financial regulator carried out work in late 2006 and early 2007 to see if, and how, compliance consultants were used in small mortgage, general insurance and financial advice firms. The project also looked into whether the firms that did use consultants used them effectively.

In particular the FSA visited 22 small firms employing compliance consultants in early 2007 and found nearly half of them still had significant weaknesses in respect of their regulatory requirements. The work also showed over a third of these firms were not acting on recommendations from their consultants that would have improved their regulatory position.

Jonathan Fischel, head of investment in the small firms division of the FSA, said: “Firms need to meet their regulatory responsibilities, and respond to any compliance failures that have already been identified by their consultants. Firms should always take appropriate action to be compliant. They cannot contract out their regulatory responsibilities and they should not assume they are fully compliant just because they employ consultants.

“We have produced various tools to help small firms comply with our rules, most of which are available to them free of charge. We believe small firms can meet their regulatory responsibilities without the need to use compliance consultants, but we do recognise that small firms can benefit from the use of compliance consultants.”

The FSA has already worked with the failing firms to help them comply with its rules.