The Financial Services Authority (FSA) has warned small firms that they are not below the regulator's radar and will not be able to avoid complying with its regulatory rules, writes Johanna Gornitzki.
Speaking at a conference for financial advisers, Stephen Bland, director of small firms at the FSA, argued that the perception that the regulator would not notice small retail firms was completely false.
He said: "If the perception were true, then rogue firms could choose to run their business without being picked up by the regulator, tarnishing the industry as a whole."
He added: "We are sending a very clear message that small retail firms are not under the radar. Our regulatory approach is based on giving help to firms who run their businesses while treating customers fairly and endeavouring to do the right thing – but coming down hard on those who don't."
Bland said firms failing to adhere to regulatory rules may face enforcement action.
"Our focus is on changing firms' behaviour to benefit consumers. We identify and prioritise risks and take action to mitigate them by taking specific action against individual firms. We also conduct industry-wide sampling exercises to look at specific issues, which enables us to communicate the results to benefit the market as a whole. Firms not trying to comply should be aware that they could be visited at any time," he said.
The speech was delivered just weeks after the regulator published a report on Treating Customers Fairly, which showed that only 41% of small firms had managed to meet the March deadline to have implemented necessary changes in a substantial part of their business.
Alan Lakey, partner at Highclere Financial Services, said: "Part of the problem is understanding the interaction between principles and rules. A rule is black and white, whereas a principle is grey. Some firms are trying to be whiter than white when the principles are greyer than grey.
"How the FSA is able to police this is unclear. Cost and manpower restrictions mean they have been unable and unwilling to visit many smaller firms over the past seven years," he added.
