Principles Based Regulation – What Does It Really Mean?
A sceptic might say, “whatever you want it to”. Certainly it is not a recent phenomenon, indeed the original self-regulatory organisations started out with principles which were rapidly lost in the demand for clarity. Firms wanted to know exactly what would satisfy these new regulators and to have certainty regarding what was expected of them.
The Financial Services Authority (FSA) has been moving in this direction,sometimes quickly sometimes slowly as the level of tolerance and maturity in the industry allowed. Enforcement actions have been based on breaches of Principles from 2002 to illustrate the point. 2004 saw the first mentions of Treating Customers Fairly and 2006 the announcement of a deliberate shift from detailed rules to reliance on principles.
The responsibility for making PBR work rests squarely with senior management. For senior management to recognise this responsibility and understand how it fits with apparently conflicting demands such as maximise profit and minimise costs requires a very focussed message supported by independent and objective facilitation to tease out how these demands can be reconciled.
Clarity concerning the role of compliance in this metamorphosis can also be difficult. It is a brave compliance officer who will “let go” of the rules and allow a principles based decision to be made by senior managers.
How we can help
- providing insight into what this change means for the organisation, senior managers and the compliance function
- through case studies reflecting your business, teasing out the conflicts and generating ideas for resolving them
- challenging the status quo and drawing out the opportunities and threats in changing your approach
- Facilitating the development of an agreed way forward in both setting the principles for the way the business operates and a process for deciding how to evidence the outputs required.
Talk to us about how to engage senior management in Principles Based Regulation. Ring 01327 858292.
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