Regulatory 'attestations' will be subject to more formal governance and recording, says FCA

Out-Law News | 27 Aug 2014 | 5:23 pm | 2 min. read

The Financial Conduct Authority (FCA) has promised better governance and more formal recording of its use of attestations, or personal commitments from approved persons at regulated firms, following industry unease about the practice.

In a letter to practitioners, FCA director of supervision Clive Adamson pledged to make "substantial and important" changes to the attestations process to ensure that it was used consistently (3-page / 505KB PDF). These would include revised internal guidance to be referred to regulators when using attestations, stronger governance requirements such as a central review process and need for department head sign-off, and a commitment to publish data on the use of attestations quarterly.

Financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said that the new processes would "raise the profile" of attestations as a supervisory tool and could lead to the FCA increasing its usage of them.

"One could foresee that on standard supervisory activity, attestations will be considered every time as an automatic part of decision making in every supervisory situation," he said.

"When anything comes up, the FCA supervisor will now ask if attestations can be used and, if so, what for, and how they should be logged. Every supervisor has a toolkit available to him or her, and attestations will now be more of a part of it. This will now be a very structured part of the toolkit," he said.

Attestations enable the FCA to formally request that a named senior individual at an authorised firm commits that a particular course of action has been or will be carried out. An attestation is essentially a personal undertaking by a named individual that a particular state of affairs exists. According to a letter sent to Adamson by Graham Beale, chair of the FCA's Practitioner Panel, firms are becoming increasingly concerned about the increasing number of attestations issued by the regulator, as well as the governance and monitoring arrangements surrounding their use.

In his response, Adamson said that attestations were designed for use as a formal supervisory tool, in circumstances where the FCA needed to ensure "clear accountability and senior management focus on specific issues where the FCA would like to see change within firms, often without on-going regulatory involvement". They were typically used when the regulator wanted notification of emerging risks, as a pledge that a specific action would be undertaken within a particular timescale, as attestation that certain risks have been mitigated, and as verification that certain issues had been resolved, he said.

"Attestations are an important supervisory tool and we recognise the importance of clarity, transparency and consistency in their use," he said in the letter.

"Due to the potentially significant impact on individuals and firms flowing from attestations, it is important that attestations are clear and realistic: they need to be specific, achievable and have demanding but realistic timelines … [W]e don't expect firms to create onerous assurance processes that could skew prioritisation, and of course, in considering when to ask for an attestation, we look at the range of issues on which the firm's senior management is focused, and the issues to which the firm's resources are being applied, to ensure that the most significant issues are the ones receiving most attention," he said.

To ensure "increased consistency" in the regulator's approach to attestations, Adamson said that the FCA would issue "revised internal guidance and supporting materials" made available to supervisors in order to emphasise the importance of clarity and transparency when using them. Governance changes set out in the letter included ensuring that all attestations were signed off by a department head and having them reviewed by "a central quality assurance function similar to the one used for Skilled Person Reviews", he said.

"We are also changing the way we record and track attestations. Going forward, we are looking to publish data on attestations on a quarterly basis, similar to the information we publish on Skilled Person Reviews," he said.