The Financial Conduct Authority (FCA) has pledged it will overhaul the way it issues attestations to firms - which put the onus on senior management to fix problems - by placing greater importance on clarity and transparency.
Attestations are part of the FCA's supervisory toolkit. They ask senior managers for a commitment that specific action will be taken at the firm, making them personally accountable for putting things right.
In a letter to the chairman of the FCA practitioner panel Graham Beale, dated 22 August, the regulator said it will ensure all attestations are signed off at head of department level, reviewed centrally and the data published on a quarterly basis.
Beale raised the practitioner panel's concerns about the increasing use of attestations and the criteria for their use to FCA director of supervision Clive Adamson in April.
Beale said: "As you know, although we understand the underlying reasons for the FCA using this supervisory tool, we were concerned at their increasing use, and had misgivings about the reliance on senior managers attesting that they will take action, as well as the governance and monitoring arrangements around this."
He wrote a recent report by the panel which suggested the tool was "in danger of skewing prioritisation of risk at firms" and was "leading to much more discussion about terms of the attestation than any party felt was helpful".
"We encouraged you to be more transparent about the criteria for the use of attestations and to monitor these as you do with other tools, such as skilled person reports," he wrote.
Adamson pledged more openness around the use of attestations and outlined the four instances in which attestations are typically used.
These are when asking for notification of emerging risks; as a pledge a specific action will be undertaken within a particular timescale; as attestation that certain risks have been mitigated; and as verification that certain issues have been resolved at a firm.
Adamson also pointed to the need for an open dialogue between firms and their regulatory supervisors to ensure "a new attestation is properly understood".
He wrote: "We 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."
