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Here to help with Regulation and Compliance

Compound Growth

11th December 2015

Regulatory fine for Risk Management failures

The FCA has today fined Ms Paivi Grigg £14,807 for regulatory breaches whilst holding the position of Risk Management Director at Financial Limited and Investments Limited.

In the FCA’s Final Notice, the regulator explained clearly the areas that came under of Ms Grigg’s responsibility and where she failed to measure up and perform these duties. Regulated firms can take lesson from Ms Grigg’s regulatory fine and review and assess if their own Risk Management processes and procedures are up to scratch in light of the comments by the FCA.

What is Risk Management:

The Financial Conduct Authority considers risk to be a combination of impact and probability  i.e. the potential harm that could be caused from something happening and the likelihood of that particular issue or event occurring.

When assessing risks, weighing up the combination of both impact and probability factors will provide firms with a gauge of the overall risk posed to them and their businesses. From this, firms should be able to then prioritise their risks from which they can then address and make any decisions on courses of action and resource allocation as necessary.

Key Risk Management Duties:

The regulator identified that in Ms Grigg’s role as Risk Management Director, her principal risk management responsibilities were:

• Planning, designing and implementing an overall risk management structure for the organisation;
• Ensuring all “quantitative and qualitative” risks affecting the business, as well as its risk appetite, were identified and document within the business;
• Through chairing the Risk Committee, ensuring that all risks were considered and controls identified to enable risk mitigation, where appropriate;
• Ensuring the firm’s management consider and document all inherent risks in business proposals;
• Ensuring the Board receives sufficient management information (“MI”) from all areas of the business to understand and manage significant risks; and
• Managing insurances taken out to mitigate risks.

Risk Management Failings:

Following the regulator's investigation, it emerged that Ms Grigg not only breached her responsibilities as an Approved Person in failing to carry out her duties with due skill, care and diligence, but she also failed to understand her Risk Management responsibilities and failed to adequately identify, manage and control the material risks arising from the firms’ business model.

As a result, together these failures resulted in an inadequate risk management framework to mitigate risks particular to the nature, scale and complexity of the firm and its business.

What firms can learn from this:

Ms Grigg’s failures resulted in a £14,807 fine and should act as a wake up call to those managers within firms that are responsible for managing risk. Firms, particularly those affected by the implementation of the Senior Managers Regime (SMR) next year, should ensure that they:

• Review their firm’s existing risk management framework and ensure that any review that is undertaken adequately identifies any deficiencies within the framework;
• Scrutinise existing risk management arrangements and particularly any risks posed to their underlying customers;
• Implement an adequate risk management framework to enable the Board to identify, measure, manage and control risks that the firm and its business is or may become exposed to;
• Adequately record and document identified risks and that the scope and quality of any Management Information presented to the Firm’s Board is sufficient, reliable and relevant to enable the Board to effectively identify and monitor material risks, and the systems and controls in place in relation to them;
• Monitor risk on a proactive and ongoing basis to ensure that the Board fully understands the Firm’s risk exposure; and
• Clearly assign and allocate risk management responsibilities within the firm and those relevant individuals understand the full remit of their role and responsibilities.

Regulatory Support: Who can help?

If you would like assistance in planning or preparing for any of your firm’s current or future regulatory requirements, please get in touch with our helpful and friendly compliance support team who would be happy to hear from you.

Risk Management: Key Responsibilities

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.

As noted from the FCA:

Risk management is designed to:

• identify the main risks as they arise;
• measure the importance of each risk;
• mitigate risks; and
• monitor the progress of each risk.

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