Imagine you are the Head of Compliance for ABC Financial Services. The phone rings and it’s your JFSC supervisor on the line, informing you that the Commission would like to undertake an examination of your business in 2 months’ time.
It’s a call that many of us have received over the years and are increasingly likely to receive over the coming months and years as the JFSC continue to develop their risk management and supervision activities.
Having recovered from the initial feelings of trepidation and mild panic, it is important to start preparing for the examination straight away. Never has the old adage attributed to Benjamin Franklin: “By failing to prepare, you are preparing to fail” been more appropriate.
Whilst achieving a satisfactory outcome from a JFSC exam is only possible if a business is well governed, has robust systems and controls and an effective risk and compliance function in place, investing time and effort into planning for the regulator’s examination will also go a long way towards ensuring that your communications with the JFSC are effective, the examination runs smoothly and you achieve that satisfactory outcome.
The JFSC has produced some helpful material about its examination programme that can be found on the JFSC website. The effective preparation for an examination is largely a matter of common sense but we thought it might also be useful to share some hints and tips from our own experiences.
Before the examination
Ensure that you inform the Board and senior management promptly of the examination, including the proposed dates, the type of exam and the scope. Make sure that representatives of the Board and other key personnel are available during the “onsite” part of the exam.
Arrange an initial planning meeting with key personnel and then regular meetings throughout the preparation period. It is important that Compliance is not the only department responsible or aware of the planning work, and vital functions such as HR, IT, Risk, Operations, Company Secretarial and client facing teams should also be involved, as you will almost certainly need their help with preparing for the examination.
We recommend that businesses adopt formal project management principles for their examination preparation work, with a documented action plan, priorities, specific responsibilities and target dates. It might be helpful to appoint a dedicated project manager to co-ordinate all planning activities if you have that option.
Identify and document any high risk issues and obstacles that may impact upon achieving a satisfactory examination outcome (e.g. known deficiencies in IT systems and controls), and if not already done so, agree how these will be communicated and addressed.
Some businesses may wish to keep staff communications regarding the examination to a ”need to know” basis, however in our view, it is preferable to keep everyone informed and where possible, involved in the preparation. JFSC examinations are, after all, routine and staff should be ready and available to assist.
Having received a written confirmation of the examination from the JFSC, it is likely that they will arrange a preliminary meeting. Don’t be afraid to seek clarification if anything is unclear, particularly with regard to the scope or timeframe. It is important to ensure that everyone knows exactly what to expect.
The JFSC will issue a request for information and documentation they require, that must normally be provided to them 4 weeks prior to the examination. Under no circumstances underestimate the amount of work that may be required in collating this information – it will most likely be extensive and wide-ranging. On a very practical level, it is worth checking the arrangements your business has in place to access the JFSC portal, as this is the means by which the documentation will be submitted to the JFSC. Ideally, you should not be reliant on just one person having access.
It is quite possible that you will identify gaps whilst collating the information requested by the JFSC. If so, recognise the gaps and plan how they are to be addressed. For example, you may be able to provide the requested information by way of another format. Be transparent with the JFSC – if they are asking for a copy of a policy document or a register that you don’t have, tell them, together with your plans to address the matter. Hastily trying to create a required document prior to an examination is very likely to be obvious to the JFSC and would not be an effective use of your precious planning time.
You may well experience difficulties in meeting the JFSC deadlines for the provision of some information. If so, don’t leave it to the last minute before informing them. Hopefully, you can agree a realistic alternative timeframe well in advance of the original deadline.
Brief all staff prior to the examination so that they are prepared and know what to expect. Develop an understanding of the type of questions that the JFSC may raise with all parties during the course of the examination. This will ensure that the board, senior management and key persons feel prepared and confident about matters that they are likely to have to discuss with the JFSC.
During the examination
The key challenge for a business in these COVID-19 times, is coordinating the management of the examination when it is being conducted remotely. It is likely that meetings with the JFSC will be via telephone or video conference. Video meetings may appear more formal and daunting than physical meetings, and it is very important that attendees are fully prepared before attending and have a good understanding of the purpose and content of the meeting. A senior colleague may also attend (e.g. to take notes), although should not participate, unless requested to do so. Hold de-briefs with interviewees regarding key matters that arose in the meetings. Remember that it is possible, and may actually be helpful to the JFSC, to email them with any clarifications or additional information that you think appropriate after such a meeting.
As the JFSC won’t be physically on-site, they may raise questions that arise during the examination by email and they will expect prompt responses, again by email. It is of course very important that questions are answered accurately and as comprehensively as possible. However, the provision of written responses adds an additional pressure to provide a swift, yet accurate answer that may first need to be reviewed by other staff members. Keep a record of all JFSC information requests and ensure that they are promptly addressed.
Try to keep in regular contact with the examination team throughout the “onsite” part of the examination. The JFSC has stated in its guidance that it will arrange daily close-out meetings with the business to provide details of findings or deal with outstanding information and questions.
Ensure that you provide the Board and senior management with regular updates on the progress of the examination. Also, you may wish to seek from the JFSC at the completion of the examination, a summary of their key findings and any outstanding information they still require.
If action points or deficiencies are identified during the examination, don’t wait until you have received the JFSC’s written report before taking steps to address them. If you take prompt action, you will be able to demonstrate that matters are taken seriously and have either been addressed or are being progressed.
Once the JFSC has confirmed that the “onsite” aspect of the exam has concluded, you can hopefully take a deep breath and reflect on a well-managed examination. It is important to thank all staff who have been involved in the examination for their contribution.
All you have to do now is await the JFSC’s formal feedback!!
Philip Baker is a director at Cyan Regulatory Services Limited. Please contact us for further information on our services.