ARROW visits: Is your firm a target?

Updated September 2011

It's that time again. The new ARROW season is upon us and the Financial Services Authority (FSA) will shortly be making its rounds. If your firm is one of the chosen few, it is time to get the ball rolling to fully prepare, so that the firm presents confidently during the visit. So what steps should you be taking and what should you expect from the FSA this year?

ARROW, a loose acronym for Advanced, Risk-Responsive Operating frameWork, is a process intended to identify and assess the main risks posed by a firm to the FSA's statutory objectives. Most firms will already have a good idea of what to expect, but ARROW visits can still be a daunting prospect, particularly since the FSA has turned to a more intrusive style of regulation. The key is to be as prepared as possible. Firms should be given notification a good couple of months before receiving an ARROW visit, and it is imperative to use this time effectively.

As an absolute minimum, firms should think about:

• Appointing a project team. Many firms' compliance departments are under-resourced and would struggle without additional support.
• Identifying weaknesses. If you can identify any particular operational risks that you know the FSA will take an interest in, always address these before the visit and consider how you can demonstrate to the FSA that you are mitigating any risks posed.
• Interview preparation. It is always a good idea to prepare interviewees before the visit, particularly as the FSA has recently adopted a more intensive style of interview delivery. Practice interviews are an effective way of ensuring that interviewees know what to expect.
• Reviewing records. Make sure your firm's documentation and records are up to date and complete. This includes audit reports, meeting minutes, compliance monitoring, training and competence and also check for legal privilege.

Aside from general preparation, the most important thing that firms can do to prepare for their impending visit is to have a solid understanding of what the FSA's hot topics are. This will give an excellent indication of the areas on which the FSA will focus.

The FSA's Retail Conduct Risk Outlook 2011/2012 (RCRO) identifies emerging risks and indicates the FSA's priorities, so it is a good place to start. The RCRO focussed generally on complaints handling by firms, the implementation of the Banking: Conduct of Business Sourcebook and the Payment Services Directive and strategies in the run up to the Retail Distribution Review. These are all matters that should be considered in the preparation for an ARROW visit.

Whilst this is a good place to start, the FSA's focuses for this year are broader than those issues highlighted in the RCRO.

Next week the FSR team will consider some of the most topical issues for mortgage lenders.

If you would like assistance or advice in relation to an imminent ARROW visit, or any of the hot topics above, please contact Suzanne MacDonald. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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