The first thing to say is that this isn’t just about the initial authorisation of firms to permit them to conduct a set of regulated activities. It’s also about the subsequent decisions whether to allow them to vary those permissions, or to comply with rules in a different way. And it's about approving acquisitions and changes of ownership, and about approving Senior Managers etc. under SMCR. And finally, it’s about cancelling regulatory permissions as firms, for whatever reason, stop being regulated. By some measures, these would be the most important events in the regulatory lifecycle, marking the births, marriages, deaths, and much else in between.
The second thing is that Authorisations (used as an umbrella term for the above) is almost invariably undervalued within the regulator. There are four main reasons for this:
1. It tends to be the volume side of the regulatory business, where consistency is valued most highly, and which is easiest to characterise as “routine”. In 2004, when the FSA went through its first major restructure, Authorisations was centralised so it could be made more efficient, and supervisors, who had been ding thee roles, were, for the most part, happy to let them go.
2. Partly as a result of this focus on efficiency, Authorisations is the most readily measurable regulatory function, and therefore an obvious and recurring target for “savings”. Of itself, this isn’t a bad thing. However, because other regulatory processes – notably policy and enforcement (supervision is something of a hybrid, a topic for another day) – are less easy to measure, the targeting can easily become disproportionate.
3. However, the easily measurable processes are only part of the story. Authorisations’ real successes and failures are down the line, but the consequent credit and blame both tend to be taken by supervision. Arguably, it takes up to two years before the effectiveness of a major authorisations' decision can be sensibly assessed.
4. Authorisations is the area of regulation with most direct contact with firms, making it a lightning rod for any wider dissatisfaction. This unfairly diminishes its reputation. An obvious example is that Authorisations and Supervision between them tend to bear the brunt of any unhappiness with changes in regulatory policy. Supervision, however, because it is a less well-defined process, tends to have more discretion over how it implements the change.
It’s not too hard to imagine a regulatory operating model with Authorisations in a much more central role, with its expertise on business models continually recycled and refined through the supervision process and the consequent learning shared with the industry.
For now, it’s worth paying attention to these births, marriages and deaths; often that’s where the major trends start.
Behind that is a recognition that even though we are operating in a control environment – in other words, there’s no latitude for lowering standards – we must also provide a good service to firms. On a practical level, that can be as simple as ensuring that a change of case officer is handled efficiently and communicated properly to firms.