Thematic work
Thematic work is one of two main approaches we use to supervise the firms we regulate. ‘Supervision’ is the term we use to describe our day-to-day regulatory relationship with authorised firms. It is our process of monitoring firms to ensure they are complying with our regulatory requirements.
We supervise firms using a risk-based approach. ARROW2 is the framework we use to make our risk-based approach operational and to do this we use two main methods. These are:
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Assessing risk in individual firms
This is where we look at the risks and issues which arise from the activities of an individual firm. For more information on this type of supervision see 'How we supervise firms'. -
Assessing risks that impact across a range of firms within a particular market or industry sector
We call this 'thematic supervision' or 'themed work'.
To ensure that we are using our resources in the most efficient and effective way we may choose to use one or other approach, or sometimes a combination of both, to manage risks that have been identified. You can find out more about how we identify emerging risks in the markets we regulate by reading our emerging risk pages.
Why we undertake thematic work
Thematic work helps us identify the scale and nature of risks that emerge from our intelligence and surveillance of the markets we regulate and, where appropriate, to take action to address these risks. It enables us to consider the activity taken by different firms across a particular sector in a consistent way and helps us identify good and bad practice.
A thematic approach allows us to look at specific issues using a specialised team. This enables us to focus our resources and information in an efficient way. Thematic work plays an important role in our supervision of larger firms, but for small firms thematic work comprises almost all of our supervisory activity. For more detailed information on how we supervise smaller firms, please see our small firms web pages.
How we choose which thematic work to undertake
As a risk-based regulator we take a proportionate approach to monitoring the activities of our authorised firms. When we decide our thematic priorities for the year ahead, we consider the overall impact any work will have on the firms and markets we regulate.
A group of senior decision makers are responsible for reviewing proposals for thematic work and the outcomes we hope to achieve against this regulatory background, using the ARROW2 framework. This enables us to respond quickly to the emergence of potentially material new risks and provides a robust system of prioritisation. These senior decision-makers also consider the potential impact of not undertaking thematic work on a particular issue.
When considering areas for possible thematic work, we look for indicators of new or unexpected developments. For example, we undertake market surveillance and an unusual surge in sales of a product might prompt us to make further enquiries about how this product is being sold. Our monitoring of financial promotions, complaints and the press are other important sources of intelligence.
However, as a risk-based and proportionate regulator we do not undertake further work on every issue we consider. For example, of the retail issues we considered in 2006, only around 20% of them led to us undertaking any significant level of further work. Examples of work we have decided not to do can be found on our emerging risk pages.
Thematic work we are planning for the next year
Retail markets
Our retail strategy is to ensure that customers achieve a fair deal. We approach this from several angles, focusing on how firms are managed and how they interact with customers. Much of our thematic work in this area is underpinned by our Treating Customers Fairly initiative. Current areas of thematic work include mortgages, advice, insurance and investments.
In response to fluctuating market conditions we may re-assess our priorities and change the overall balance of our work across prudential, liquidity and conduct of business risks. As a result it may be necessary to reschedule our work, or in some cases stop particular pieces of work altogether.
You can find more detail on our retail thematic work in our major retail thematic work plan [PDF]. This is a document that we use to be open and transparent with our stakeholders about the work we are undertaking and what we are seeking to achieve. We will review the plan through the year to ensure that it continues to represent an accurate picture of our planned work programme.
Wholesale and institutional markets
During 2008/2009, in addition to the ongoing thematic work addressing current market turbulence issues, our wholesale markets thematic priorities include helping market participants to:
- maintain momentum in improving stress & scenario testing, paying particular attention to the correlation between risks in stress & scenario tests;
- maintain effective anti-market abuse systems and control inside information, taking account of disclosure requirements; and
- treat customers fairly and provide clear, fair and not misleading communications.
You can find more information on how we regulate wholesale firms and markets on our wholesale and institutional markets web pages.
The different ways we undertake thematic work
When we carry out thematic work, we have a range of methods that we can use to assess and monitor the risks we are addressing. We call these methods ‘regulatory tools’. We may decide to use one or several different tools within a particular piece of thematic work. For example, a desk based review of firms' product literature, mystery shopping and programmes of firm visits are just three of the tools we may use when undertaking thematic work.
How we select firms to be involved in thematic work
We monitor and track all potential requests to contact firms. We assess the relative importance of involving a firm in thematic work and consider the amount of supervisory and thematic contact the firm has had in the previous 12 months. Measured against these criteria we sometimes decide not to contact a firm and instead, if possible, visit a comparable firm in the same industry sector offering the same or similar products or services.
We aim to choose the firms we contact for thematic work from all the participants in the particular market we are reviewing, regardless of size. However, in any one year we may contact a firm holding a large market share in a number of products or services about a number of different pieces of thematic work. Including these firms in thematic work allows us to ascertain how the majority of retail consumers are treated in relation to a particular issue or obtain a clear view of standard market practice.
Likewise, firms that are involved in a number of market sectors are likely to be contacted more often than smaller firms who are only involved in one or two market sectors.
As we are a risk-based regulator, the thematic work we pursue usually relates to sectors and products with higher risks. So firms operating in sectors with higher identified risks are also more likely to be chosen for thematic work.
How we communicate our thematic work programme
We meet with trade and consumer bodies twice a year to talk to them about our forward programme of thematic work and we publish our major retail thematic work plan [PDF] on our website . We also contact smaller trade associations who might have an interest in specific pieces of thematic work as part of our small firms’ communications strategy.
Before we publish the results of a particular piece of thematic work, we contact relevant trade bodies, consumer groups and any firms we have contacted as part of this work, to inform them of our overall findings. In addition, if we visit a particular firm as part of a thematic work programme, unless the work is purely of an exploratory nature, we will provide them with individual feedback on our visit findings.
All of our publications can be found in the FSA Library.