Companies 'unprepared' for N2

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With less than two months to go before the Financial Services and Markets Act comes into effect, KPMG has issued a stern new warning that many hundreds of financial services firms may not be prepared for it at all.

The Act, which has taken several years to pass into law, will give the Financial Services Authority, chaired by Sir Howard Davies, far-reaching powers to pursue cases of misconduct within the financial services industry. Those powers will be applied from 1 December this year – a deadline that has been code-named "N2".

But KPMG analysts, via regular contact with companies throughout the industry, have identified a worrying lack of preparation among firms, despite concerted efforts from the FSA itself to get them ready.

"A significant proportion of firms have hardly prepared for the changes it will entail," said Marcus Sephton, lead partner of KPMG's Regulatory Services practice. "While the larger firms have made good progress with their N2 preparation projects, our experience shows that many firms, including some headquartered overseas and smaller UK organisations, have barely started."

KPMG believes that this law is going to be the catalyst for a much tougher stance from the FSA, meaning non-compliant companies can expect heavy fines.

What makes the slow response from the industry all the more surprising is that the law will give the FSA specific powers to take action against individuals for misconduct.

"Firms should pay particular attention to the Senior Management Responsibilities and Approved Persons Regime, which brings increased focus to the personal responsibility of directors and senior management for effective and responsible organisation of their company's affairs," said a KPMG spokesman. But firms hoping to start their preparations now may already find time against them.

"Getting to grips with the 12 volumes and over 3,000 pages of the FSA handbook is no small task," said Mr Sephton. "There are many other changes for which firms will have to prepare – including changes in the conduct of business rules, prudential requirements, training and competence, money laundering, complaints handling, and the new market abuse regime."