FCA: firms must address shortcomings sooner and ‘do the right thing’

Jonathan Cavill of Pinsent Masons, who specialises in compliance with financial services regulation, was commenting after Therese Chambers, the FCA’s new joint executive director of enforcement and market oversight, said firms will be rewarded for “doing the right thing” where things have gone wrong.

In her first speech since taking up the role in April, made at the City & Financial FCA Investigations and Enforcement Summit in London last week, Chambers said firms can expect to see “strong alignment” between the FCA’s enforcement work and its 2022-25 strategy. She said firms that are non-compliant with FCA rules have “nowhere to hide” and urged firms to “get their ducks in a row now, particularly given the extensive improvements we have made and continue to make in relation to data, technology and digital tools”.

Chambers encouraged firms to find speedy remedies to shortcomings they identify, inviting firms to consider how many chains of command something questionable has to pass through before it is queried. Chambers also focused on how firms often try to avoid doing the right thing by leveraging technical arguments or not focusing on customer outcomes.

Chambers said: “We follow the evidence and where there are failures, we will hold those responsible to account. Aggressive diversionary tactics may prolong the timeline, but they will not deflect us from our purpose.”

“We appreciate and reward transparency and cooperation. We appreciate and reward firms that do the right thing. Ultimately, well-run firms achieve better outcomes for their clients which in turn is excellent for their bottom line,” she said.

Chambers also shared insight into why the FCA had elected not to issue a fine to Quilter over the provision of unsuitable advice to pension savers carried out by its subsidiary, Lighthouse Advisory Service. She praised Quilter, the financial adviser business that acquired Lighthouse Advisory Services, for how it responded upon inheriting its subsidiary’s inadequate control framework. She said Quilter “not only took responsibility, but it took responsibility for a harm it did not cause” and how it then “offered redress and co-operation beyond what was expected of it”.

“These circumstances are more unusual than they should be,” Chambers said. “Unfortunately what we often encounter are firms who have to be strongarmed into making things right, who seek to evade their responsibilities, who duck and dive to avoid doing the right thing. Often running up large legal bills in the process. Money which would be better spent on remedying control failures and funding redress.”

“The amount of redress paid by Quilter was far more than the fees Lighthouse received for the unsuitable advice. Quilter deserves full credit for taking responsibility and for the proactive way in which the firm and its staff worked with the FCA to put it right. They made the necessary improvements to their systems and controls. Their co-operation was exemplary. A model example of how to behave,” she said.

Cavill said: “The speech was a clear message that the FCA intends to stay true to its word of upping the ante and taking a more intrusive approach in supervising and intervening where firms are not meeting the right regulatory standards. The message was that firms must proactively and promptly put things right when they go wrong. This will be all the more acute following the implementation of the consumer duty which contains an expectation for firms to proactively remediate customers.”

“It is clear that the FCA is keen to remind firms that doing the right thing, and being transparent and co-operative with the regulator, can result in mitigation of regulatory action and fines. We are seeing increased engagement from clients seeking to do the right thing in response to identification of systemic shortcomings, both as a reflection of having the right culture but also as a strategy of managing regulatory risk and PR,” he said.