FCA enforcement action increases in wake of senior managers regime

The FCA’s annual report shows that the number of open investigations rose from 410 on 1 April 2017 to 504 on 31 March 2018, with the regulator opening 302 cases and closing 208 in the 12-month period.

A total of 48 investigations into firms’ culture and governance were opened in the year and only two closed, meaning that the number of open investigations rose from 15 to 61.

There was a similar hike in the number of financial crime investigations. The FCA opened 46 financial crime actions and closed 15, with 86 cases open at the end of the year compared to 55 in April.

There remain a significant number of insider dealing cases open, although the number fell from 84 at the start of the 2017/18 year to 75 by the end after the FCA closed 65 insider dealing investigations.

"The markedly increased number of investigations relating to culture and governance reflects the high priority the FCA is placing on this area," said financial services expert Ben Brown of Pinsent Masons, the law firm behind Out-Law.com. "The SMCR makes senior executives responsible for leading changes from the boardroom. It is clear that the regulator is now holding firms and senior managers to account for culture and governance failings. Accordingly, now more than ever financial services firms should be focusing on improving internal culture by prioritising diversity and inclusion initiatives and the protection of whistleblowers."

"Transforming an established culture will inevitably require the enforcement of acceptable standards of behaviour. For these reasons a robust code of conduct and disciplinary policy are becoming increasing essential in the financial services sector. Failing to improve culture and governance will leave firms exposed to enforcement action and potential penalties in the event the FCA has reason to investigate the firm or an individual in the future," said Brown.

FCA investigations can involve both financial services firms and individuals working within them. Under the senior managers’ regime (SMR) the FCA has the power to launch parallel investigations into firms and individuals.

The SMR came into force on 7 March 2016 and is designed to make it easier for the regulators to hold senior individuals within banks personally accountably for failings on their watch. It will be extended to insurers on 10 December this year.

Although the number of enforcement investigations has risen substantially, the total value of financial penalties imposed by the FCA last year more than halved. The FCA imposed penalties of £69 million on six financial services firms last year, down from £180.1m on six firms the previous year.

Meanwhile 10 individuals were collectively fined £900,000 last year, the same figure as in 2016/17.

The amount of financial penalties is significantly down from 2015/16, when fines included exceptional sums relating to exchange and LIBOR misconduct.