The UK Financial Conduct Authority (FCA) has been publishing a series of papers setting out its approach in particular areas, building on the FCA’s Mission. Towards the end of last month it published a paper setting out its approach to enforcement and asking for views.
The single consultation question is whether the paper has set out the FCA’s approach to enforcement clearly or, if not, what more the FCA could do to explain or clarify its approach. The consultation closes on 21 June.
The FCA’s paper does not signal a dramatic change in approach. It is instead a helpful reaffirmation of what the FCA has been saying publicly about its approach to enforcement more recently, and what we have been seeing in practice. Three points are worth drawing out in particular:
1. Investigations as a diagnostic tool, not solely a route to a public outcome
As I noted in a post earlier this year, the FCA has said that it is using enforcement to find out what happened, not just as a precursor to a contemplated enforcement action. This is in part a response to the criticism in Andrew Green QC’s 2015 report on the HBOS investigations regarding the FCA’s previous tendency to consider at the referral stage the prospects of success of securing a public outcome. It is also the approach favoured by Mark Steward since he became Director of Enforcement in October 2015.
The paper continues this theme: “Opening an investigation does not mean we believe misconduct has occurred or that anyone involved in the investigation is guilty of misconduct”. Linked to the next point below, it also notes that “Where it is clear there is no substance to suspicions or evidence of serious misconduct it is important that we end investigations promptly. In these cases, we may use other powers to address our concerns.”
2. The FCA will not investigate every breach, however small
The FCA will start an enforcement investigation where “serious misconduct” is suspected. This includes mis-selling to consumers, serious systems and controls failings, and financial crime. The FCA acknowledges that “not all breaches of [its] rules or requirements constitute serious misconduct. Many breaches can be addressed and remedied elsewhere (and we expect them to be) without the need for enforcement action, especially where the breach is technical or minor.”
3. Potential credit for proactively redressing harm
Linked to the second point, a pervading theme in the document is the emphasis on the importance the FCA places on firms taking action themselves to redress harm caused: “Firms and individuals should not wait for an investigation to end before acting in a way they think is right…we will acknowledge and give substantial credit to wrongdoers who speedily address wrongdoing when we decide on appropriate enforcement action…If firms and individuals fully account for any harm caused, including putting it right where there are reasonable grounds to do so, we will consider this when applying sanctions. In extraordinary cases, it may determine whether a sanction is required at all.”
We have been seeing this in practice – for example, in some cases in the retail space last year where firms agreed redress schemes with the FCA and were not enforced against. As recently as this month, the FCA announced that a firm had agreed to contact affected customers in relation to insurance renewals. This is not to say however that the FCA will not order restitution as part of an enforcement decision, as they did against Vanquis Bank in February.