The FCA has always had the power to take disciplinary measures against individuals, including Chief Compliance Officers (“CCOs”) under s66 Financial Services and Markets Act 2000 (“FSMA”). There have been notable occasions where compliance officers have faced substantial penalties for misconduct under the previous regime. For example, the £130,000 fine levied on Alexander Ten-Holter, Greenlight Capital compliance officer, in January 2012, or, more recently, the £75,000 fine imposed on David Watters for failings in carrying out his CF10 (compliance oversight) controlled function, in July 2017 (but relating to conduct from 2009 and earlier).
So has anything really changed? The answer can only be speculative, as there have not yet been any disciplinary cases taken against individuals regulated under the new Senior Managers’ Regime (“SMR”). However, there are reasons for CCOs to fear increased exposure under the SMR.
The FCA’s approach is set out in the Decision Procedure and Penalties Manual in the FCA Handbook (“DEPP”). Of particular interest is section 6.2, entitled “Deciding Whether to Take Action”, and the differing “relevant considerations” that are taken into account when deciding whether to take action against (a) individuals under s66 FSMA or (b) managers with a Senior Management Function (“SMF”) under s66A(5) FSMA. The considerations relating to s66 are extremely vague, principally “the individual’s positions and responsibilities”. By contrast, the considerations for those who fall within the SMR are clearly pinpointed, most notably: the SMF manager’s statement of responsibilities; the firm’s management responsibilities map; and the relationship between the SMF manager’s responsibilities and the responsibilities of other SMF managers in the firm.
This contrast is a reflection of the tools now available under the SMR to the FCA in determining the true responsibilities of individuals they are considering taken action against. Everyone falling under the SMR will have both a statement of responsibilities which clearly lays out their responsibilities, and a map showing who falls where on the lines of responsibility. Rather than the FCA attempting to undertake a woolly assessment of responsibilities, they will be already laid out in black and white. This will make passing the buck, or claiming to have delegated responsibility, significantly more difficult.
This clarifying of the boundaries of responsibilities of senior managers is likely to have a particular impact on CCOs. The person responsible for compliance oversight is a designated SMF and so all CCOs will fall under the SMR. It is almost inevitable that the CCO will find themselves at the top of the management responsibilities map, with wide-ranging accountability specifically assigned to them in their statement of responsibilities. This will make it much more likely that CCOs will fall within s66A(5) FSMA, in being individuals “responsible for the management of any of the authorised person’s activities in relation to which the contravention occurred”.
When placing this in the context of the increased FCA focus on taking proceedings against individuals rather than companies (an increase of from 37% to 64% from 2014 to 2016, according to the Duff & Phelps Global Enforcement Review) it seems highly likely that the number of cases of action being taken against CCOs by the FCA will increase.
This piece was originally published in Thomson Reuters Accelus and can be accessed here, behind a paywall.