The FSA regulates almost all financial services firms operating in the UK market. It is also responsible, in its capacity as the UK Listing Authority, for policing compliance by publicly quoted companies, their directors and sponsors, with the Listing Rules.
In 2013, the FSA’s powers will be transferred to the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority (FCA). The FCA will take over much of the FSA’s enforcement and disciplinary powers against regulated firms and individuals as part of its core purpose of making sure that markets “function well” so consumers get a fair deal.
Enforcement and discipline
“The job of enforcement is to help the FSA change behaviour by making it clear that there are real and meaningful consequences for those firms or individuals who don’t play by the rules” Tracey McDermott, Director of Enforcement and Financial at the FSA
In recent years the FSA has pursued an increasingly forthright and proactive approach to enforcement and discipline. At the same time there has been a huge increase in the financial sanctions sought by the FSA’s enforcement team and imposed by the FSA’s Regulatory Decisions Committee. Both the rigour of this approach and the escalation and sanctions are likely to increase as the FCA continues the FSA’s policy of “credible deterrence”, which is all about the FSA taking tough, targeted, effective public enforcement action against firms’ and individuals’ misconduct as a way of changing market behaviour. The enforcement environment is likely to become ever more challenging for both firms and individuals.
So what action can the FSA take against firms?
The FSA’s enforcement powers range from informal requests for information and the appointment of Skilled Persons, through to detailed investigations and full-blown disciplinary action.
Punishments for rule breaches include:
- fines (sometimes of many millions of pounds);
- public censure;
- paying compensation to customers (FSA has secured hundreds of millions of pounds in customer redress); and
- varying or cancelling a firm’s permission to carry on regulated business.
The FSA knows that enforcement action can generate negative publicity for a firm. It uses individual cases to send a message to the broader regulated community.
The FCA will acquire new powers to act faster and take action when it sees firms behaving in a way that doesn’t promote “good outcomes” for consumers. It seems likely that the FCA will have powers relating to product intervention, warning notices, “super” complaints and financial promotions.
And what action can the FSA take against individuals?
And where the FSA’s rules are broken, it’s not just the firms who can be penalised. Executives and senior managers who are persons approved by the FSA can expect to have their conduct closely scrutinised and, if appropriate, face disciplinary action. The FSA has the power to impose fines and to permanently prohibit individuals from acting as directors of authorised firms.
It has said that policing senior management is one of its top priorities recognising the need to “go after bigger fry, not because they’re wealthy or high profile-we want to go after the people we actually think are causing the most damage to the market.” The FCA is expected to maintain this approach.
The FSA has completed significant criminal cases against individuals for market misconduct. It has also imposed fines totalling millions of pounds on individuals whose conduct has fallen below expected standards. That includes directors of quoted plcs who have been “knowingly concerned” in the company’s breaches of the Listing Rules.
How we can help?
When any firm or individual is confronted with an enforcement investigation or charge, it is at the very least disruptive, costly and stressful. In extreme cases, it can threaten to take away a firm’s good reputation or an individual’s livelihood. It is therefore vital to manage the process properly and minimise the damage. Getting early advice from experienced lawyers in this area will help in seeing a clear route through the regulatory minefield and minimising the risk/disruption that comes with involvement in an FSA enforcement action.