In an address in June, Tracey McDermott (FCA Director of Enforcement and Financial Crime) gave a speech that is of some real interest ("Enforcement and Credible Deterrence in the FCA"). Whilst the speech covered such ground as the FCA's new approaches generally, we focus here on the enforcement message in particular.
One theme was the focus on individuals and senior management. Whilst this has for some time now been a theme of the regulator, it is no less important for its repetition. Additionally, McDermott also set out some observations that show clearly how the FCA is thinking:
- Whilst there was a "public clamour" for action against individuals, that was not the FCA's driver. The issue was that repeated fines of firms for conduct failures were not enough in order to achieve the desired changes. In order to achieve credible deterrence, senior managers had to be held to account.
- There was a need for cultural change at firms, and the responsibility for the overall culture of firms and their compliance sat at the top of organisations.
- Investigations into individuals are not easy and they are hard fought. There are evidential difficulties in achieving sanction against senior individuals in large organisations, largely due to the complexity of such organisations. Such cases may take more time and resource to work through and may not always be successful, but that would not deter the FCA. In many ways, regulatory proceedings against approved persons can be harder than criminal prosecutions as they look at flawed judgments rather than deliberate dishonesty.
In terms of enforcement priorities:
on the wholesale side, there would be:◦a continuing focus on LIBOR
- a continuation of work on market abuse and insider dealing
- further cases on failings in controls over financial crime
- a maintaining of focus on protection of client money and assets
on the consumer protection side:◦there would be a continued focus on mis-selling
- the FCA would also look at drivers of behaviour, such as culture within firms and remuneration structures. They had a number of cases where such issues were live.
- there were a number of cases on how firms treat customers when things go wrong, and more in the pipeline
- there would be more cases concerning different product types, for example some were going through on the sale of low value insurance
- pension liberation and pension transfer activity were matters that the regulator was concerned about.
Additionally, whilst not directly saying that the FCA were taking cases in these areas, McDermott pointed out that the wider messages of the LIBOR cases that firms should be considering were conflicts of interest, culture, and governance and risk management. If there are not currently cases in those areas, McDermott was firing a warning shot that Enforcement is likely to take a dim view of misconduct in those areas in future.