1. FCA fines in 2015: setting the direction for the future?
According to the FCA's figures, the total financial penalties levelled by the FCA in 2015 fell compared to 2014: last year, the total fines amounted to just over £905m, compared to just under £1.5bn in 2014.
However, financial institutions should treat this news with caution. 2014 was a record year for FCA fines: the total was significantly boosted by large fines for benchmark misconduct. The total fines in 2015 still significantly exceeded the total in 2013 and the FCA remained very active in the enforcement sphere last year. The FCA shows no signs of a return to lighter touch regulation and remains committed to its more assertive and intrusive approach. Given the recent response of the acting Chief Executive of the FCA Tracy McDermott to criticisms of the FCA's decision to drop its enquiry into banking culture, and in particular her vigorous denial that the FCA was "going soft" on banks, the possibility of a less interventionist approach in the future seems remote.
A convincing trend that does emerge from the figures is that the FCA seems to be making good on its objective of strengthening individual accountability. While fines imposed on individuals in 2014 amounted to just over £2.9m, they increased to over £6.5m in 2015. This reflects not only the higher frequency of fines, but also the increasing size of average fines against individuals. Individual accountability and senior management responsibility continue to be a hot topic for the FCA: it seems likely that it will use its enforcement powers alongside the implementation of the new Senior Managers and Certification Regimes this year to further strengthen the focus on this area.
2. Final Rules on the Senior Managers Regime for Overseas Banks
Last August, as covered in this newsletter, the FCA and the PRA published near-final rules on the anticipated application of the new Senior Managers Regime and Certification Regimes to the UK branches of overseas banks. Following the enactment of the necessary legislative changes in November last year, both the FCA and the PRA have now published final rules.
The final versions incorporate few substantive changes from the near final rules, which will come as a relief for institutions preparing for the fast-approaching implementation date of 1 March 2016. This is unsurprising: both the FCA and PRA were conscious of the time frame, opting to publish the near final rules last summer to allow organisations sufficient time to prepare for the implementation of the new regime.
The PRA in particular has only made small corrective changes, most notably in relation to grandfathering arrangements for those already exercising responsibilities which will become Senior Management Functions under the new regime. Affected organisations should be aware that the deadline for grandfathering applications to either the PRA or the FCA is 8 February 2016.
The FCA has made one significant change to the applicability of the Certification Regime and Conduct Rules to non-EEA banks. In the near final rules, the territorial scope was set out as follows: those exercising a "significant harm function" in non-EEA banks would only fall under these rules if they were either based in the UK or "dealing with a UK client". Following concerns that were raised during the consultation process about the breadth of that test, as well as during a separate consultation on extending the regimes to wholesale trading, the final rules have now removed the reference to "dealing with a UK client". The effect is that individuals exercising a significant harm function in a non-EEA bank will only need to be certified if they are actually based in the UK. This change brings non-EEA banks into line with the position for EEA banks. While it is a helpful move, it may well be temporary: the FCA has made it clear that it is an interim measure and that it expects to review the decision once the regimes are fully operational.