Tracey McDermott, the Director of Enforcement and Financial Crime at the new Financial Conduct Authority (FCA), has made it plain that the new financial regulator means business.
In a speech at the Thompson Reuters Compliance & Risk Summit on 18 June, she set out her vision for a new, improved regulator which will take a revolutionary approach to both supervision and enforcement.
Among the most eye-catching initiatives were the following:
- The creation of a new Policy, Risk and Research division, to act as the “radar” of the organisation and to enable it to detect failures and intervene at a much earlier stage. This is part of a new approach which will see the FCA anticipating problems and thinking much more innovatively than its predecessor.
- The bringing together of policy, authorisation, supervision and enforcement so that there will not necessarily be a linear progression from one to the next, but a fluid deployment of the most effective tools from any of the divisions at any stage.
- An increasing role for the regulator in testing and challenging the assertions of firms regarding the culture of their organisation. This will be part of meeting the widely-accepted need to change the culture within certain firms and the financial sector in general.
- Pursuing a policy of credible deterrent by holding senior managers to account. Ms McDermott points out that the regulator’s record in this regard improved drastically over the last 12 months, it having handed out bumper fines and prohibitions to a number of high-profile individuals. As the FCA’s confidence grows, there seems little likelihood of a reversal of this trend.
- A focus on wholesale conduct. This is evidenced most strikingly by the LIBOR cases but we can expect to see the FCA taking this approach across the board. The other priorities for the year ahead will be market abuse, insider dealing, failures in controls, protection of client monies and consumer protection.
So what does this mean for firms and individuals?
One thing they can expect is much earlier engagement with the Enforcement division when things go wrong, together with an expectation of their full co-operation at this early stage.
Ms McDermott acknowledges that firms say time and time again that they want the FCA to be more predictable in their response. However, she goes on to point out that relatively few non-relationship managed firms have sought out information on the new regulator or have even accessed their website: she explains that engagement needs to be a two-way process and firms themselves need to take responsibility for learning about their regulator. Of course this is true, but the fact remains that firms will remain wary of approaching the FCA on a proactive basis if they cannot be sure of the FCA’s response. Without greater certainty, early and proactive co-operation on the part of firms is likely to remain a laudable objective rather than a reflection of reality.