FCA and PRA enforcement trends – the FCA’s new approach

Back in July 2021, the FCA relaunched itself under its new CEO as a more assertive regulator. FCA enforcement activity over the last year or so has demonstrated that this was much more than a simple rebranding exercise. There has been a noticeable shift in rhetoric when the FCA talks about supervision and enforcement, with a much stronger focus on identifying misconduct early and intervening even before an investigation has been launched.

Fines

In the financial year 2021/22, the FCA imposed fines of GBP577.88 million, its highest total financial penalties since 2015/16. 

To date, the FCA had imposed GBP217.3 million in fines for the financial year 2022/23 (excluding fines where the decision notices have been published but a referral has been made to the Upper Tribunal since the effect of those decision notices has been suspended pending the outcome of the referral).

Open investigations

In 2022, the FCA’s number of open enforcement investigations has remained steady. However, there has been quite a bit of turnover in that headline figure. Although at the end of the 2021/22 financial year, the FCA had closed its lowest number of enforcement investigations since 2017/18, during that period, the FCA opened a significant number of new enforcement investigations. 

This is consistent with the FCA’s strategy of opening more enforcement investigations and using them as diagnostic tools, although it seems that the FCA is still not putting its objective of closing more of those enforcement investigations into practice. 

This strategy was devised by Mark Steward, the FCA’s current Executive Director of Enforcement and Market Oversight, shortly after he joined the FCA in 2015. In mid-October 2022, the FCA announced that Mr Steward is due to step down from this role and leave the FCA in Spring 2023. The search for his replacement is ongoing, and only time will tell if his successor chooses to continue with his enforcement strategy, or adopt a different approach.

Contested decisions

Following changes to its powers that took effect from 26 November 2021, the FCA’s Regulatory Decisions Committee (RDC), now handles far fewer cases and primarily focuses on contested enforcement cases. However, firms and individuals who refer their cases to the RDC can still expect an additional ten or eleven-month wait for their case to be considered. 

In addition to challenges before the RDC, referrals to the Upper Tribunal are becoming increasingly common, particularly in relation to market conduct offences. This is, perhaps, to be expected where decisions have been made against individuals, however, we are also awaiting the outcome of references made in 2021 and 2022 by a bank and, separately, by a hedge fund. 

Interventions

The FCA has increased its emphasis on interventions, for example, imposing requirements on a firm to do, or refrain from doing, something. In the 2021/22 financial year, FCA own initiative interventions increased by 95% and voluntary interventions increased by 74% compared with the previous three years. 

Interventions are often less visible to many regulated firms but they are as significant, in many ways, as the FCA’s more conventional enforcement powers. Historically, only a small proportion of these cases are made public. It will be interesting to see if this changes as a result of the FCA’s new assertive approach.

Interventions can be used to stop a firm from undertaking all or part of its business or to stop firms accepting new customers, where the FCA considers that this is necessary to mitigate a significant risk of harm. The FCA has historically targeted its interventions at “problem firms” but can exercise the same powers against any firm, if it considers the risk of harm to be sufficiently serious. 

These powers are not new, but recent changes to internal decision making at the FCA have made them an attractive and nimble tool that can be used more often and more rapidly. Consequently, the trend of increased interventions in relation to a broader range of firms is expected to continue. 

The year ahead

The UK appears to be heading into a more challenging enforcement environment with an unhappy confluence between a number of the regulators’ key areas of focus, particularly the protection of consumers, market abuse, financial crime and operational resilience, and the impact of current market, societal and geopolitical events. This significantly increases the risk of employee misconduct, consumer detriment and weaknesses being highlighted in some firms’ systems and controls. When combined with the FCA’s stated intention to be more assertive, it seems likely to lead to more investigations and enforcement by the regulators. 

This post is based on an article “FCA and PRA Enforcement Action: Trends and Predictions” which first appeared in the January/February edition of PLC Magazine. A copy of the full article is available here and on the PLC Magazine website.