- Investigations Insight
FCA and PRA enforcement trends – spotlight on the PRA
Managing Director, A&O Consulting
07 March 2023
The UK Prudential Regulation Authority (PRA) is less prolific in announcing formal enforcement action. However, the action it takes still provides an interesting indicator of common failings, regulatory risks and the UK financial services regulators’ approach to and appetite for intervening and taking action.
With the scope of its powers focused on fewer firms and fewer issues than the Financial Conduct Authority (FCA), the PRA typically takes a small number of enforcement actions against firms each year. The PRA will take action where the conduct of firms might affect the PRA’s ability to supervise, or where a crystallised risk, action or a public event could have a direct impact on the PRA’s statutory objectives.
The total number of open investigations at the PRA had been increasing over the last four or five years, culminating in 29 open investigations in 2021, which was a record-breaking number for the PRA. That trend seems to have reversed and the PRA now has significantly fewer open investigations. By 7 October 2022, there had been a 41% reduction in the number of open investigations between 2021 and 2022.
At the end of 2021, the PRA announced two significant enforcement outcomes. However, this does not account for the reduction in the PRA’s investigations caseload. Of the 13 PRA enforcement investigations closed between 2021 and 2022, as at 4 November 2022, only three resulted in enforcement action being taken.
In the financial year 2021/22 the PRA imposed its highest total fines ever of GBP51.93 million. By the end of 2022 it had imposed two fines, totalling GBP28.6 million. It is possible that the total for financial year 2022/23 will surpass that of the previous year.
Both of the fines levied by the PRA in 2021 were for reporting failures. These final notices and other PRA communications suggest a focus on:
- Preventing inaccuracies in regulatory reporting and returns, and dealing with them effectively when they occur.
- Ensuring clear and effective internal escalation of issues and information.
- Ensuring adherence to internal reporting thresholds.
- Effectively monitoring and keeping pace with complex regulatory requirements.
The last of these, will be a particular focus where firms are considering entering new markets or experiencing a period of rapid growth.
The two fines levied by the PRA in 2022, were more diverse in subject matter. The first related to historic governance and oversight failures, following a group reorganisation at an insurance business; and the other related to operational resilience.
Whether or not it results in further fines being levied, we expect firms’ operational resilience plans to remain under intense scrutiny from both the PRA and FCA throughout 2023 and into 2024. The PRA has kicked-off the new year with a series of Dear CEO letters, targeting insurance firms, UK deposit takers and international banks. All three of which focus on operational risk and resilience. This is not surprising considering recent political and economic events and the introduction of new rules by the PRA and FCA in March 2021.
Joint PRA and FCA investigations
The practice of both regulators taking action in relation to materially the same misconduct was criticised by the Upper Tribunal in the 2021 Forsyth decision. That criticism may result in fewer joint investigations and outcomes, although the regulators will maintain their right to conduct joint investigations in appropriate cases. In a recent striking case, albeit one that started before the Forsyth decision, the PRA and FCA imposed fines based on the same facts and for fundamentally the same breaches. The case appeared to involve a joint PRA and FCA investigation and identical press statements were issued by both regulators, saying that they had collectively fined the firm GBP48.6 million.
Notwithstanding this recent case, the PRA appears to be moving away from focusing on joint investigations with the FCA and has a growing appetite for conducting its own standalone investigations. It will be interesting to observe, over the next couple of years, the extent to which this results in a significant divergence between regulators with regard to the way in which they investigate the same or similar issues.
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 two the PLC Magazine website.