New blog series: Top financial services enforcement trends
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As we start to settle into the “new normal” and recover from the effects of the COVID-19 pandemic, the UK Financial Conduct Authority (FCA) and the UK Prudential Regulation Authority (PRA) have been busy resuming their enforcement agendas.
With a new chief executive at the helm of the FCA pushing a “new approach” and the PRA starting to bring more standalone enforcement actions, the appetite for and breadth of enforcement activity certainly appears to be increasing.
Throughout 2021, the FCA imposed just over GBP567.7 million in financial penalties on seven firms. These fell mainly on banks, although three individuals were also the subject of fines. Together, this represents the FCA’s highest overall total since 2015.
The majority of this figure, just over GBP328.7 million or 58%, was imposed by the FCA, quite uncharacteristically, in the weeks running up to Christmas 2021. Two fines were imposed on separate firms; both for issues relating to financial crime.
For a while, 2021 looked set to be the first year since 2013 when the PRA took no enforcement action at all. That all changed in the last two weeks of December 2021 when the PRA also took enforcement action against two firms. Both of the PRA’s enforcements related to failures to comply with regulatory reporting requirements. They resulted in fines totalling just over GBP51.9 million, which represents the highest annual total of financial penalties imposed by the PRA since it was established in April 2013.
Here are a few more of our observations on the PRA and FCA’s enforcement action in 2021.
- Financial crime. Half of the financial penalty notices issued by the FCA during 2021 (totalling GBP476,730,020, or 84% of the total amount of financial penalties imposed by the FCA during 2021) were imposed for issues relating to firms’ financial crime systems and controls.
- Regulatory reporting. All of the financial penalties imposed by the PRA during 2021 concerned issues relating to firms’ compliance with their regulatory reporting obligations.
- Failure to address / properly address known weakness. Just over a third of final notices issued by the FCA to firms, involved the resolution of issues revealed by skilled person reviews and 56% referred to internal audit findings. In these cases, the FCA highlighted how firms that had been subject to internal or external reviews which identified issues or weaknesses in their controls had failed to act properly, promptly or, in some cases, at all to address those identified issues or weaknesses.
- Training. 45% of final notices issued by the FCA to firms identified deficiencies in firms’ training programmes. The regulator was particularly critical of firms who adopted an inadequate or a “one size fits all” approach to training employees.
- Policies and procedures. Every single one of the FCA’s final notices against firms involved criticisms of the firms’ policies and procedures. The adequacy of firms’ policies and procedures was a firm favourite, with employees / firm’s failure to comply with internal policies and procedures a close second. Other issues included failure to adequately monitor compliance with policies and procedures; and failure to take adequate steps to address known instances of non-compliance.
This is just a taster of the trends in FCA and PRA enforcement we’ve been observing over the last year. The remaining blogs in this Top Financial Services Enforcement Trends series focus on enforcement action relating to: retail conduct; financial crime; culture, governance and individual accountability; and fintech and cryptoassets; before reflecting on the FCA’s “new approach”.
This post is based on an article "FCA and PRA Enforcement Action: Trends and Predictions" which first appeared in the January edition of PLC Magazine and a copy of the full article is available here and on the PLC Magazine website.