FCA enforcement: a round-up
The Financial Conduct Authority’s (FCA) Enforcement annual performance account was published on 5 July 2017, and forms part of the FCA's wider Annual Report 2016/17.
The FCA were keen to emphasise their big success stories for the year, including the completion of their longest running insider dealing case that secured five convictions. The account also provided specific commentary on the regulator’s approach to enforcement in a number of sectors, including market abuse and financial crime.
Whilst the number and overall quantum of financial penalties has decreased, criminal convictions have remained steady and prohibition orders have increased.
Further, there has been an increase in the number of investigations opened during the year, following a number of reviews into the effectiveness of the FCA’s enforcement of its rules.
Whilst there were more cases opened, there was a higher percentage of cases closed without further action being taken.
However, insurers and insureds should be aware that significant costs are likely to be incurred before this stage is reached.
In addition, whilst the average length and cost of all civil cases (including those closed with no further action) has come down from the preceding year, the average length and cost of criminal cases has increased significantly.
Finally, following the completion of a consultation on decision-making, the FCA has also introduced the ability to partly contest a case before the Regulatory Decisions Committee. It is hoped that this will bring increased flexibility to the investigation process and encourage “sensible resolutions”.
The FCA emphasised its continuing commitment to holding senior managers to account, referring to its decision to ban an investment and fund manager from carrying out compliance and money laundering, reporting significant influence functions.
Market abuse and financial crime
Financial crime remains a key priority, featuring in the 2017/2018 business plan.
There have been ongoing investigations of market abuse in both the secondary and primary markets, with the FCA securing the payment of redress by Tesco to its investors, for past market abuse that caused share prices to be inflated.
As at 31 March 2017, the FCA had 122 open cases in respect of market abuse.
Unauthorised business also remained an area of focus, with the FCA reporting that it received “8,612 reports this year of potential unauthorised activity in the UK”.
Pensions and retirement income has been front and centre since the arrival of legislative changes in 2015. Whilst the FCA has been carrying out various reviews to consider the effects of these new pension freedoms, their enforcement arm has been alive to the prospect of fraud in this area, with at least 40% of reports they received this year about possible pension scams concerning unauthorised introducers.
It may also be that an authorised firm is generally not meeting the threshold conditions to carry out its authorised activities. During this year, the FCA cancelled 141 firms’ permissions to conduct regulated business. A further 751 firms took remedial action to address breaches of those conditions in order to avoid formal action.
This is a snapshot of some of the commentary in the report, and the link to the full text is included below. What is clear is that the FCA remains focussed on using a wide variety of tools at its disposal and, where possible, engaging with an authorised person or firm early on to address potential misconduct.
Whilst it may be that an investigation instigated at an early stage results in a resolution with no final notice, private warning etc., there can be no guarantee, and reaching that conclusion can be an expensive and stressful process for the insured.
Whilst it remains to be seen how Brexit will impact the position, we expect the FCA to continue strengthening its ties with regulators and prosecutors in other countries, such as the Department of Justice.