FCA and PRA regulatory fines have already quadrupled last year’s total

Posted: 17 May 2017 | | No comments yet

The number of fines issued against individuals has exceeded those issued against organisations for the first time, putting the focus on senior managers once more…

Regulatory fines issued by the UK’s Financial Conduct Authority (FCA) this year are already quadruple the level of last year’s total, according to data collected and analysed by integrated compliance and regulatory reporting technology firm Wolters Kluwer.

As of May 1 2017, fines issued by the FCA and Prudential Regulation Authority (PRA) totalled £190 million, up from £40 million in fines issued in all of 2016. Notably, however, the figure is still far away from totals of approximately £1.5 billion in 2014 and £906 million in 2015. And the trend looks likely to see The FCA more focused on smaller firms and individuals in efforts to improve the conduct of the financial services industry in general.

According to Wolters Kluwer’s analysis, 39% of all recorded penalties against authorised firms since 2013 have been due to “management and control” failures (see Figure 1 below), with the next highest areas being due to “customer interest” failures at 11% and “communication with customers”, also at 11%.

Individuals within a senior management position should now, more than ever, be focused on ensuring that their businesses are continually compliant with evolving regulatory obligations and requirements

“It’s fair to say that individuals within a senior management position should now, more than ever, be focused on ensuring that their businesses are continually compliant with evolving regulatory obligations and requirements,” according to Mary Stevens, London-based Global Regulatory Analysis & Production Manager for Wolters Kluwer’s OneSumX Regulatory Change Management and GRC business line. “The fundamentals of conduct regulation have remained the same since the days of the FSA with the Principles for Business and Statements of Principle for Approved Persons remaining static but the approach to how these principles are policed has changed.”

The FCA has repeatedly said it has “not gone soft” when challenged about the decrease in volume and value of financial penalties, compared to the record year of 2014. “Instead it is changing and adapting its approach and trying new tactics such as sanctions and restrictions on banks for AML failures causing global concern,” Stevens says. “The FCA has said that it has a larger and broader spectrum of businesses to regulate now because of consumer credit regulated firms joining the mix. It is, therefore, not unreasonable to suggest that now and for the next few years, and to reassure consumers, that the FCA will be more focused on smaller firms and individuals to ensure the reputation and conduct of the industry as a whole is improved.”

Notably, in a speech last year, The FCA confirmed that the number of fines issued against individuals was for the first time greater than the actual fines against organisations.

“Focusing on smaller firms and their individuals will clearly mean a reduced value of fines but an increase in pure number over the next few years if this change in focus is followed through,” Stevens adds. “This will increase the workload of the regulator as it will no doubt have an increased case load and with a decrease in financial penalties it will need to cover these costs somehow. The consequences of failure will come at a personal and financial cost to those unwilling or unable to comply. The Senior Managers Regime is set to be extended to all authorised firms in 2018 and from this point we are likely to see an even greater increase in number of cases reaching final notice stage.”

Last week The PRA said it will extend the UK’s Senior Managers Regime to include non-executive directors without board responsibilities. This followed a similar statement from the Financial Conduct Authority on May 3.

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