Managers beware the fresh FCA enforcement vision
Clampdown expected on senior management who fail to recognise and manage the risks their firm is running.
At the beginning of this month, Martin Wheatley, chief executive designate of the Financial Conduct Authority and Tracey McDermott, acting director of the enforcement and financial Crime division of the FSA, gave speeches on the FCA’s vision for enforcement and what is credible deterrence.
Much of Mr Wheatley’s speech was about what the future regulatory landscape will look like. He spoke of the challenge of the FCA getting its culture right and having staff who will “have the confidence and backbone to use their judgement effectively”.
As with the FSA, Mr Wheatley commented on the need for consumers to take some responsibility for their decision-making and balancing that with firms taking responsibility for the way they treat customers and making sure that good consumer outcomes are embedded throughout their business models.
Ms McDermott’s speech was far more enlightening in terms of what enforcement we can expect from the FCA. Ms McDermott said that she believed that the biggest challenge the industry faces, and something which potentially threatens the viability of the industry as a whole, is that it is no longer an industry that society respects, trusts or has confidence in.
That may well be the case, but Ms McDermott also acknowledged that the events leading to this state of affairs have impacted on the confidence of the public in the regulation of the industry. As to how much responsibility should rest with the FSA is a moot point.
Nevertheless, unlike the performance of investments, Ms McDermott commented that past performance of enforcement activity does give some indications of what the future holds for the industry.
However effective enforcement, according to Ms McDermott, “needs to get further up the chain of command – to look increasingly at those in senior management who fail to recognise and manage the risks their firm is running, who fail to control the way their products are sold, and who fail to ensure that the interests of consumers are at the forefront of the minds of those designing, and working out profit projections and sales channels for new products”.
Senior managers need to get this message and quickly. Change is on its way.
Philip Ryley is a partner and head of financial services and markets of Michelmores