Firms should not be lulled into a false sense of security by a lack of enforcement action on attestations over the last two years, according to Bovill.
According to information provided by the Financial Conduct Authority to the regulatory consultancy, the City watchdog required regulated individuals to provide a total of 74 attestations in 2014 to 2015 – however no further action has been taken to investigate or enforce these.
When the FCA requests an attestation, the watchdog does so to gain personal commitment from an approved person at a regulated firm that specific action has been taken or will be taken.
The aim of an attestation is to ensure there is clear accountability and a focus from senior management on those specific issues where we would like to see change within firms, often without ongoing regulatory involvement.
According to Bovill, no investigations have been undertaken to ensure that commitments made within attestations issued in the last two financial years (2013 to 2014, to 2014 to 2015) are being upheld.
In the previous year just one investigation was opened, with no related enforcement action taken.
The FCA data showed wholesale investment management and long-term savings and pensions were the sectors to have received most attestations in 2014 to 2015.
First introduced by the FCA and the Prudential Regulation Authority in 2012, attestations are the personal assurance of senior managers that regulatory frameworks are being adhered to within their firms.
However, Bovill warned that, despite the lack of subsequent investigations, concerns surrounding attestations should not be dismissed.
It suggested that the FCA is placing increasing emphasis on attestations as a means of holding senior managers to account where failings occur. For example, banks have been asked to attest that they have measures in place to prevent the manipulation of Libor.
A principle reason for attestations’ growing in popularity as a regulatory tool is their ability to eliminate the “regulatory firewall”, according to Bovill, which has previously made it hard to place responsibility on senior executives when something goes wrong.
Mark Spiers, head of banking, investments and lending at the consultancy at Bovill, said that the FCA is trusting businesses to be responsible and do the right thing, while keeping a trump card in its back pocket in case this trust is breached.
“Attestations essentially leave firms coming under investigation stuck between a rock and a hard place.
Attestations essentially leave firms coming under investigation stuck between a rock and a hard place. Mark Spiers“If a senior manager claims they did not know something was amiss, they have not upheld their end of the deal with the regulator; if they say they did know, this automatically means they were implicit in the wrong-doing.
“In this way, attestations allow regulators to pinpoint exactly who should have prevented a failing from occurring – something they would have struggled to do previously,” he added.
The FCA will still take enforcement action if it finds that a senior manager is not following the course of action agreed in an attestation, cautioned Mr Spiers, adding: “Financial services firms should not be lulled into a false sense of security by a lack of enforcement action on attestations over the last two years.”
Last May, FCA figures showed a steep rise in the number of attestations requested over the course of the 2014 to 2015 tax year.
Over the course of the year, the regulator asked for 74 attestations, but 38 of these were in the last quarter of the year, with most coming from wholesale and investment management.
Just last week, the regulator’s latest statistical update revealed that the long-term savings and pensions sector saw five attestations, while in the wholesale and investment management sector there were 10.
Michael Ruck, a senior financial services enforcement lawyer at Pinsent Masons and formerly with the FCA, said that it should be noted that it is only when there is a failing to which an attestation relates, that an enforcement investigation becomes a potential outcome.
“When attestations are used in conjunction with the senior managers regime it is clear that the FCA and PRA are seeking to be make it even simpler for them to take enforcement action against individuals when a breach or failing occurs regarding an area which is in the clear remit of a senior manager.
“Attestations are not going away and senior management responsibility is clearly going to be a hot topic for years to come.”
peter.walker@ft.com
