The European Securities and Markets Authority (Esma) found that the Financial Conduct Authority takes a “selective approach” towards disciplinary action, often ignoring evidence of breaches.
The EU-wide regulator published a peer review on 7 March on how national regulators assess compliance with MiFID’s suitability requirements when firms provide investment advice to retail clients.
While the assessment group found the FCA to be generally highly professional and well-organised, it did raise a few issues in its report.
It read: “The assessment group recognised that the FCA takes a selective approach to the imposition of a disciplinary outcome: their overall enforcement strategy is conscious of the message being communicated to industry through enforcement, and therefore its activities are focused on the areas that present the most risk to consumers.”
“This selective approach means that the FCA will only refer a case to enforcement where the failings are serious and typically systemic, and if the enforcement action will have a deterrent effect.
“Consequently, many enforcement actions are not carried out despite there being evidence of breaches.”
The assessment group did say that the “selective approach” to taking enforcement actions was due to finite resources at the FCA.
It added that because of the size of the FCA’s resources compared to the size of the market, it could only focus on a small proportion of the market, and as a consequence aimed to identify problems which potentially had the most impact.
Consequently, many enforcement actions are not carried out despite there being evidence of breaches.The review also found that the UK regulator focused its energies on larger firms, using a ‘trigger’-based approach to identify and address issues with smaller firms.
While it acknowledged that the FCA provides guidance to the market to address specific scenarios that have arisen with the smaller firms, Esma stated it rarely conducts any direct follow-up with those firms to assess whether the issues have been resolved.
Steven Maijoor, chairman of Esma, said: “The MiFID suitability requirements are a key component of Europe’s investor protection framework, and Esma expects national competent authorities to be vigilant in ensuring firms comply with these important requirements.
“Supervisory convergence is high on Esma’s agenda, as we stated in our 2016 to 2020 strategy, and the findings from this review show the importance of this work.”
The findings of the peer review will be used to help Esma identify areas where more supervisory convergence among regulators is needed.
A spokesman for the FCA said: “The FCA is committed to taking a proportionate approach to regulation.
“We welcome and take on board all feedback on our approach and we’re pleased that the assessment group described the FCA as a highly professional and well-organised financial watchdog.”
