Regulation  

Review set to boost FCA enforcement panel autonomy

HM Treasury has launched a review of the way the regulator takes enforcement action against firms, in which it warns that wrongdoers must expect to face “meaningful and proportionate sanctions”.

The probe will look into the “fairness, transparency, speed and efficiency” of the institutional arrangements and processes for enforcement decision making at the Financial Conduct Authority and the Prudential Regulation Authority.

For enforcement action to be effective, chancellor George Osborne said “wrongdoers must believe that they face a real and tangible risk of being held to account and must expect to face meaningful and proportionate sanctions”.

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The general public must also have confidence that wrongdoers will be subject to sanctions and that the enforcement machinery will be robust enough to deliver those sanctions when wrongdoing occurs, Mr Osborne said.

The Parliamentary Commission on Banking Standards recommended the creation of an “autonomous body to assume the decision-making role of the Regulatory Decisions Committee for enforcement in relation to the banking sector”.

Andrew Tyrie MP, chairman of the Treasury Select Committee and former chairman of the Parliamentary Commission on Banking Standards, said the Treasury review could be the first step in seeing this vision realised and more freedom being offered to the regulator’s enforcement committee.

He said: “This is a step in the right direction.

“It can pave the way for implementing an important recommendation of the Banking Commission, providing greater autonomy for the FCA’s Regulatory Decisions Committee in taking enforcement decisions.

“Those who conduct an enforcement investigation should be, and be seen to be, independent from those who reach a verdict. It is crucial that regulators strike the right balance between supervisory and disciplinary powers. Enforcement should usually be the last resort, not the first.”

Last month, the Upper Tribunal refused to grant a demand by the FCA to impose a higher penalty on a broker who was banned by the FCA for mortgage fraud and hit with a fine of £80,000 by the RDC.

The FCA asked the Tribunal to increase the penalty to £100,000 fine, the level it had set in its original warning notice, whereas the RDC argued for a maximum of £80,000.

The FCA’s argument to the tribunal was that the penalty should not fall below the £100,000 minimum “even where the penalty could cause the subject serious financial hardship or lead to him becoming insolvent as to do so would reduce the deterrent effect of the penalty”.

The review, which begins with a call for evidence, will report to the Chancellor in the autumn and be laid in Parliament. It seeks views on whether current arrangements and processes support the fair and effective use of enforcement powers.

Evidence should be submitted to HM Treasury by 4 July and roundtable discussions with interested parties will take place during June.