Regulation  

What FCA rules mean for senior managers

    CPD
    Approx.30min
    What FCA rules mean for senior managers

    It is probably passé to refer to regulatory fines in an opening address these days. Their attention-grabbing value has depleted with each new record fine.

    However, with trends resembling a hockey stick and the reputation of our sector at an all-time low, the traditional view of regulatory fines warrants a fresh look. To persist with the view of regulatory fines as deterrents risks scoring home goals against our aim of restoring trust and confidence in our industry.

    Our perspective of regulatory fines has changed dramatically in less than a decade. Imagine, in 2007 – the year when news of the crisis broke and the first single record fine of £1m (Nationwide) levied for the loss of a laptop was reported as being ‘scandalous’ – FSA fines totalled just £5m.

    Article continues after advert

    Eight years on, single record fines of nearly £300m (Barclays) seem ordinary – even almost expected. How quickly we seem to have adapted our outlook. Fines in 2014 have trebled to £1.4bn within a year and published fines at the end of 2015 total some £1bn. Desensitised by the size and frequency of such numbers, the metaphorical stick to scare or to beat firms into line is potentially lost.

    This risk has probably not escaped the attention of the regulators. In any event, further weakening of the industry’s reputation resulting from persistent record fine headlines cannot be helpful. The headlines have undoubtedly gone a long way to illustrate the regulators’ significant powers granted by the Financial Services (Banking Reform) Act 2013, but any further blunt use of such powers will inevitably dull the effect of supervision while deepening the wounds of the industry’s past misconduct.

    It therefore may not be a coincidence that the FCA called off its review of the culture in banks last December. It has decided instead to engage individually with firms – to encourage cultural and process change from within, and also to review their penalty policy. Agreeable or not, this could signal a change in the regulator’s approach.

    Key points

    Our perspective of regulatory fines has changed dramatically in less than a decade.

    Maintaining control and ownership of risks under the new regime will involve clear(er) assignment of responsibilities.

    The regulators believe that the new accountable person regime is of mutual benefit.

    While some have criticised the FCA for being ‘soft’ and putting the interests of firms ahead of consumers by not publishing its review, it is worth remembering that this apparent ‘softer’ approach is backed by a full toolkit of regulatory powers. Indeed, one of the sharpest implements at the FCA’s disposal is the incoming regime for ‘Senior Managers’ and ‘Senior Insurance Managers’ (March 2016).

    Personal accountability is a central feature of this new regime and for this reason I think it is more suitably referred to as the accountable person regime. The significant rise in the number and level of fines levied against individuals (13 in 2014 compared to only three in 2007) is a clear reminder of the regulators’ intent to use their powers to enforce personal accountability.