Long ReadMar 30 2023

Regulation 10 years on: what next for the FCA?

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Regulation 10 years on: what next for the FCA?
The FCA and PRA appear focused on achieving regulatory outcomes against senior individuals in relation to failings in management. (Timon Schneider/Dreamstime.com)

April 1 2023 marks the 10th birthday of both the Prudential Regulation Authority and the Financial Conduct Authority, since being formed as part of the suite of regulatory reforms following the 2008 financial crisis.

When the two bodies were set up in in 2013, it was clear that they had their own distinct mandates. They also had very different approaches to how they would supervise firms and how they planned to use disciplinary action against firms and individuals suspected of breaching their rules.  

From the outset the FCA was equipped with a substantial enforcement division that over the years, particularly during the most recent period under Mark Steward, has lowered its internal evidential threshold for kicking off investigations and therefore significantly increased the numbers of individuals and firms placed under investigation. 

At the last count (March 31 2022) the FCA had a massive 603 ongoing enforcement investigations. This has led to a significant increase in the length of time taken to conclude its investigations, and criticism for leaving firms and individuals waiting (in some cases for a number of years) while other cases are prioritised. 

The PRA method  

In contrast, the PRA made clear from the outset that it would not be an enforcement-led regulator and therefore maintained a much smaller team capable of handling regulatory investigations – at the outset just a handful of individuals. 

In the early days, the actual investigation of issues was largely outsourced by the PRA to members of the FCA's enforcement division, particularly where issues were being investigated by both regulators. 

The intention of both regulators to land enforcement action against individuals is reflected in the statistics.

Since 2013 the PRA has increasingly embraced the world of enforcement as an effective method of communicating its regulatory priorities to the market and making senior management sit up and take note. 

As a result the PRA's enforcement unit is now far more independent and considerably larger, with a clear mandate to pursue firms and individuals where the regulator's expectations have not been met.  

Cases pursued by the PRA have focused on a number of its priority areas such as operational resilience, governance and management of risk, and regulatory reporting. Many of the fines against firms have been very substantial. 

However the flow of disciplinary outcomes has never grown to more than a handful of cases each year, which can result in final notices issued by the PRA having more impact within the market than those issued by the FCA. 

The PRA has also developed its own style of investigating suspected breaches that is distinct and different from the FCA. 

The PRA has increasingly embraced the world of enforcement as an effective method of communicating its regulatory priorities.