Mark Steward, Director of Enforcement and Market Oversight at the FCA, delivered a speech at the City & Financial Global Ltd event in London on February 12, 2020, that focused on the use of penalties and remediation in enforcement investigations.
FCA’s Enforcement Division focused on achieving just outcomes and preventing serious misconduct through a combination of deterrence, early detection and various remedial orders.
Over the course of 2019 the FCA imposed financial penalties of over £310 million and secured associated restitution and compensation for clients of over £231 million. This demonstrates the importance of deterrents when addressing serious misconduct and its consequences, in line with FCA’s stated aims, but should not be considered to be the only point of enforcement, which also includes prevention of misconduct.
The FCA also encourages firms to take immediate, unprompted steps (in consultation with the FCA) to thoroughly and quickly remediate any potential harm caused by their conduct failures. The FCA will impose tougher sanctions where firms fail to correct deficiencies and make good consumers losses; and may consider reducing sanctions where firms pro-actively commence remediation in a timely manner and co-operate with the investigation.
When determining the level of sanction applied to firms the FCA considers all relevant factors including:
- whether a breach is deliberate or reckless;
- the duration of the breach;
- the amount of benefit or loss avoided;
- any serious or systemic weaknesses;
- the impact of the breach (on both confidence and trust in markets);
- the quantum of loss to consumers or other market users, if any; and
- the extent to which financial crime may have been facilitated by the breach.
A number of cases completed over the last year or so have involved serious breaches of the FCA’s Principles for Business (‘the Principles’), dealing with, among other things:
- lack of skill, care and diligence;
- poor systems and controls, exposing customers to harm or the risk of harm;
- poor judgement, especially when reporting misconduct to the FCA and law enforcement authorities; and
- unfair treatment of customers, usually where customers’ interests are overridden or sidelined negligently or recklessly by poor sales or distribution practices.
A fundamental point in most of these cases is that neither firms nor senior management had engaged with the Principles when managing the conduct that led to the findings of breach. The Principles are the foundations of good conduct and should be integral to the operational process of planning and decision-making at all levels, as well as assessing whether the firm’s conduct remains appropriate.
If firms use the Principles as the foundation for the organisation of activities and as a way of monitoring execution of activities, then it is likely that the FCA would see considerably less unintended harm caused by misconduct, which would lead to less hindsight and more foresight.
The full text of the speech can be found here.
