Enforcement in Review

The landscape of regulatory oversight within the UK’s financial services sector is undergoing notable changes, marked by strategic appointments and a recalibration of enforcement tactics. Here’s a condensed overview of the pivotal developments and trends shaping the market:

Strategic Leadership and Enforcement Shifts
The Financial Conduct Authority (FCA) has introduced a leadership structure in its Enforcement and Market Oversight Division, blending institutional knowledge with expertise in criminal law enforcement.

2022/23 Enforcement Overview
The Prudential Regulation Authority’s (PRA) fines exceeded GBP 87 million, outpacing the FCA’s nearly GBP 53 million in fines, marking a historic shift in enforcement dynamics. The FCA’s enforcement actions saw a reduction, particularly in fines with much of the enforcement action taking the form of public censure, with a focus on both individual and corporate accountability across various sectors. Areas of enforcement action included issues related to pension advice, financial crime, and governance shortcomings. In over 50% of cases, firms had been aware of issues that led to eventual enforcement action yet had not taken appropriate and time sensitive action to address these issues.

Predominant Issues in Regulatory Actions
Failures in policies and procedures, alongside issues with escalation processes, were prominent, underlining the need for robust governance frameworks. The regulators also spotlighted the need for timely action upon identification of issues and the importance of comprehensive record-keeping.

Proactive FCA Interventions
The FCA is increasingly leveraging supervisory tools for pre-emptive interventions, significantly utilising Voluntary and Own-Initiative Requirements to address potential risks promptly. Firms should focus on improving their risk management and risk controls, especially where likelihood of harm is more prevalent.

PRA Enforcement Insights
2023 marked a record year for PRA fines, largely influenced by a single substantial penalty (£87m imposed on Credit Suisse in July 2023 for breaches of Fundamental Rules 2 and 6, as well as Depositor Protection Rules 11, 12 and 14). The PRA has demonstrated a readiness to pursue independent enforcement actions, distinct from FCA collaborations.

Anticipated Enforcement Trajectories
Both the FCA and PRA are exploring innovative enforcement methodologies, with the PRA considering adjustments to its penalty calculation approach and introducing mechanisms for more efficient investigations.

Focus on Financial Crime and Market Conduct
A shift is observed in the FCA’s focus, with a decrease in cases centred purely on financial crime, and an uptick in supervisory activities and early interventions targeting financial crime concerns. Market conduct enforcement activities have diversified, with a varied approach to investigating market abuse and stringent scrutiny of reporting standards.

Operational Resilience and Cybersecurity Focus
Recent actions against firms and individuals underscore the critical importance of operational resilience, particularly concerning IT infrastructure and cybersecurity protocols.

Emerging Regulatory Concerns
Attention is increasingly directed towards AI, digital assets, environmental claims, and fraud prevention as emerging domains of regulatory focus, indicating areas of heightened scrutiny and potential enforcement activity in the near future.

As such it is encouraging to see the FCA taking more action concerning transparency and enforcement, based on previously discussed action which may benefit from different approaches. The FCA is refining its enforcement approach to prioritise impactful cases and speed up the dismissal of unresolvable ones. They are planning to increase transparency by sharing more information on investigations, aiming to build public trust and encourage proactive compliance among firms. This is a shift from their previous policy of limited disclosures. Decisions to announce investigations will be made on a case-by-case basis, considering public interest and market integrity, but won’t necessarily indicate wrongdoing. Individual investigations will usually remain private.

If any of the aforementioned areas give rise to concern of your own practices or you are seeking clarity on any area of compliance, please reach out to us. Our expertise ensures you can serve your clients confidently and remain compliant with regulatory standards, mitigating the risk of regulatory penalties.