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FCA to Banks: You’re Not Off the Hook

The UK regulator warns banks and financial services firms that just because the agency is focused on improving the behavior of senior investment professionals, companies are still subject to fines.

  • Joe McGrath

The UK’s Financial Conduct Authority has warned firms not to presume heavy corporate financial penalties are a thing of the past, just because the agency is now putting greater scrutiny on individuals.

Mark Steward, the FCA’s director of enforcement and market oversight, issued this warning in a speech to delegates at New York University Law School on Friday, a day after former Jefferies investment banker Christopher Niehaus was fined more than £37,000 ($46,000) for sharing confidential information over web messaging tool WhatsApp. Steward’s speech comes as firms are preparing for a consultation paper that the FCA has said will be released “in the coming months” on expanding its existing Senior Managers and Certification Regime to all firms in UK financial services.

This means that all financial services personnel — and not just those at banks — will now be under the FCA’s scrutiny. The regime, which was designed to make individuals take greater responsibility for their actions and make it easier for regulators to fine firms for the actions of individuals, currently covers only investment and retail banks, building societies and credit unions.

The new rules, which are scheduled for 2018, are aimed at improving accountability, culture and behavior at all UK financial firms. But that doesn’t mean corporations should assume they’re off the hook in the future, Steward said in his speech.

“Some have viewed the Senior Managers’ Regime as a means of shifting corporate liability onto individuals. This is not the case... because the firm’s liability is a jurisdictional fact in any action against an individual,” he said. “There is no free pass for firms and so the Senior Managers’ Regime does not mean there will be an end to action against firms, including heavy financial penalties.”

The new regime is being introduced after the FCA imposed a series of high-profile fines specifically on individuals. In the 12 months through December 2016, the FCA issued 14 fines to 13 individuals, totalling £16 million, according to its website.

Steward said the additional set of rules will mark a shift in the “ongoing challenge” to improve firm behavior, adding that those entrusted with senior management responsibilities must understand their obligations and the consequences of not meeting them.

“The overriding purpose of the regime is to improve genuine accountability in firms by removing ambiguous or bureaucratic structures that have impeded or obfuscated clear lines of responsibility,” he said. “The regime designates specified senior management functions, all of which need to be mapped across the organization and performed by specified senior managers.”

The Investment Association, a trade body that represents the interests of fund management companies in the UK, urged the FCA to be “proportionate” in its approach to implementing the new rules.

“We are awaiting the consultation on the implementation from the regulator, but we would urge for a proportionate approach that acknowledges the diversity across regulated firms and amongst our membership,” the group wrote in a statement to Institutional Investor. “The IA continues to work with its members to ensure that they are in the best possible position to comply with the Senior Managers’ Regime when it is extended to all FCA regulated firms.”