By Steve Blackbourn
Following consultation during 2016 on responding to and
implementing the ‘Enforcement Review and the Green Report’ both the UK’s
financial-services regulators (PRA & FCA) have issued a combined policy
publication setting-out their resulting views and intended implementation aims
and plans (see FCA
PS17/1& PRA PS2/17).
In addition, the UK
conduct regulator has over recent months appeared to particularly utilise some
of its wider supervisory and enforcement tools in advancing its findings,
concerns and objectives. These emerging events and measures reflect the broad
range of tools and powers by which regulators seems capable and willing to
pursue their roles in addressing risks and unacceptable outcomes involving firms
and/or individuals across the UK regulated environment.
regulators have formulated a response to the consultation process around the
‘Enforcement Review and the Green Report’ during 2016, and are now looking to
readjust their policies and build-in the new rules and amended approaches into
the relevant areas of their respective Handbooks. This development has arisen in
an attempt to address perceived issues surrounding the effectiveness and
efficiency of the enforcement referral, investigation and decision processes, in
order to promote and achieve a fairer and more transparent industry environment.
Therefore, the Policy Statement(s) outlines changes being made to applicable
sourcebooks and specific manuals, such as those regarding ‘enforcement’ guidance
(EG) and also ‘decision procedures and penalties’ (DEPP) covering business
conduct (FCA Handbook) matters.
Within the regulators’
combined output, the respective bodies set-out responses to the initial
consultation process, before moving ahead to outline how their respective
enforcement policies and processes will now be adapted and revised going
The policy publications set-out and update the approach and mechanisms
UK regulators can be expected to adopt and apply going forward, and how these
could in future be brought to bear on both regulated firms and/or individuals.
This relates not only to the probable extent of the likely regulatory responses,
interventions and investigations, but also the application and circumstances
where those powers or tools may be deemed necessary or appropriate.
In particular, the judicial exercise of enforcement powers, typically
resulting from some firm-specific or wider thematic supervision or monitoring
activity, is intended to operate so that it identifies and delivers the right
and appropriate results by achieving a reasoned and balanced outcome and
Firms and individuals are likely to want to
understand and react themselves to this new policy direction on how their
judgements, behaviours and responsibilities are likely to be challenged and
assessed in light of ongoing risks and events. It therefore deliberately builds
on the previously existing approach and statements covering how the UK
regulators might use their enforcement powers when handling both firms and
individuals across UK financial-services.
this may even require some firms and/or individuals to even adjust or amend
their own arrangements accordingly to ensure they can confidently mitigate or
simply fulfil/evidence and required standards or expectations going forward. But
also, regulated persons might need to also reflect on other relevant technical
aspects and scenarios, such as the likely treatment and management of contested
The PRA and FCA have taken the important
step of producing correlated outputs on this matter, in order to provide both
some consistency and clarity for regulated persons on how UK regulators will be
making and applying changes to enforcement policies and processes.
In addition to covering the respective regulators’ own approaches, the
policy statements also cover areas of likely combined or joint activity, and
levels of working co-operation between the regulators involving common issues,
topics and concerns. Overall, the changes are expected to enhance existing
processes whilst improving transparency around enforcement activities and
around/between core stages of decision-making. But the UK regulators are also
aiming to provide more information around early intervention activities and
working decisions. On this matter, the early months of 2017 has seen the FCA
issuing a small number of Warning Notice Statements (WNS’s) detailing specific
concerns as to the conduct and behaviours of individuals felt to have acted in
breach of regulatory requirements.
UK regulators have sought to
develop and employ various tools to optimise transparency on activity and
interventions, but perhaps most notably to date the most visible lead on this
has been with the conduct regulator (FCA).
For some time
now the FCA has worked on a significant ‘cleansing’ of the UK Public Register,
taking and communicating steps (for example) against a large number of smaller
consumer-credit firms to effectively remove or deny authorised permissions on
grounds of concern as to them following or meeting specific requirements e.g.
citing ‘Threshold Condition’ or other specific Systems and Controls (SYSC) or
Principle (PRIN) failures.
In a recent case in January
2017, the FCA also imposed a variation of permission on a small investment
management firm which it deemed had fallen short of continuing to satisfy the
required ‘Threshold Conditions’. This step was deployed to effectively restrict
and curtail the firm’s business activities to mitigate and ring-fence exposures
in addressing concerns and issues of ‘effective supervision’ and ‘suitability’
covering pension switches, inadequate information being provided, and close
links with an unauthorised third party firm providing ‘advice’ which had all
been identified during a prior short supervisory inspection visit.
Additional Warning Notice Statements (WNS’s) were issued by the FCA in
February 2017, whereby the regulator has sought to provide initial visibility on
ongoing concerns as to the specific behaviour and conduct of undisclosed
individuals. This step pre-empts the conclusion of any underlying formal
investigations and consequent disciplinary decision-making and outcomes, and is
intended to promote and encourage an awareness of industry, peer firms and
market participants as to areas of concern under active focus. One such
statement related to an incumbent individual holding a specific ‘Controlled
Function’ role (and in this case CF10 – Compliance oversight), who the FCA felt
might have failed to competently perform this oversight role, in breach of
Principle 6 (PRIN 6) by not applying the required/expected due skill, care and
diligence. Other cases have related to individuals whose conduct were also felt
to possibly be in breach of the standards expected of such ‘Approved Persons’
but might have also been associated with breaches of specific UK market-abuse
rules and regulations.
Another important development was
also exemplified recently by the FCA in its publication towards the
end-February of details of terms agreed with a major UK banking firm concerning
a regulated covered bond (RCB) programme, whereby the senior-management have
been expressly required to formally attest to the FCA on certain prescribed
factual statements and conditions. Again this type of regulatory tool is
deployed to provide not just visibility on the subject, but also some potential
evidence on matters which the UK regulator might find it wants to hold those
accountable, and even act, if future circumstances warrant it.
The above recent examples help show the widening and emerging use of a
range of supervisory and enforcement tools and powers by UK financial-services
regulators when seeking to carry-out its duties, which goes beyond (or
alongside) simple permission and/or financial penalties levied against firms and
All the intended policy
changes are expected to now (already) be adopted and in active practice by early
March 2017. But later during 2017 the PRA is expected to establish and operate
its new Enforcement Decision Making Committee, as well as producing some further
formal guidance around its own enforcement process.
wider front and other future horizon scenarios, then the impacts and needs for a
financial-services industry to operate and succeed in a post-Brexit environment
remain to be seen or established. But also, there is the ongoing review of the
UK FCA’s future ‘Mission’ which looks set to clarify and make more transparent
the purpose, value and vision for business conduct regulation going forward.
Indeed, a recent speech by the FCA Chair highlighted some of the expected
building blocks for good conduct regulation in future, and in particular this
included issues such as culture, and collective responsibility etc. This all
again underlines the importance that all participants and not just regulators
will need to play a part in ensuring the future UK regulatory environment and
toolkit remain effective and resilient for the challenges and demands lying
author: Over a 25-year career Steve Blackbourn
has undertaken various operational and regulatory roles at senior-management
level in a range of international financial services organisations before
becoming established as a U.K.-based compliance and financial crime consultant
in 2008. Steve has held key positions within a global bank assurance group, an
Advanced Risk-Responsive Operating FrameWork (ARROW) supervisory inspection team
at the UK FSA and an international life/pensions and investment organisation.
Steve has worked and continues to work alongside Wolters Kluwer in delivering
project-specific as well as rolling consultancy support services with mutual
clients. He is also a regular monthly contributor to Wolters Kluwer Financial's
Resource Network. In addition, he also works with a range of direct clients
applying his broad scope regulatory-compliance and financial-crime background
and skills to deliver a reliable and quality service with an emphasis on
practical approach and commercial orientated solutions.