FCA speech warns firms that there is “nowhere to hide” for non-compliance

The Financial Conduct Authority has started to outline its new enforcement strategy, issuing a warning for firms to “get their ducks in a row now”.

06 June 2023 5 mins read
By Jennie Clarke

In brief:

  • The Financial Conduct Authority (FCA) has hinted at a tougher stance on enforcement in a recent speech.
  • The newly-appointed Co-Executive Director of Enforcement and Market Oversight has urged firms to prepare for regulatory scrutiny, noting that there is “nowhere to hide” and to get their “ducks in a row now”.
  • A change in senior management for the enforcement department at the UK regulator could point to a more stringent future approach.
  • The FCA also highlighted the importance of collaborating in the event of non-compliance, as well as their focus on technology and digital tools.

The Financial Conduct Authority (FCA) is getting tough on enforcement, or so it would seem from a speech delivered by its newly-appointed Co-Executive Director of Enforcement and Market Oversight, Therese Chambers.

The speech, delivered at the City & Financial FCA Investigations and Enforcement Summit, provided a clear picture of the regulator’s current focus, as well as a reminder about the importance of collaboration in compliance.

Chambers set the scene for the speech with a clear message: “do the right thing”. This is true when people are watching, but also when nobody is watching. This, she says, “is a true test of integrity”.

On the subject of being watched, Chambers added that “sometimes the world – or at least your industry peers, consumers, and regulators – are very much watching”.

This is the first speech from Therese Chambers in her new role, and while the overall message regarding collaboration and flexibility seemed positive, the speech carried a strong secondary message which translated as a warning to the industry; there is “nowhere to hide”.

Animal instincts

Chambers’ speech carried within it three animal references, all of which made plain the FCA’s future approach.

Firstly, Chambers hinted towards increased productivity with some advice for the industry:

“I would advise everyone to get their ducks in a row now, particularly given the extensive improvements we have made and continue to make in relation to data, technology, and digital tools.”

Secondly, she noted that the “early bird catches the worms”, adding that her first question in every enforcement case she tackles will be “could something have been done sooner to stop this?”

Despite making two bird-related references, Chambers’ remarks were far from poultry (a bad joke). Instead, it would appear that that the U.K. regulator is prioritizing proactivity when looking at instances of non-compliance. No longer will the FCA “come in and clean up the mess”, nor will it be deflected by “aggressive diversionary tactics” to cover up bad activity. “Punishment”, she says, is a “very important deterrent in our justice toolkit.”

Leading by example

As well as using her platform to unveil a new, hard-line approach to enforcement, Chambers took time to outline what the FCA has achieved so far. In the last financial year, for instance, the FCA has imposed penalties of nearly £216 million, as well as securing or pursuing convictions for individuals involved in fraud, market manipulation, and insider dealing, among other things. Further activity is imminent, with 71 open investigations into suspected insider dealing alone.

Chambers also outlines recent instances where the FCA has worked closely with non-compliant firms to offer redress to both consumers and investors. In one instance, the FCA decided not to impose a financial penalty for unsuitable advice because the firm “put in place a proactive redress exercise quickly”.

Chambers added that the firms in question “co-operation was exemplary. A model example of how to behave”. She added that “early detection is always more effective”, with another warning that the FCA “will find out eventually, so it is always better to come forward first”.

Key takeaways for compliance

Therese Chambers’ speech appears as a warning of things to come. She will soon be joined in her enforcement role by National Crime Agency veteran, Steve Smart. It is highly likely that with these new hires will come a significant change in direction for the FCA which, until recently, has lay fairly dormant in comparison to its U.S. counterparts.

For compliance officers, the speech makes clear three key actions to take:

1. Start preparing now

The FCA is placing proactive compliance at the top of its investigations list. Now is the time to take a look at your existing policies, procedures, and controls and ask whether they might withstand regulatory scrutiny. Do you have known risks that you’ve avoided addressing? If so, now is the time to act

2. Cooperation is key

Despite myriad warnings within Chambers’ speech, it is clear that the FCA wants to see active communication and collaboration in the event of non-compliance, or suspected non-compliance, noting that “we appreciate and reward transparency and cooperation”. Is your co-operation with the regulator “exemplary”? If not, make it so – it could save you money in the long run.

3. Technology is your friend

The regulator notes that it is making significant advancements “in relation to data, technology, and digital tools”. Firms should therefore be considering their own investment in these areas. A technologically-savvy regulator necessitates a technologically-savvy compliance team.

Are you using technology to bolster your compliance efforts? If not, look now at processes that could be streamlined or made more effective with technology. With regard to “catching the worms” are you an early bird? If not, surveillance and supervision tools such as those offered by Global Relay can enable you to spot compliance risks early, before they take hold.

 

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