In the short course of six months, the financial industry has seen a tremendous shift in the speed of enforcement. Regulators have made it a priority to boost competition, embrace innovation, and support industry growth, and with these changes have come a move toward deregulation.
This business-friendly approach marks a shift away from mass enforcement action and the pursuit of alternative risk areas, particularly emerging technologies like artificial intelligence and crypto, as well as traditional misconduct cases. Though, recent movement from both U.S. and U.K. regulators has unveiled that while the frequency of fines may be falling, the concentration on individual accountability may well be ramping up.
Don’t cross the honor code
Enforcement actions from FINRA:
Per recent disciplinary actions, the Financial Industry Regulatory Authority (FINRA) has fined independent broker Francis G. Smith $5,000 for cheating on continuing education (CE) requirements and falsely stating that he completed these credits personally.
Smith, who was affiliated with Commonwealth Financial Network, was required to complete CE credits to maintain his state license. Instead, he asked “another person” to take 18 hours of insurance credits in his place, thus violating FINRA Rule 2010 by failing to “observe high standards of commercial honor.”
Enforcement actions from the FCA:
Across the pond, the Financial Conduct Authority (FCA) has also set to crack down on individual misconduct failings. On July 25, the regulator issued a £1 million fine and ban against Jean-Noel Alba, deputy Chief Executive Officer (CEO) of asset manager H20, for deliberately deceiving the FCA and demonstrating a “lack of integrity.”
From 2015 to 2019, H20 failed to carry out due diligence on high-risk investments, which consequently led investor money to be trapped. In addition, Alba – who was the main point of contact during the FCA’s investigation into this incident – provided misleading statements and documents to the regulator, including fabricated records of committees that had never taken place.
In response to this incident, Steve Smart, joint executive director of enforcement and market oversight, advised senior leaders to exemplify ethical behavior to avoid succumbing to the same consequences:
“Senior leaders in financial services need to act with integrity…This ban and substantial fine should serve as a warning to others that if you mislead the FCA, you will face the consequences.”
The petri dish of professional conduct
It was found that Roper had exchanged “thousands” of messages relating to profits, account performance, and trades, using both his pWhile individual conduct may now be under the microscope, this is far from the first instance of regulatory scrutiny we’ve seen over professional conduct. In the past year, FINRA has penalized several bank members for similar allegations, such as in July 2024 when it fined a financial planner for improperly sharing exam content with others who were taking the assessment. Similarly, FINRA hit a bank rep with a $15,000 fine and suspension for concealing poor conduct via off-channel communications.
Earlier this year, the Department of Justice (DOJ) introduced a revised approach to white collar enforcement by incentivizing self-disclosure and cooperation. As part of this move, the DOJ emphasized that “the Department’s first priority is to prosecute individual criminals,” further elevating the importance of personal accountability to steer clear of regulatory charges.
U.S. regulators have taken notice of conduct and culture over the past several years – particularly highlighting the importance of cultivating a “culture of compliance,” establishing tone from the top, and demonstrating professionalism to maintain market integrity. Considering that senior leaders have historically been aware of or involved in misconduct cases, there’s a clear expectation for those in management roles to set a high standard of conduct.
Likewise, the FCA’s recent enforcement action comes as no major surprise. The U.K. regulator has been diligent in building frameworks and outlining expectations around non-financial misconduct (NFM) to mitigate risk and maintain integrity. Just last month, the regulator clarified the classification of NFM rules and extended the scope of reporting to apply to 37,000 non-bank firms.
Integrity at every level
While regulators seem to be taking their foot off the gas on corporate enforcement action to support growth objectives, individual conduct looks to be taking place at the forefront of regulatory agendas. Regulatory fines may be a heavy hit to firms, though enforcement action against an individual can increase damage tenfold – serving as a warning that noncompliant behavior is not something to take lightly.
Even as regulators increasingly concentrate on individual accountability, establishing company-wide compliance and surveillance is more critical than ever before. Firms set the foundation for the compliance frameworks and culture expected within the workplace, and weak systems signal a lack of due diligence to regulators. The right solutions can help your team flag signs of risk proactively so that misconduct can be thwarted before becoming a larger issue.
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Ryan Sheridan, Senior Manager, Regulatory Intelligence – Global Relay
“We have seen institutions pay massive fines over the years, but at the core of these penalties is individuals breaching regulations or policies and procedures. Recent developments indicate that regulators are focusing in on bad actors to root out abusive behavior and ensure investor protection.“
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While regulators may be revising enforcement strategies and lightening the regulatory burden, it’s still imperative that firms retain full oversight of communications to identify bad actors and cover all compliance bases should they find themselves under the spotlight.
