Senior leaders in the FCA firing line

19 Mar 2015 12:00 am by Mark Dunn

On 13 March 2015, the Financial Conduct Authority (FCA) announced a £33,800 fine for former Financial Group Compliance Director, Stephen Bell.  The FCA also confirmed it had banned Mr Bell from performing a compliance oversight function in the future.

The action was taken in response to what the FCA described as "systemic weaknesses in the design and execution of network Financial Group's compliance systems and controls".

The FCA was concerned by the Financial Group's inadequate systems and controls relating to the recruitment, training, and monitoring as well as the firms' compliance and file checking processes that did not adequately identify and assess risks.

Mr Bell had designed and implemented the firms' systems and controls, and was found to be "knowingly concerned in the firms' breaches".

This is by no means the only case of its kind.  On the same day, the UK's Upper Tribunal body upheld a 2013 judgement against former Somerset Asset Management Compliance Officer, Tariq Carrimjee.  Mr Carrimjee has been ordered to pay his £89,004 fine.

While the nature of the charges were different in each case, the actions of the FCA illustrate its increasing scrutiny of financial sector institutions and a growing willingness to pursue charges against individuals.

In stark contrast to what many critics felt was the rather 'light touch' of its predecessor, the Financial Services Authority (FSA), the FCA appears committed to increasing enforcement action in line with the upcoming Senior Manager Regime.

Under these new proposals to strengthen accountability in banks, the lines of responsibility within institutions will be clarified and the FCA's ability to hold senior managers to account will be strengthened.

In a recent speech, the FCA's outgoing Director of Enforcement and Financial Crime, Tracey McDermott, outlined the challenge.  "We are still told that misconduct is the work of a few errant individuals within large organisations," she said.

In McDermott's view, while the individuals are culpable, they operate in a culture that still excuses poor behavior.  She also stated that misconduct goes much deeper than a few rogues.

Conventional approaches that have penalised the institution have had little success in addressing the culture question.  The greater focus on individual culpability and liability, it is hoped, will be more effective.

Ultimately, of course, this means that business leaders are now very much in the firing line.  Under the FCAs' Senior Persons Regime proposals, senior figures will now be required to sign papers affirming their firms' systems and processes are fully FCA-compliant.  In so doing they accept personal liability.

Hardly surprising then that in a recent report by Grant Thornton some 9/10 leaders expect to see more enforcement action taken against individuals.

With Senior Leaders facing claw backs on bonuses, onerous fines and potentially career-ending criminal convictions, the onus is on them to tackle question of culture.  But change here won't happen overnight.  In the meantime, a thorough understanding of the standards required by the FCA, and how they are applied, is critical – and not just for 'approved persons' but for senior decision-makers across the board.

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