A new year provides an opportunity for reflection on the year that has just ended, and for what the new year might bring. Financial services enforcement in the UK in 2019 saw a surge in the value of financial penalties imposed by the FCA from £60m in 2018 to £390m. But if you look behind the figures, this largely reflects a relatively small number of investigations of legacy issues in the familiar fields of anti-money laundering, transaction reporting and misselling. FCA Enforcement have opened more investigations than they have closed for the last few years, so it will be interesting to see if this is reflected in a higher number of public outcomes this year.
We have published an article summarising the key FCA enforcement decisions last year, which indicate some potential themes for the coming year. To highlight a few points:
- We anticipated that the senior managers regime, first introduced for banks and insurers in November 2016, would increase the enforcement activity against senior managers. However, it was reported that only 4% of the 377 open investigations of individuals involve senior managers, and there has only been one public enforcement outcome arising from the new regime. The new regime and code of conduct apply to misconduct from the date of introduction, and investigations take time to complete. It is still surprising that these figures aren’t higher, but we anticipate that there will be more investigations involving senior managers (some leading to enforcement decisions) now that the senior managers regime has been extended to all UK financial services firms.
- We expect the FCA to continue to investigate and bring enforcement in the areas of culture, operational resilience and market misconduct to send messages to the UK financial sector wherever important issues arise.
- On the financial crime front, there is a concern that new platforms and cryptoassets, which fall outside financial services regulation in some jurisdictions, could be used to transfer or store proceeds of crime. In Europe these issues are addressed to some extent now that the Fifth Money Laundering Directive has been implemented. Nevertheless, criminals are expected to find new strategies, so the use of the international financial sector to launder criminal proceeds remains a concern. And the FCA will continue to focus on the effectiveness of systems and controls to identify and prevent financial crime, and money laundering in particular.
- Recent significant enforcement outcomes in the retail financial services field relate primarily to misselling and advice failings in relation to insurance products. The FCA has made a point of emphasising the need to protect vulnerable classes of customers. This includes older customers and those in financial distress, but the FCA is also focusing on complex products that the average consumer would struggle to understand or might be misled by. Given this, future enforcement could, for example, feature more instances of pensions advice failings, managed funds that track the market, and new products that are marketed as “green”.
