Jury still out on FCA’s revised enforcement approach

Public enforcement outcomes have subsided at the regulator in recent years, and 2018 was no exception. Yet there were more investigations opened and closed without further action by the Financial Conduct Authority than ever. Alison McHaffie and Jonathan Monks analyse the current approach and consider the extent to which it is delivering on its objectives.

Alison McHaffie (alison.mchaffie@cms-cmno.com) is a partner and Jonathan Monks (jonathan.monks@cms-cmno.com) is a senior associate in the financial services regulatory team at CMS, where they specialise in all types of contentious regulatory matters.

More investigations but fewer fines

If measured solely by the number of fines imposed, the calendar year 2018 was another quiet one for enforcement activity by the FCA. It imposed just 15 fines: eight on individuals and seven on firms. Although this represents a minor increase in number from the 13 imposed in 2017, it is in stark contrast to the years 2014-2015, during each of which the FCA imposed around 40 fines. The 15 fines imposed in 2018 totalled an aggregate amount of £60 million. This is down from a £230m aggregate in 2017. However, the total value of fines imposed is of somewhat limited use in identifying trends in enforcement activity – as exceptional individual cases (or exceptional issues such as the benchmark cases against the banks) will tend to skew the data. For example, more than 50 per cent of the £60m aggregate figure for 2018 is attributable to a single fine of £32.8m imposed on Santander in December for failings in its processing of accounts and investments of deceased customers. Also, more than half the fines this past year were against individuals rather than firms, where the fines are naturally much lower, and this will have contributed to the lower total. However, the FCA’s response to any suggestion that it has gone ‘ soft’ is likely to be the same as the clear denial Mark Steward, the director of enforcement and market oversight, gave at the start of 2017 following the first year of a significant reduction in financial penalties being imposed, stating that “ Light touch has not returned”. If that is true, what do these statistics and the FCA’s publications tell us about the way the regulator is exercising its enforcement powers – does it mean there is less misconduct to investigate and punish, does it signal a change in approach, or is it as simple as the FCA taking longer to investigate and struggling to conclude investigations?