At the recent Banking Litigation and Regulation Forum, the FCA’s Director of Enforcement and Market Oversight, Mark Steward, discussed the measures implemented by the FCA to tackle the loss of confidence and trust in the financial industry following the Financial Crisis.
Mr Steward explained that the public anger and protest, which resulted following the collapse of Lehman Bros, was not only aimed at banks who sold Lehman paper, but also at regulators and the financial system in general.
He focussed on the FCA’s recently published ‘Mission’ and ‘Approach’ documents to explain how the FCA has used its collective experience to respond to the Financial Crisis. In particular, Mr Steward said that in 2017 the FCA redefined how and why it prioritises, protects and intervenes in financial markets, through the publication of its Mission Statement. The FCA’s Mission is to:
- administer legislation passed down by Parliament in a manner which serves the public interest; and
- focus on harm or potential harm to consumers, markets and firms as a trigger for regulatory intervention.
In pursuit of these aims, the FCA has recently published a number of ‘Approach’ documents, (including its Approach to Enforcement and Approach to Supervision) which set out how the FCA will use the range of powers and functions available to it. Mr Steward stated that the overriding principle of the Approach to Enforcement is the FCA’s commitment to fair and just outcomes and with this in mind, the Approach to Enforcement advocates:
- prioritising detection of misconduct;
- rapidly and fairly identifying and dealing with misconduct through legal processes;
- using both deterrent and remedial powers to rectify problems;
- imposing lower sanctions where firms have accounted for and remedied misconduct voluntarily, to encourage others to do so;
- imposing higher sanctions where firms have not remedied misconduct where it was reasonable for them to do so; and
- transparency in all decision making so the FCA’s actions educate others.
Mr Steward stressed that without being able to better anticipate, detect and manage misconduct, higher fines alone will not achieve good enforcement. That being said, he was clear that this should not be misunderstood as an argument for lower fines. Rather, the FCA is advocating “better detection and effective investigation in tandem with robust sanctions that should be as tough as they need to be“.
Mr Steward went on to discuss the interdependent relationship between the Approach to Enforcement and the Approach to Supervision, which the FCA deliberately published on the same day (and which can and should operate in combination with competition remedies where appropriate). He referenced the aim of early detection and quick and effective action, which he stated were only achievable if supervision and enforcement activities operated together dynamically. More generally, it is clear from Mr Stewards’ speech that the FCA is very in much favour of the use of a “mixture of regulatory interventions working strategically together, including enforcement, rather than a series of siloed responses“.
Mr Steward concluded by noting that the FCA is in a much stronger position because of what it has learned since the Financial Crisis. He also pointed to the FCA’s Mission, and Enforcement and Supervision Approaches (along with other post-Crisis initiatives, such as the Senior Managers & Certification Regime) as signifying an important step forward in rebuilding trust and confidence in financial markets.