Back in the Summer we reported on the Prudential Regulation Authority’s (“PRA”) explanation of its approach to enforcment action against those who the PRA think have broken the rules. In a further development last week the PRA updated its policy on settlement of enforcement action (“Updated Policy”), which consolidates proposals in its April 2019 consultation report (CP10/19). It aims to simplify and clarify the settlement procedure and discount scheme.
PRA enforcement powers
The PRA has similar enforcement powers to the FCA in order to deal with serious breaches of FSMA. The PRA has publicly stated it does not intend to bring as many enforcement actions as the FCA, choosing instead to focus on a proactive approach to tackling issues before they have gone wrong. However, in recent years, enforcement action by the PRA has increased and any settlement reached with the PRA is implemented in line with its enforcement policy.
The key changes set out in the Updated Policy include:
- Simplification of the PRA’s settlement discount scheme:
Previously, discounts to the financial penalty would be applied at different levels depending on how far into enforcement action a settlement was reached. There were 4 stages. Stage 1 = 30% discount; stage 2 = 20%; stage 3 = 10%; and if you reached stage 4 = 0%. So the the earlier you settled, the more discount you would get on the eventual financial penalty.
The Updated Policy now limits the reductions offered.
The offer of a 30% discount in relation to Stage 1 has been retained. Stage 1 is the early enforcement period after the PRA has told the subject of an investigation about the case against it, and given the subject a reasonable opportuntiy to understand that case, but before the case progresses further through the PRA enforcement proces. However, for cases at the later Stages 2 and 3 of enforcement action, the respective 20% and 10% settlement discounts on penalty have gone.
The PRA says that it believes this will help to simplify the discount scheme, focus incentives and encourage earlier settlement in cases which are capable of settlement. This brings the PRA’s approach to settlement more in line with FCA.
- Clarification and transparency to the PRA’s procedures in relation to settlement. This includes:
- a commitment to providing advance notification to parties of the likely commencement of settlement discussions, in order to allow them to make the necessary administrative arrangements;
- clarifying in what circumstances extensions to the discount stage can be given; and
- when it considers appropriate to do so, it will hold preliminary ‘without prejudice’ meetings before the formal period of discount stage settlement discussions.
The PRA’s existing scheme, published in March 2019, continues to apply to cases that have reached Stage 1 settlement discussions prior to 4th October 2019, without settlement being achieved.
The changes reflected in the Updated Policy indicate that the PRA wants firms to become more realistice over settlement dialogue and if they wish to engage, to do so early.