The new Sentencing Code - what is it?
As the FCA issued its annual report and accounts for 2015-6 it did so in the knowledge that the EU Referendum result called for the United Kingdom to leave the European Union. No doubt adding an extra element to the reflections on the challenges ahead as set out by FCA Chairman John Griffiths in the report’s opening pages:
“Our overriding goal remains the same: for markets to work well. However, the external environment affecting financial services markets is challenging: sluggish global economic growth, unpredictable markets, new regulation and changing demographic patterns have coincided with a greater emphasis on individual responsibility for market participants.”
Despite these challenges the FCA sets out its scorecard for the year on the basis that “on the whole most UK markets have worked effectively during the year”.
A strategic market-led approach to regulation
Assessing end of year progress against the 2015/16 Business Plan priorities, the report first assesses the FCA’s success in setting out a strategic market-led approach to regulation. The report refers to the thematic and market studies undertaken – in both wholesale and retail – as key to driving change in the industry. There were 2 new market studies in investment and corporate banking and asset management and 12 thematic reviews including oversight and control of financial benchmarks.
The market studies also formed part of the FCA’s work on promoting effective competition. Alongside the annual report a report summarising the activities the FCA has undertaken to promote competition in financial services in its first three years was also published.
Indeed, benchmarks were under scrutiny this year under the Fair and Effective Markets Review with 7 benchmarks being brought within the regulatory sphere, 20 LIBOR – submitting banks having their controls assessed, and, the completion of the FX Remediation Programme.
Effective redress for consumers
With Protecting Consumers a core operational objective for the FCA, the report referred to the 23 redress schemes agreed this year, designed to deliver some £334m of redress to tens of thousands of consumers who have been let down by “the firms they trusted”. Moreover, 25 000 consumer credit firms have been successfully integrated into the FCA’s jurisdiction meaning that the FCA has authorised over 33,000 firms to carry out consumer credit activities.
A wide range of regulatory tools
The FCA’s regulatory approach of proportionate regulation based on assessment of risk is set out throughout the report. In her introduction, out-going Acting Chief Executive Tracey McDermott reflected on how the FCA has performed this year and underlined the wide range of firms and markets within the FCA’s remit and the corresponding wide range of regulatory tools at its disposal.
She set out the £884.6m worth of penalties imposed on firms and individuals – 24 individuals banned and jail sentences totalling 32 years and 9 months imprisonment being handed down. (Though the penalties figure is down from £1,409.8m in 2014/5). Fines issued against individuals totalled £4.2 m. Confirming that the FCA has established itself as a “capable and expert prosecutor” she recalled the recent convictions in the insider investigation – Operation Tabernula – the largest and most complex insider investigation to date.
A globally connected industry
The report sets out key legislative reforms that the FCA has been occupied with this past year - such as the Market Abuse Regulation (MAR – see our related blog); the Markets in Financial Instruments Directive “MiFID II”; and the implementation of the Fourth Anti-Money Laundering Directive. International co-operation being key, and no doubt increasingly important as a new relationship with the EU is hammered out.
Individual accountability was a key objective for the FCA this past twelve months. Alongside a new whistleblowing regime and new rules on remuneration - designed to align risk and individual reward and discourage irresponsible risk taking and short termism - the report highlighted the “step change” delivered by the Senior Managers and Certification Regime. In force from March 2016, 41,000 people working in 1000 firms are now covered by the regime. The report sets out how future confidence in financial services will depend on senior individuals in positions of responsibility taking personal accountability for how their firms operate and the consequences of misconduct.
“The job of an independent regulator is not to please everybody”
Perhaps reflecting on the media criticism at the time that the FCA had (under pressure from the Treasury) reversed its policy in this area (from presumption of responsibility to duty of responsibility) Tracey McDermott takes the opportunity to spell out that “Parliament has given us the powers and authority to make important decisions based on our own expert judgment and the job we do is to arrive at our own view on the right regulatory approach – fairly objectively and, above all, independently.”
All eyes will be on her successor Andrew Bailey as to how he navigates this complex relationship with the Treasury, Parliament and indeed the newly installed Chancellor, Phillip Hammond.
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