UK watchdog the Financial Conduct Authority (FCA), which came into being on 1 April 2013, has demonstrated a far more proactive and hard-line approach to regulatory enforcement in comparison to its predecessor the Financial Services Authority (FSA), research by Wolters Kluwer Financial Services suggests.
The group’s Compliance Resource Network (CRN) reports that in its first year of existence the FCA has issued financial penalties amounting to a record breaking £409m, the majority for breaches of principles. Three were in respect of management and control; six for customers’ interests and seven for communications with clients, with 13 financial penalties issued for mis-selling and or misleading provision of information and eight for market abuse.
The group has evaluated the new regulator’s effect on compliance culture in the UK market over the past 12 months by highlighting six key lessons learned:
- The FCA appears most concerned with enforcement actions against larger institutions through its substantial penalties rather than the masses, such as hedge funds, asset managers and independent financial advisers (IFAs).
- ‘Tick box’ compliance culture has been removed, as the regulator now expects full transparency on transactions, internal processes and governance on demand.
- The FCA’s expectations have evolved over the past 12 months, moving away from regular routine compliance visits to more focused thematic reviews of which it has published 15.
- The FCA is paying less attention to discussion papers, having only issued one so far and more on taking decisive and definitive action at an earlier stage.
- The regulator has come good on its word to intervene earlier in institutions’ product development, addressing root causes of problems for consumers, scrutinizing an institution’s governance and how it designs, operates and sells products.
- Despite the hard-line stance demonstrated by the FCA, institutions are still allowing breaches of its principles of business.
CRN research on the FCA’s also reveals the following statistics:
- Forty-five financial penalties handed out in total by the FCA, less than the FSA in 2012.
- One hundred and thirty-five enforcement actions of note issued by the FCA.
- Fines totalling £310m in fines handed to banks alone.
“The £409m of fines issued by the FCA is a truly staggering figure in such a short space of time and the fact the same principles are continuously breached suggests that firms are not adapting to the change in initiative exemplified by the workings of the new regulator”, said Mary Stevens, manager regulatory analysis Europe at Wolters Kluwer Financial Services.
“If the industry is to avoid making the same mistakes, firms must place the highest priority on developing a clearer understanding of what the FCA requires of them and monitor existing and new products and services on an ongoing basis.”
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