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19 FCA SMCR investigations bring just one enforcement 

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Research by global financial services regulatory consultancy Bovill finds that despite the FCA pursuing 19 investigations under the Senior Managers and Certification Regime (SMCR), to date there has been only one successful enforcement action.  

The findings come two and a half years after the regulation’s introduction, which aims to bring culpable senior individuals in financial services to account for misconduct. Bovill suggests that, despite the regulator’s desire to show the effectiveness of SMCR, punishments are proving difficult to enforce under the new rules.  

The Freedom of Information Request issued to the regulator reveals that 19 companies had been investigated. Of these, 10 investigations had been completed by the FCA, and nine firms remained under investigation. So far, just one individual, James Staley of Barclays Group, has been censured. The SMCR, introduced in March 2016, currently applies to banks, building societies, credit unions and insurers.

Ben Blackett Ord, chief executive officer at Bovill, says: “There is no doubt that, following the financial crisis, there was a need to increase the accountability in financial services to those who are in charge. And although the SMCR was meant to hold the feet of bosses to the fire, this appears far from easy.
“The reality of the SMCR is that it is always going to be difficult to attribute the actions of a large firm to a single individual. With a run rate of one enforcement in 10 completed investigations, we must conclude that senior managers are able to demonstrate that they are taking reasonable steps to control the businesses for which they are responsible. With the burden of proof firmly on the FCA to show wrongdoing, it appears that the hurdle may be too high. We’ll wait and see what happens with the nine ongoing investigations.”

In December this year, the reach of the SMCR will extend across all FCA regulated firms. This will mean the new rules will cover more individual senior managers, a large number of whom will work within small- and medium-sized financial services firms. This, Bovill believes, is where the regulator will land enforcement action.

Blackett Ord, says: “My sense is that we will see a higher frequency of enforcement action with small firms. This will have little to do with conduct but everything to do with the fact that it is likely to be easier to identify the decisions made in a smaller firm, than a larger one. Furthermore, smaller firms are likely to be less well prepared and less able to defend enforcement action.  

“We should remember that this all started with the financial crisis and the sense that senior managers of the largest financial institutions were being let off the hook. If the FCA’s punishments are weighted, even unwittingly, towards small firms then the regime as a whole will have been a failure.  

“Smaller companies need to take a leaf from the books of banks and insurers and make sure they are well prepared. It’s not enough to only adhere to good codes of conduct, smaller firms need to document and demonstrate it too.”

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