Prohibition orders peaked at more than 70 per year during the crisis and its immediate aftermath, according to professional services firm RPC, which offers legal and consultancy advice to a range of sectors.
This drop, however, should not be interpreted as the FCA going soft on enforcement, says RPC. Rather it is the result of a significant toughening of the regulator’s approach to misconduct.
Individuals not institutions
Richard Burger, partner at RPC, explains that the FCA’s approach of punishing individuals rather than institutions – which it calls constructive deterrence – seems to be paying off through a change in behaviour in financial services.
As well as a reduction in the number of prohibition orders in 2016/17, research by RPC earlier this year found the number of dawn raids by the FCA also fell to a nine-year low in 2016.
This tough approach will be extended in 2018, as many thousands of less-senior financial services workers will be brought into the scope of the FCA’s senior managers and certification regime (SMCR).
Introduced in March 2016, it makes individuals responsible for failings in the conduct and competence within financial services firms, and includes substantial fines and other penalties. It has thus far only applied to senior leaders in larger financial services businesses.
Not going soft
Burger said: “The sector should not mistake the fall in prohibition orders as the FCA starting to go soft; the regulator will not hesitate to ban individuals if it uncovers misconduct.
“The FCA has made it clear that senior individuals are now responsible for misconduct in their firms, and it looks like the loud voicing of that threat is now paying dividends. The FCA will hope to see a far-reaching change in behaviour in the financial services sector as the senior managers and certification regime extends across all parts of the sector next year.
“The new SMCR will put many more individuals working in Financial Services onto the FCA’s radar. The FCA’s ‘constructive deterrence’ business plan relies on holding virtually everyone, not just senior managers, to account. SMCR and its conduct rules will cover most financial services staff in some way.
“We may well see more behavioural change next year as the Senior Managers Regime is extended to almost the entire sector.
Burger added: “There is always a lag between the commencement of an enforcement investigation and a public outcome. Seeking the prohibition of an individual is not a step taken likely by the FCA. Under the FCA’s new enforcement process, the whole of the FCA investigation is subject to strict legal scrutiny before meaningful settlement discussions begin with an individual.”
