Joint FCA / PRA Consultation on Enforcement

Posted on 31 May 2016

Joint FCA / PRA Consultation on Enforcement

The FCA and the PRA published a joint consultation on 14 April 2016 entitled "Proposed Implementation of the Enforcement Review and the Green Report". As the title suggests, this came on the back of:

  • The HM Treasury "Review of Enforcement Decision Making at the Financial Services Regulators" ("HMT Review"). This was published in December 2014 and focussed on the transparency, fairness, effectiveness and speed of the regulators' enforcement decision making processes.
  • The Report of Andrew Green QC ("the Green Report") into the FSA's enforcement actions following the failure of HBOS. This was published by the FCA and the PRA in November 2015, and it made four recommendations.

Certain of the proposals are consulted on jointly by the FCA and the PRA. Others are solely from the FCA (the PRA is to consult further in due course). Responses to the consultation are due by 14 July 2016.

The consultation is a mixed bag. Some aspects simply comment on recommendations that have already been taken up, with many parts also dealing with relatively uninteresting suggested changes to the rulebook. Certain are more interesting for enforcement watchers, and these are in our view the highlights:

  • There are interesting proposals regarding settlement. At present, settlement is an all or nothing affair. That is, whilst there is negotiation, unless all the facts, breaches and sanctions can be agreed, the matter is contested.
    • The proposal now is that there can be partly contested cases. The FCA is proposing a streamlined procedure to enable issues between the FCA and the subject to be narrowed by entering into a "focused resolution agreement" on the facts and liability, with the RDC then determining only the action to be taken. Under this procedure, the subject must necessarily accept all facts relevant to the proposed enforcement action and all issues of the breaches that such facts amount to. In this way, the FCA sees the RDC in a similar role as the Judge when a defendant pleads guilty in criminal proceedings. The rationale is to save time and costs in appropriate cases.

      The FCA proposes that the same fixed discount of 30% applies where a focussed resolution agreement is reached during Stage 1 and the only contested issue is the penalty.
    • The FCA did consider whether there may be some benefit in having a procedure where either all facts are admitted but the breaches are contested, or alternatively where one or more issues only could be agreed. Ultimately, the FCA does not recommend either alternative. This is both because it does not necessarily see these alternatives as reducing time and costs significantly and because the question of how much credit to give by way of discount on penalty is more complex and less suitable for a fixed and guaranteed discount. Nevertheless, it does also call for views on these two alternatives too.
    • It is also interesting that the FCA proposes to adopt the recommendation to abolish the Stage 2 and 3 discounts, for the reasons set out in the HMT Review. That is removing those discounts will assist in demarcating at an early stage, between those cases that can be settled and those that must be contested.
  • There has been much discussion over the years about the role of the RDC. Whereas the RDC is not a forum where the evidence is tested with live witnesses, the Upper Tribunal is much more similar to a Court where cross examination does take place and the evidence is more rigorously tested. The HMT Review recommended an expedited procedure for subjects to proceed straight to the Upper Tribunal without first making representation to the RDC if they so chose. The FCA has come up with proposals to allow this to take place. Certain cases plainly require the rigour of the Upper Tribunal and this may well be a recommendation that meets with widespread support.
  • Various points in the consultation suggest investigations against individuals will continue. For example, the adoption of the Green Report recommendations for the logging of decision making in relation to investigations may well lead to more subjects of investigation. Further, in relation to co-operation between the regulators in enforcement investigations, both the PRA and FCA say they intend to diarise quarterly meetings with a standing item on the agenda to include discussing the review of any potential new subjects. When these matters are put against the FCA's comment that there may be an increase in cases against individuals in the future, consistent it says with its commitment to take action where appropriate against individuals and the introduction of the Senior Managers and Certification Regime, it may well be that investigations against individuals increase to a fair degree. We shall have to see.