Do Senior Managers Still Need to Worry About Financial Conduct Authority Enforcement Actions?

Remember back to December 2019, when the Senior Managers and Certification Regime (SMCR) was first rolled out across the entire financial services industry? It provoked a lot of attention and more than a little concern among senior executives and their professional advisers. It was not so much the reforms themselves to which there was widespread objection. Rather, there was an anxiety around the new enforcement powers - perhaps heightened by some sabre rattling from the Financial Conduct Authority as to its determination to hold individuals personally to account. Was that concern misplaced?

 FCA’s Enforcement Record

The senior managers regime was the main plank of the legislative response to the criticism which the FCA received for its failure to hold senior executives of large financial institutions to account for significant shortcomings in the business practices of a number of banks during the 2008 financial crisis. The regime was first introduced for banks in 2016 . Yet figures obtained through a recent Freedom of Information request's show that the FCA has only opened 37 investigations in total over the past five years. What is more, although the aim of the new regime was to make individuals more accountable across all aspects of their conduct and not simply in financial matters, only five of the investigations opened by the FCA concerned so called non-financial misconduct such as sexual harassment or discrimination. That is so despite the pledge made by Megan Butler an FCA director in 2018 to pursue such cases. 

Is it still too early to conclude that SMCR has not really delivered on its promise or is it instead (as the FCA maintain) that already: “… it has improved senior management accountability and standards ..” and that “… If anything, a lower volume of cases reflects that the regime is working as intended.”? The reality is that we don't yet know. The possibility must exist that we will see an uptick in enforcement actions when we finally emerge from the current crisis. 

Outsourcing Responsibility?

Some commentators have suggested that the FCA have outsourced to employers the task of enforcing the regime and it is certainly the case that it is now the responsibility of HR departments to assess the fitness and propriety of its employees under the Certification limb of SMCR whereas previously that was the job of the FCA. There has also been the suggestion this might lead to inconsistent results and potentially harsh treatment of employees.

Again it is difficult to make any independent judgment of this. What is true is that the FCA have lost none of their appetite for issuing dear CEO letters on a broad range of topics and one of these is compliance with the SCMR itself. So for example it wrote to chief executives almost exactly a year ago reminding them that the FCA expected them: “to ensure your firm’s Senior Managers have a clear understanding of their roles and responsibilities and that staff, including Senior Managers and certified staff, have the appropriate skills and capabilities needed to deliver good customer outcomes. You should consider how the requirements of the regime might affect your people processes and governance. To characterise this approach ,however, as an outsourcing of the FCA’s responsibility is probably a mistake. Rather, it is perhaps a means of ensuring that if and when the FCA does decide to take enforcement action against companies or individuals, it can use these pointed reminders in support of any such action.

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