The distant sound of an FCA manoeuvre
In my last blog I looked at the possibly unexpected demands of the SMR on the FCA creating the need for a heavier burden of proof and concluded that in fighting individuals their ability to fine firms would and has been, materially diminished because this heightened degree of push back precluded some of the exaggeration and linguistic repetition that the Regulator had got away with in settlement agreed “Final Notices” in the past where individuals were not named.
I had overlooked the FCA discussion paper, “Transforming Culture in Financial Services”, published last month. This paper consists of enlightened articles about culture and essays by industry luminaries.
Jonathan Davidson, FCA executive director of supervision for retail and authorisations wrote in the foreword ‘Culture in financial services is widely accepted as a root cause of the major conduct failings’. This seems to depart somewhat from the recent SMR mantra and, at least, re-open a gap for regulatory exploitation between senior management and the culture of their firm as two separate areas for investigation. Is the FCA suggesting that in the future this culture might be something that can again be legitimately investigated in its own right? Are they saying that, in fact it’s not the “bad apple” leader that has led to so many problems in the past, but the failed culture of the firm. A cynic might also allude to the added benefit to the FCA of a return to chunky uncontested fines!
The FT said: “Mr Davidson alluded to the Wells Fargo’s bogus-accounts scandal in the US, saying such incidents had “raised questions of trust in firms and in the industry as a whole”.
Surely we have moved on from here? Good practice and culture are central to large firm behaviours. The Wells Fargo and for that matter the VW failings were surely “rotten apples” that created cultural flaws even if it is hard to identify who the actual perpetrators were.
However the irritating, unpleasant and consequential pushback for the FCA under FSMA 393 and other regulators from individuals under investigation is that they may have let the genie out of the bottle. Many senior managers, legal and compliance employees have now seen the opportunism, vulnerability and flimsiness of some regulatory enforcement procedures. Firms, rather than putting aside large funds to pay regulatory fines to “get on with it”, are more likely to fight. Barclays recent DOJ $2bn fine mortgage mis-selling was much smaller than originally proposed because Jes Staley, Barclays CEO fought it. This trend will continue. If he saved the bank $2bn it was well worth it.