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FCA Enforcement Action

This week, we’ll take a look at the FCA’s developing approach to enforcement. While it hasn’t changed fundamentally since the 2019 publication of its Approach to Enforcement document, the Regulator’s case capacity has substantially increased, with new offices opening and expanding in Leeds and Edinburgh to support an increased focus on enforcement activities.

With the Consumer Duty mere weeks away from implementation, and with a clear message from the FCA that they intend to take “robust action” where required, understanding how and why that action might be taken is a critical part of Consumer Duty implementation activities.

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The Regulator’s increasing willingness to take serious action – and more of it – results from both a request from the Treasury Select Committee that the FCA take more proactive and decisive action, and from FCA concerns around consumer harm. Post-Consumer Duty, it plans to use enforcement as a preventative as well as a punishment.

Considering the application of fines alone, the trend is certainly an upward one. Eleven fines were handed out in 2020, ten were imposed in 2021, this number increased to 26 in 2022. Importantly, fines are increasingly chosen for a variety of misconduct categories, including AML breaches, failure to control affairs effectively, and breaches of the Principles for Businesses.

As the Consumer Duty will mean the onus is on firms to ensure that consumer harms are reduced, and further, that consumers receive good outcomes, a detailed awareness of the potential outcomes of failures to meet the requirements of the Duty is needed to be able to manage risk accurately.

Last year saw a growing focus on actions that caused harm to customers. Larger fines were imposed for breaches of AML rules, breaches of the Market Abuse Regulation, and systems and controls issues, but relatively small fines were also imposed on firms and individuals where activities impacted customers negatively. A fine of £812,000 was handed out to a guarantor loan company that “failed to consider essential information regarding guarantors’ individual circumstances” and for using a formulaic approach to assessing creditworthiness. Although a relatively small number of customers were affected, the FCA imposed the fine because the actions had the potential to “cause serious harm to all guarantors who were pursued for payment.”

This direction of travel was confirmed by Therese Chambers – the FCA’s Joint Executive Director of Enforcement and Market Oversight – in a speech on 1st June entitled “Do the right thing” that could have come with the tagline ‘nowhere to hide.’ In fact, that’s a direct quote. Chambers highlighted that Steve Smart, her Co-Executive Director of Enforcement, comes from the National Crime Agency and brings with him the insights and experience of a former Director of Intelligence.

The intention to use a more ‘assertive’ approach to enforcement, with plans to use more innovative methods in tracking potential harms is balanced with the positive light in which clearly doing the right thing is viewed by the Regulator. In short, if firms either find an issue, or get caught out, that is an opportunity to do the right thing – which is at the very heart of the Consumer Duty.

This is why good MI and outcome testing methods are going to be so important in the coming years. The FCA now expects early detection – rather than waiting until the regulator spots something - and then open cooperation from firms where harms are spotted. There is also the expectation to approach the FCA if there are concerns about potential harms.

The higher standard introduced by Principle 12 – which requires firms to “act to deliver good outcomes for retail customers” – combined with the very real potential of “real and meaningful consequences” and the use of ‘punishment’ as a deterrent, tips the balance in favour of proactive compliance.

The feeling on the ground however is that there are still some uncertainties in the current set of rules and in understanding what breaches will look like in practice. Sheldon Mills, executive director of consumers and competition at the FCA, has previously noted that action will be taken proportionate to the level of harm, and priority will be given to the most serious of breaches.

In the remaining weeks before implementation, ensuring a focus on the design of products and services to ensure they are meeting the needs of customers, that communications are clear and honest, and transparency with the regulator must be the priority.

The FCA has recently highlighted a lack of training as a key contributor to poor outcomes for customers, in both introductory and refresher training. RB Compliance can help firms here. Our dedicated Financial Difficulties course takes learners through techniques that have been tried and tested, covers questioning skills, empathy and active listening, what to say, when to say it, and how to support customers. Supporting vulnerable customers is also a key element of the Consumer Duty – our online course is available here.

You may also find our wider range of resources on the Consumer Duty helpful.


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