The FCA Annual Report 2021/22: Enforcement Highlights | Allen & Overy LLP

With over 50 references to enforcement activity in the FCA’s latest annual report, there is no shortage of enforcement reports and statistics for us to analyse.

A more assertive controller

Although enforcement is never the dominant theme running through FCA’s annual reports, the references to enforcement in this year’s report were significantly more emphatic.

For example, in the 2020/21 Annual Report, the FCA described its approach to enforcement as aiming to “achieve fair and equitable outcomes when we identify serious wrongdoing by companies or individuals under our jurisdiction who are not acting in accordance with our rules and policies or other applicable requirements“. Fast forward to this year’s annual report and the tone is much more assertive as the FCA describe their enforcement function as “mak[ing] It is clear that there are real and significant consequences for companies and individuals.” with a “Aim … to identify serious misconduct at an early stage so that we can intervene and prevent harm from occurring or continuing“.

The FCA has made it clear that it intends to become a bolder and more assertive regulator, and that objective clearly extends to how it views its enforcement work.

Enforcement Cases and Investigations

As of March 31, 2022, the FCA had 603 open cases (ie investigating firms or individuals) relating to 230 separate investigations. The majority of these open investigations concern alleged unauthorized dealings (35%) but apart from that the FCA’s portfolio of enforcement cases mainly focuses on retail client behavior (14%), insider dealing (12%), pension advice (10%) and wholesale behavior (9%) and financial crime (8%). This is broadly in line with the end of the previous financial year, although the proportion of FCA’s enforcement portfolio devoted to wholesale behavior has increased slightly (+3%), while the proportion devoted to financial crime has increased slightly decreased (-2%).

The FCA opened 194 new enforcement cases last year, a 55% increase over the previous financial year. Most of these new cases allegedly involved unauthorized dealings, but other areas where the FCA opened a significant number of new enforcement cases were insider dealing, retail conduct, pension advice, wholesale conduct and financial crime.

This significant body of live cases and investigations continues against the backdrop of a shrinking enforcement function. On average, the FCA employed 625 people in the last financial year, which corresponds to a decrease of 11% compared to the previous financial year. Enforcement investigations still take just under 2.5 years on average, with 76 of FCA’s current enforcement cases pending for 800 days or more (or just over two years).

The FCA Regulatory Decisions Committee

The FCA’s Regulatory Decisions Committee (RDC) saw a significant 64% decrease in the number of cases referred to it in the last financial year. This is not surprising as the RDC now deals with fewer categories of cases than it used to, following changes to the FCA’s decision-making processes that came into effect late last year. The time it takes the RDC to review cases has increased to an average of 10.6 months (up 60%), reflecting the RDC’s focus on the more complex and time-consuming cases it is now reviewing.

In the FCA’s annual report, the Chairman of the RDC stated that he expects the RDC to review complex cases relating to pensions advice, market abuse and corporate anti-money laundering controls over the coming year.

expert opinion

While not an enforcement tool, peer reviews can (in some cases) be a precursor to enforcement activity, or at least provide a further indication of key areas of oversight and potential enforcement focus areas for the FCA.

During the last financial year, the FCA commissioned 38 specialist audits, costing the companies subject to these audits a total of £37.7m. This means that the number of expert reports commissioned by the FCA has fallen by 44% compared to the previous financial year (and by 36% compared to the previous year).

The investment management sector topped the FCA list of sectors required to commission expert assurance, with 11 inspections being commissioned in this sector in the last financial year. Financial crime and controls/risk management were the most popular areas examined by professionals, with 11 expert reviews commissioned to examine each of these areas, followed by business management (8) and corporate governance and individual accountability (6).

whistleblowing

In the most recent financial year, the FCA received 1,031 whistleblowing reports (15 fewer than the previous year), raising 2,114 separate allegations. However, only three of these whistleblowing reports resulted in what the FCA described as “significant damage control measures” including enforcement action, an expert review or the imposition of restrictions on the registration of a company or individual.

What now

While the FCA’s annual report does not aim to look at the crystal ball or scan the horizon (unlike the FCA’s business plan), it does provide some guidance on future areas of enforcement activity, including: Market behavior (particularly insider dealing and market manipulation) , ESG disclosures, pension advice and corporate financial crime systems and controls.

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