Financial services regulatory compliance: key trends

By Fraser Doig

A report by NERA Economic Consulting takes an in-depth look at the key trends and how financial services regulatory compliance has improved in recent years. At both a personal and firm level, fines have been lower in 2019-20 in comparison to previous years; this puts individual fines at their lowest point in six years. The majority of fines and regulatory enforcement measures issued in 2019-20 were as a result of compliance failures or Customer Protection misconduct.

Despite this, the FCA currently have more active investigations open than ever and they are under an increasing amount of pressure to evidence their strength.

Key takeaways from these findings

  • The need for tighter regulations

    It’s probably reasonable to say that the 2014/15 peak coincided with a spike in negative behaviour and misconduct around LIBOR and FX trading, as well as the legacy of the major retail banking misselling cases. This underlines why there was a definite need for regulatory reform within FCA and PRA at the time.

    SM&CR, MiFID and MAR type regulations were a direct response to what was seen as a fairly corrupt industry, which was doubly frustrating given the number of public bailouts that were conceded after the 2008 crash.

  • The positive influence of SM&CR

    Market research by UK Finance suggests that most tier 1 or tier 2 managers would agree that there has been a widespread behavioural shift in the right direction at this level. There is also a growing sense that the best practice of governance forced by the regulatory focus of SMCR has enabled positive change within firms, resulting in better FCA compliance.

    The decrease in personal fines could be interpreted as an indication that the SMCR regulations are a success - individual senior managers are now taking more responsibility and accountability than they were previously.

  • The impact of COVID-19

    The FCA have been clear that any investigations into non-customer harming activity, behaviour or misconduct (either on an individual or firm level) has been suspended in light of COVID-19. Therefore, it’s likely that the outcomes of the current year’s enforcement activity will be affected by this.

    They have also stated that, whilst temporarily delayed, much more enforcement activity is likely to result from the current pipeline of investigations into personal accountability.

    As the outgoing CEO Andrew Bailey leaves to take the Chair at Bank of England, the FCA themselves have come under fire for being too slow and lenient in how they have dealt with complaints of misconduct. At the same time, the overall number of grievances received by the FCA is growing steadily each year (there were 557 received in 2017/18 compared to 1075 in 2018/19).


What does this all mean for the industry?

Incidents from the past decade have shown that there were definite issues within the financial services industry that needed regulating. Current opinions within the industry support the view that the SMCR requirements, which require a greater deal of accountability from senior management, are working.

The fact that the FCA are under increased pressure from both the public and the government, and that firms are currently enjoying a stay of execution as a result of the pandemic, suggests that investigations will begin to ramp up in the post-COVID-19 environment. Firms should be proactive in using this time to review their current regulatory compliance activities and evidencing their response to the SMCR requirements, including in relation to the recent Dear CEO letters that were sent out to general insurance and asset management firms.

Our Pentana Compliance software streamlines your financial services regulatory compliance requirements, providing an easily accessible platform to record and evidence related activities. Find out more about how our competency management and SMCR software can help to improve and maintain your compliance responsibilities.

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