Senior managers can mitigate risk by taking concerns to FCA immediately – lawyers

August 11, 2017

Financial services partner Peter Wright quoted in Thomson Reuters Regulatory Intelligence

The Financial Conduct Authority's (FCA) investigation of Jes Staley, chief executive of Barclays, under the Senior Managers and Certification Regime (SMR) is a stark reminder of risks senior managers face who fall foul of responsibilities. To reduce their risk in future cases, at a time when the FCA consults on a roll-out of the SMR industry-wide, senior managers may be best off taking compliance concerns straightaway to the FCA, lawyers said.

"In the past, individuals raising a concern about something wrong in the firm would go most often only to the compliance officer. With the Senior Managers and Certification Regime in place, more may decide to go directly to the FCA as well," said Peter Wright, partner, Fox Williams, who declined to discuss any particular case.

If self-defence strategies can help senior managers avoid the trap of taking advice from the wrong people, or none, it may help them to avoid ending up under a FCA investigation such as Staley. In this way, other sectors can learn from the SMR so far in banking, where it has operated for 16 months.

The FCA is consulting on its industry-wide SMR now until November 3, and will start a second consultation, on the regime's implementation, by early 2018.

The FCA said in response to a freedom of information request last February that it is investigating two senior managers. There will doubtless be more cases to come, but the few early decisions, including on the Barclays CEO, will be seen as a test of how the regime is working. Senior managers industry-wide will adapt. Earlier this year, the UK bank disciplined Staley and cut his bonus after he twice tried to uncover the identity of a whistleblower.

"Speaking generally, the bit which will be interesting is to see how many more such whistleblowers report to the FCA, now the SMR is just bedding in," said Wright, a former prosecutor at the Financial Services Authority.

Senior whistleblowers who do this can reduce their risk, he said.

"If an individual thinks that fraud was committed in the firm, he or she can go to the compliance officer, and it is a judgement call whether to go to the FCA as well."

"It is rare to go only to the FCA, but if it is a small firm, and the individual thought a compliance officer was involved in the fraud and so there was a tipping off risk, he might choose that route," Wright said.

Question of motive

Senior managers or certified persons considering whether to go to the FCA should be making a decision based on the right thing to do, Wright said. "Employees should not hold the sword of Damocles over the head of the firm and say that 'if you don't do this, I'll go to the FCA'."

"If senior managers become subject to FCA investigations, they should find out what are really the concerns of the FCA. The difficulty of a regulatory investigation is that it is done with the benefit of hindsight. If an individual had made a decision but there were better alternatives in hindsight, it was not necessarily an unreasonable decision," he said.

"Getting good rapport with the regulator during an investigation is vital," Wright said.

To avoid becoming subject of a SMR investigation, it is crucial for senior managers to document actions, Wright said. "There should be notes, recorded by email, saying, 'We decided to take certain actions for the following reasons.'

"If you are a senior manager in an area of the business developing new areas, it is your role to say where it is right to go. You may have compliance input into relevant rules but it is your responsibility," he said. 


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