• Low level of fines in 2016 likely an anomaly, not the new normal, predicts Fox Williams
  • Analysis identifies five factors which will drive up the level of FCA enforcement, with particular focus on “man on the street” cases
  • Financial crime, especially money laundering, a priority in 2017

The unusually low level of fines handed out by the Financial Conduct Authority (FCA) in 2016 is likely to be an exception rather than the shape of things to come, according to new analysis by City law firm, Fox Williams.

A proposed increase in regulatory scrutiny, the bedding in of new rules and the broadening of the FCA’s focus to financial services firms beyond banking could send enforcement activity back up to levels experienced in the years prior to 2016 and since the financial crisis, Fox Williams’ analysis reveals.

“When it became clear that fines levied in 2016 were the lowest since 2007, there was a view that financial services had finally responded to increased scrutiny and cleaned up its act. Or conversely that the regulator had softened its approach to misconduct. Our analysis shows this is far from the case,” said Peter Wright, partner and head of financial services investigations at Fox Williams.

“After several years dominated by Libor and Forex offences, the regulator showed signs last year of casting its net far wider. Firms and activities which have a more obvious impact on the general public are once again entering the FCA’s sights. Big banks and trading floors have been the popular target for several years, but now it is the turn of smaller firms, independents, insurers, credit companies and anyone handling client money to be in the spotlight.”

“If Libor was the poster child of misconduct over the past five years, financial crime will take its place this year. In addition, 2017 is the year in which the application of several new rules will really start to take effect,” he said.

Fox Williams’ analysis identified the following factors likely to influence enforcement activity – and the volume and value of fines – in 2017:

  1. Prioritisation of anti-money laundering: With financial crimeidentified as one of the FCA’s top seven strategic priorities in 2016/17, there is likely to be enforcement action related to anti-money laundering. Several cases are underway at present, and the FCA will have better access to information via the new annual Financial Crime Return that came into effect on 31st December 2016, replacing ad-hoc data collection of financial crime risks with targeted supervision.
  2. Application of Market Abuse Regulation (MAR): Introduced halfway through 2016, there are likely to be more cases related to MAR coming to light this coming year as the framework prohibiting insider dealing and unlawful disclosure of inside information takes effect.
  3. Embedding the Senior Managers’ Regime: As the one-year anniversary of the introduction of the regime policing the conduct of senior managers in banks, building societies and insurers approaches in March, the FCA will likely crack down on firms which continue to allow junior managers to share responsibility, as stated by its chief executive in September 2016.
  4. Continued focus on consumer credit firms: The FCA’s stated commitment towards the highest standards of conduct towards consumers was evident in the increased intervention by the FCA on the consumer credit sector last year. IFAs, wealth management firms, insurance firms and brokers, and investment firms were also targeted. This is likely to continue as the FCA prioritises the financial interests of the man in the street.
  5. A revival of Libor scrutiny: Fresh criminal investigations by the FCA and Serious Fraud Office (SFO) into the rigging of the Libor benchmark have recently commenced, which could result in enforcement action this year.

Sona Ganatra, financial services legal director at Fox Williams, said:

“Anti-money laundering has been identified as an area of concern in the City, and a priority to investigate and address. We know of several cases in train, and it could be a very active year in this arena. We urge firms to examine their financial crime controls to ensure they can meet the increasing expectations and demands of regulators both in the UK and abroad.

“Add the impact of the new Senior Managers Regime and other regulations like the Markets Abuse Directive, and compliance departments still have a huge workload. We are already seeing the impact of SMR, with a surge in the number of fines for individuals relative to company fines. This is likely to continue.”

According to Fox Williams’ analysis, another trend that could emerge in 2017 could be an increase in the level of criminal prosecutions in line with more regulatory action, with co-operation between different UK enforcement agencies, as well as across international borders, showing signs of change.

James Carlton, partner and head of white collar crime and business investigations at Fox Williams, said:

“Investigations are becoming more complex and, inevitably, take longer to complete. That means more resources are needed to bring about a successful outcome.

“As the FCA steps up its interest in financial crime, we are likely to see a closer relationship with the Serious Fraud Office. Libor’s global nature has meant a deeper relationship with European and American agencies and that will continue. The American approach to enforcement is also seeping into British practices and we are seeing a far more aggressive approach on this side of the pond.

“If enforcement activity does increase – and all the signs suggest it will – then we may well see a step change in criminal investigations after a quiet 2016. The criminal courts could see a regular stream of visitors from the City in the coming years.”


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