UK Regulatory Fines: Processes and Personal Accountability
09 Dec 2015

Corporate scandals and continued political pressure over the past two years have resulted in UK regulators demonstrating a stricter approach and willingness to crack down on financial institutions.

Accountancy firm EY recently released the Investigations Index, which examined data collected between 2013–2015 to provide insights and statistics into the penalties that UK regulators have been delivering to organisations that do not comply with regulations. The data was collected on cases investigated by the Financial Conduct Authority (FCA), Serious Fraud Office (SFO), Competition and Markets Authority (CMA) and the Office of Fair Trading (OFT).

The summary findings of the research were:

  • The total fines issued to both businesses and individuals by the UK’s key regulatory bodies have increased by 271% over the past two years
  • Over the same period, the total amount of prison time handed out has increased by 124%
  • £2.45bn worth of fines were issued over the past two years
  • Company directors face average prison sentences of at least four years
  • 56% of cases investigated by the FCA resulted in fines
  • 58% of cases investigated by the SFO resulted in prison sentences
  • Out of 82 cases investigated by the FCA over two years, 25 were against individuals
  • Out of those 25 cases, 21 people went to prison
  • 10% of all cases were due to fraud
  •  Of the 125 cases investigated by the CMA and OFT over the past two years, 119 were due to a proposed or completed merger or acquisition

Most importantly, the three main reasons for fines from all of the regulatory bodies included:

1. Giving misleading information

2. Business misconduct

3. Processes and systems not working as they should

The key takeaway for compliance professionals is that individual accountability combined with regular reviewing of organisations’ processes and systems is vital. In many cases, the key causal factors which ultimately led to fines and prosecutions would not have crystallised if processes were more stringent and had been followed correctly by staff.

A speech delivered yesterday by Tracey McDermott, the Acting Chief Executive of the FCA on personal accountability in the financial services industry, served to underline this message. McDermott stated:

“It is critical that, at this point in the cycle, we do not lose momentum but instead see a renewed push, across the industry, to drive up standards and tackle problems without needing the regulator or the government to do it for them. Ultimately, we will know we have succeeded when the carrot is doing more work than the stick and individuals within firms are motivated to do the right thing as a matter of course and consistently.”

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