Independent adviser Duff & Phelps has published a
report covering six regulators on three continents, reports
Professional Adviser’s Hannah Godfrey. The regulators are: the FCA and Prudential Regulation Authority (PRA) in the UK; the Financial Industry Regulatory Authority (FINRA), the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in the US; and the Securities and Futures Commission (SFC) in Hong Kong.
Some 1,761 cases were brought against individuals last year, outnumbering those against companies by four to one. Godfrey notes that this equates to about seven cases for every working day of the year.
Julian Korek, global head of regulatory and compliance consulting at Duff & Phelps, who is cited by Godfrey, said that “never before has the regulatory magnifying glass been so emphatically focused on the actions of senior executives”.
For example, in Hong Kong the SFC imposed 72% of its fines against individuals in 2016, an increase from 63% the year before. According to Duff & Phelps’ report, the introduction of the SFC’s Manager-In-Charge regime in December 2016 indicates that this will rise further.
Professional Adviser article
UK sees cases rise but fines dropInvestment Week’s Mike Sheen highlights the UK element of the report, where the biggest relative rise for tackling individuals was seen: from 37% in 2014 to 64% in 2016. The PRA’s figure (60%) is slightly below the nationwide trend. The Duff & Phelps report says that this general increase is a result of the introduction of legislation that increases individual accountability.
However, the FCA saw a 98% drop in the amounts collected in penalty fines in 2016, from £900m in 2015 to £22.2m. Comparatively, the CFTC and SFC saw drops of 76% and 6%, respectively; and the SEC and FINRA witnessed increases of 8% and 85%.
In the report, Monique Melis, managing director and global head of regulatory consulting at Duff & Phelps, attributes the FCA’s decrease to the resolution of the LIBOR and FX rate-rigging scandals.
Sheen quotes Melis from the report: “There were no mega fines bumping up the figures this year. The largest was just £8.2m for failures in the oversight of outsourced providers. For the FCA, this appears to be the new normal. [Smaller fines] disguise the increased individual liabilities that are likely to define the FCA's [future] enforcement approach.”
According to Melis, the FCA will focus on the implementation of the Senior Managers Regime, in particular on culture, conduct and integrity. Market abuse will be another key focus area, following the introduction of the new Market Abuse Regulation in 2016.
Investment Week article
Individual accountability to increase Portfolio Adviser’s Kristen McGachey focuses on the messages emanating from the FCA as a result of Duff & Phelps’ figures. The independent adviser’s findings have led it to anticipate an increase in the number of proceedings that will be bought by the FCA.
1,761
The number of cases brought against individuals by six regulators last year
“We are now in an era of greater individual accountability”, says Korek, who is quoted by McGachey. He was referring to the FCA, but his words could equally be applied to the regulatory scenario across the globe: “In the past, firms were slightly less worried about the size of fines imposed by regulators. But now, with individuals being targeted, management may be keener to push back against enforcement actions at every stage.”
Incidentally, McGachey observes that the US is the nation with the largest number of financial worker convictions and the most in fines – and the report explains why. FINRA collected $176.3m, while the CFTC received $748m despite a 76% decrease, and the SEC’s total earnings from penalty fines was $1.3bn.
The CFTC’s decrease, similar to the FCA’s, is due to the resolution of numerous benchmark manipulation cases. Conversely, FINRA’s rise is because of a hike in $1m fines, while the SEC’s is partly down to the increase in cases taken on (868 in 2016, up from 807 in 2015 and 755 in 2014) and a ‘broken windows’ policy that sees more and more pursuits.
The increase in cases against individuals further shows that the regulators are willing to “bare their teeth” in the face of ongoing financial crime, says Korek. “As this level of scrutiny continues to grow, it will become increasingly important for financial institutions across the globe to focus on cultivating a more transparent and responsible corporate culture.”
Portfolio Adviser article
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