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Review of UK financial regulators' enforcement processes to focus on "fairness and effectiveness", says Treasury

Out-Law News | 08 May 2014 | 9:55 am | 2 min. read

Financial services firms have been asked for their views on the fairness, effectiveness and transparency of the processes used by the UK financial services regulators to come to enforcement decisions.

The Treasury has published a call for evidence from the industry, and will host a number of round-table discussions with interested parties next month, as part of the first stage of a review of enforcement decision-making by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). The review will report to the Chancellor of the Exchequer in the autumn and then be presented to Parliament.

"The government has taken action to provide a welcoming business environment for those in the financial services industry who play by the rules whilst ensuring that those intent on breaking them are held to account," said George Osborne, Chancellor of the Exchequer. "I am committed to ensuring that the financial services regulators pursue a model of enforcement that delivers the appropriate balance of fairness, transparency, speed and efficiency."

The PRA and the FCA took over the regulatory functions of the previous Financial Services Authority (FSA) on 1 April 2013. The PRA, which is based within the Bank of England, is responsible for most of the day-to-day regulation and supervision of 1,700 banks, building societies and insurers. The FCA is responsible for conduct and compliance, the prudential supervision of the around 23,000 firms that are not otherwise regulated by the PRA and consumer credit regulation.

Early figures obtained by Pinsent Masons, the law firm behind Out-Law.com, showed that the FCA was on track to open at least 50% more enforcement investigations by the end of its first year of operation than its predecessor. As of March 2014, the FCA's Division of Enforcement was opening more than six cases a month on average compared to an average of around four cases per month opened by the FSA in financial year 2012/13, according to the figures.

The new regulators have been given stronger enforcement powers than the FSA including the power to fine firms and individuals, and the power to ban individuals from operating in the financial services industry. They also have considerable flexibility within broad statutory parameters to design their own administrative processes to support the exercise of these powers.

The Treasury now wants to hear the views of firms and individuals on whether these processes and the criteria for referral to enforcement are "clear and being used appropriately". It is also seeking views on whether those subject to enforcement action are being given sufficient opportunities to put their cases across; about whether the early settlement process, under which discounts on fines are given to firms that cooperate with the regulators' investigations, is fair and sufficiently transparent; and about experiences of referring cases to the Upper Tribunal.

The Treasury is also seeking evidence on the "perceived lack of independence" in the disciplinary decision-making processes of the Regulatory Decisions Committee (RDC); which is part of the regulator and makes decisions on its behalf. Questions about the RDC's role were raised in 2005 during an FSA enforcement process review, and have also been debated in parliament, according to the call for evidence. The Parliamentary Commission on Banking Standards (PCBS) has also identified "the independent and separation of the enforcement function" as one of the challenges facing the new regulators, it said.