FCA: We want wrongdoers shunned by peers

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Regulatory enforcement is not just about increasing the size and frequency of fines, but about the industry forcing better behaviours by shunning wrongdoers, Financial Conduct Authority (FCA) enforcement director Tracey McDermott has said.

She said 2014 has been a record year with billions collected in fines and 20 people being banned but there is "not an expectation" to collect more and higher fines next year.

Enforcement is one tool the regulator uses to generate better behaviour across the industry, she said, and it's a vital tool.

But the most important part of it is to achieve a change in culture across the industry - for firms to look back and learn from others' mistakes.

How do we move to a world where people make the right decisions because they believe it is being valued by their peers and they will be ostracised if they do wrong

Speaking at the FCA's Enforcement Conference, McDermott said the regulator has "seen efforts including firms' willingness to own up to their past mistakes and pay out compensation to consumers" but more needs to be done.

"It's a moral issue," she said. "How do we move to a world where people make the right decisions because they believe it is being valued by their peers and they will be ostracised if they do wrong?"

She added: "Disappointingly this is not yet second nature, the reviewing of lessons learnt is still too narrow."

McDermott said the FCA will continue to hold firms and senior management to account, although the regulator "constantly looks at whether there are new approaches" it can take.

She dismissed concerns of a lack of clarity on FCA rules, saying in the three years following the crisis the number of rules and guidance increased by 27% and yet a lot of recent enforcement action was based on behaviour that started during that time.

"[Wrongdoing] happened in spite of it", she said. "Rules can't simply be put in place...they can also encourage people to abdicate responsibility.

"We need to move beyond playing by the rules towards [a focus on] achieving better consumer outcomes."

 

Reasons for enforcement

Director of investigations Jamie Symington explained the FCA mainly takes enforcement action for four reasons: specific deterrence; general deterrence; punishment ; and protection.

The three indicators of poor culture and governance that would lead the regulator to take actions are: misconduct of senior people; repeat offending; and firms which do not cooperate with the FCA.

"We would not be a credible regulator if we simply stood by and did nothing," he said, "we have a responsibility to society to [act]."

The FCA measures success in enforcement based on how many people it removes from the industry - as part of its 'protection' agenda - and other information it receives when doing supervisory visits and listening to anecdotal stories. "We can see the impact it's having in that," Symington said.

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