The UK financial regulator has pursued only a handful of investigations under its flagship scheme for holding executives to account and is leaving City companies to make potentially unfair calls on employee misconduct, lawyers have warned.
Figures obtained through a Freedom of Information request show that the Financial Conduct Authority has opened only 37 investigations under its senior managers and certification regime (SM&CR) in the past five years, despite describing it as “universal conduct tool” for “making individuals more accountable”.
Only five of these SM&CR investigations concerned “non-financial” misconduct — such as sexual harassment or discrimination — which FCA director Megan Butler had pledged to pursue in 2018.
Regulatory action against individuals followed in three of the “non-financial” cases. But it was taken in just two of the financial misconduct cases. One instance was the £640,000 fine imposed on Jes Staley, Barclays’ chief executive, in 2018 over the treatment of a whistleblower, but the other was a lesser £78,000 penalty for insurance boss Stuart Forsyth over tax-efficient payments to his wife, which was appealed to the regulatory Upper Tribunal.
Chris Finney, a partner at law firm Fox Williams, which made the FOI request, said the numbers suggested that conduct enforcement was, in effect, being “outsourced” to companies — bringing a risk it could be carried out inconsistently. The FCA wrote to insurance chief executives in November telling them that, under SM&CR, it expected companies to “address and remediate” wrongdoing.
“The FCA is getting a lot of mileage out of SM&CR, in the press and in its ‘Dear CEO letters’, but it is not actually opening many investigations and only a tiny fraction results in any regulatory action,” Mr Finney noted. “What we have seen is firms responding in all sorts of different ways, which is generating quite a lot of unfairness or prejudice for senior individuals.”
Lawyers at Kingsley Napley have also warned that SM&CR — which requires companies to certify key staff as “fit and proper” each year — can be used by employers to fast-track staff dismissals.
“F&P certification gives employers a stick with which to beat underperforming employees,” said Nick Ralph, a partner in the firm’s employment team. “Historically, competence or underperformance has been dealt with via an HR-related performance management plan . . . However, the F&P aspects of regulated firms’ new responsibilities now offer them a way to short-circuit that and get shot of people in one swoop — by treating issues as the competence aspects of F&P.”
Fox Williams employment partner Joanna Chatterton said she had already seen cases of SM&CR being used by companies in this way. She added that it could even be misused for retaliatory action, citing a case where a company wanted to update an ex-employee’s regulatory reference claiming they had uncovered conduct rule breaches — as a punishment for trying to poach clients for his new employer.
More often, though, companies have been taking a harsher approach to prevent any regulatory comeback. “Some businesses are taking a zero-tolerance approach to conduct-rule breaches for fear of getting it wrong,” said Ms Chatterton.
However, the FCA claimed its infrequent investigations proved that the certification system was having the desired effect. “The real measure of the SM&CR is not a high volume of enforcement cases, but whether the regime in combination with the threat of enforcement raises standards,” it said. “We think it has improved senior management accountability and standards . . . If anything, a lower volume of cases reflects that the regime is working as intended.”