Should the UK Regulator consider using a “Roskill style model” for enforcement led regulation?
Lord Roskill was chairman of a committee set up in the 1980s to look at ways to improve the investigation and prosecution of complex fraud cases. The recommendations he made gave rise to the creation of the Serious Fraud Office (SFO). The report recommended that investigators and prosecutors be brought together under one roof to get the benefits of both professions throughout the life of an investigation and prosecution.
I realise that the SFO has been subject to criticism about its handling of cases and accept that they are not a regulator. So why would this model help the FCA?
I recently saw a webinar presented by Chris Brennan from White and Case LLP entitled “FCA Enforcement in Context” and thank him for allowing me to quote some of the figures used within that presentation. The statistics were astonishing, although, to be fair they did fall under a group heading of “Slow Progress”
- The number of enforcement staff has risen from 200 in 2008 to 700 in 2019.
- The current number of open investigations in relation to individuals = 400
- The timeline for completion of settled cases = approximately 30 months.
- The timeline for the Regulatory Decisions Committee (RDC) to complete = approximately 50 months.
- The timeline for tribunal cases to be heard = approximately 72 months.
This appears to show the same trend from recent years of an increase in the number of open enforcement investigations. I am not aware of the percentage of cases closed without any further action required by the regulator, so will refrain from any generic observations or criticism.
The FCA have stated that it intends to use investigations as a diagnostic tool in order to fully understand the facts, rather than pre-judge the outcome of an investigation. In addition, where it is suspected that individuals are involved in serious misconduct, those individuals would be investigated alongside the firm. But is it working?
In 2019 the regulator faced a lot of criticism over the collapse of London Capital & Finance, after more than 11,000 investors lost £236m. The FCA’s enforcement team was warned three years earlier about the company but failed to act. We see large fines handed out to financial institutions for AML deficiencies and violations which do not even serve to bruise the egos on the board of the guilty institutions. It appears that the regulators see fines as the most appropriate way to sanction rule-breaking banks and businesses, but we have not seen an increased focus on enforcement actions against the senior management individuals of those boards.
Is it about time the regulators reviewed the purpose of the outdated concept of the Money Laundering Regulations?
Money laundering, fraud, tax evasion and bribery and corruption still needs to be properly understood and addressed by the regulators before they can have “enforcement led regulation”.
Lisa Osofsky, the head of the SFO has been quoted as saying that the slow pace of SFO investigations is the biggest criticism she hears and that while “co-operators” had been “more widely used in drug or gang cases” in Britain, “we are intently exploring this area in the white-collar world”. Ms Osofsky also considered the introduction of a sweeping corporate criminal liability offence, extending rules around bribery and tax evasion to other forms of business crime, such as money laundering.
If the UK regulator stated that every time a firm was fined, they would also take action against the senior management team responsible, there would be less criticism for their seemingly slow enforcement process, but I am not aware of any recommendations from them to address this in the same way that the SFO have.
One of the complaints I hear (i am guilty as well) is about the staff and how long they stay within the regulator because they see it as a stepping-stone to a better paid and more senior role within financial institutions. Frequently, senior managers within a financial institution work hard to gain a relationship with the regulator only to find their contact has been moved onto another department or resigned.
Towards the end of 2019, we were told that the regulator admitted that they needed to change their entire outlook to keep pace with the changing needs and demands of consumers and they intended to move towards a system that focused on outcomes and to tackle problems holistically. In my opinion, changing their enforcement approach while using lawyers and professional investigators within their teams, would be a start.
It is this kind of thinking that will help the financial services industry and consumers to understand that the regulator has real powers, including the potential to stop the dodgy geezers, unscrupulous individuals and those companies where everyone is a vice president or director, has a high turnover of staff and unscrupulous business practices.
