The last few months of 2024 saw some notable actions taken by the FCA against individuals for non-financial misconduct. But this was against a backdrop of the FCA’s own culture and integrity being called into question by Parliament – an uncomfortable comparison if you are a regulator committed to removing individuals who fail to meet the expected standards of conduct in both their professional and personal lives.
September 2024, saw the latest instalment in the Odey saga, where the FCA released a Warning Notice Statement accusing Mr Odey of having acted without integrity when he used his majority shareholding of Odey Asset Management LLP (‘OAM’) to remove the existing members of the firm’s Executive Committee – twice! – and appoint himself as the sole member of the Executive Committee. This was in the light of OAM having scheduled a disciplinary hearing to consider whether Mr Odey had breached a final written warning issued by the firm “in relation to inappropriate behaviour”. In the FCA’s view, Mr Odey’s conduct was deliberately designed to frustrate the firm’s ongoing disciplinary process into his conduct and to protect his own interests. Furthermore, the FCA found that Mr Odey lacked candour in terms of the explanations given for dismissal of members of the Executive Committee, thereby adding to the FCA’s view of Mr Odey lacking integrity.
The next example is the case of a Chief Executive, who in 2017 made a share disposal of approximately $10m, which gave rise to a significant capital gains tax liability. He failed to declare the disposal to HMRC and settle the resulting capital gains tax liability. He was informed in November 2020 that HMRC intended to impose on him a financial penalty, based on a determination that he had deliberately failed to disclose the capital gains tax liability. The individual was then subsequently sent a ‘Notice to Pay’ letter in December 2020 which he paid the following February, having returned from abroad.
The FCA found that in failing to notify the FCA of his tax issues, he had breached Senior Manager Conduct Rule 4, which requires individuals to disclose information of which the FCA would reasonably expect notice. Whilst the FCA acknowledged that his actions were careless (as opposed to deliberate or reckless), the FCA determined that they fell below the standards expected of a person holding a senior position at a regulated firm and levied a financial penalty of £350k.
The final case to highlight is that of a senior management function holder at a Consumer Credit firm. In July 2020 the individual pleaded guilty to inflicting GBH whilst he was the only approved person at the firm. He failed both to notify the FCA of the proceedings, and to disclose details of his subsequent conviction and imprisonment. Additionally, he deliberately provided false and misleading information to the FCA whereby he gave a false reason as to why his firm had submitted an application for another director’s approval – stating that he was overseas on business, whilst in reality he was in prison.
As a result, the FCA found that the individual was not a fit and proper and prohibited him from performing any regulated activity.
So why are you telling me all this?
As evidenced in the small snapshot of cases described above, the second half of last year saw a flurry of enforcement cases focusing on conduct and culture. Combine this with proposals regarding diversity and inclusion, the results of the non-financial misconduct survey and imminent guidance on non-financial misconduct, it isn’t hard to see that the culture and SMCR themes remain very much top of mind.
Therefore, as we start the new year, it is a good moment to review your own SMCR arrangements.
The following questions may be helpful to kick start that assessment:
- When were background checks last completed? It is common for them to be undertaken every couple of years, particularly for senior managers;
- Have staff completed recent attestations? Can you refresh the questions asked to obtain disclosures that have been missed?
- When did training last really focus on individual responsibilities? The above cases serve as real life examples that emphasise this is to be taken seriously and stimulate discussion at in person training.
Pot calling the kettle black?
The above is all well intentioned but yet the FCA’s own conduct and culture has received its own fair share of criticism and challenge. A recent All Party Parliamentary Group report questions whether the FCA is, “incompetent at best, dishonest at worst” and concludes “its leaders [are] opaque and unaccountable.” This portrayal of the FCA is in stark contrast to the expectations of the SMCR under which the same regulator requires individuals to be open and co-operative, take accountability for their actions (‘duty of responsibility’) and at all times act with the highest levels of integrity. At the very least, it makes for uncomfortable reading and if true demands reform of the regulator. However, for regulated firms and individuals it is a case of do as we say, not do as we do. That is not to excuse poor standards at the regulator but rather there is no gain to be had from trying to justify poor conduct by pointing to the gamekeeper’s failures.
Whilst we anticipate a material reduction in the compliance burden in a re-drafted certification regime; the duty of responsibility (and accountability) for senior managers is here to stay, and likely to increase. The cases we note above cover lack of integrity, failure to disclose, a serious assault and being less than candid in communication with the FCA, but what ties them all together is they are all enforcement actions against senior managers that had failed to act in accordance with the standards expected of senior and experienced individuals – as guardians of clients’ money, assets and interests, they are rightly held to a higher standard.
Do get in touch with us if you’d like to get on the front foot in 2025!
