The FCA’s Annual Report and Business Plan: Enforcement investigations

Yesterday, the FCA published its Annual Report and Accounts for 2020/21 and its Business Plan for 2021/22.

This article summarises the performance of the FCA’s Enforcement division over the last year as set out in its Annual Report and briefly sets out our predictions for what the Business Plan means for enforcement activity in the year ahead.

Performance in 2020/21

With the pandemic hitting the UK in March 2020, a slowdown in enforcement activity was always likely, as the FCA focused on grappling with the immediate consequences of the pandemic. This is borne out by data published alongside the FCA’s Annual Report, which shows a significant slowing down of enforcement activity in 2020/21 compared to the previous two years. In particular:

• The FCA imposed 10 financial penalties in 2020/21, down on the previous two years where the number was 15 and 16 respectively. A similar pattern can be seen in the amount of financial penalties. In 2020/21, the FCA imposed financial penalties totalling £189.8m, which is down on the £224.4m and £227.3m imposed in the previous two years.
• The FCA opened only 134 cases in 2020/21, down from 184 in 2019/20 and 343 in 2018/2019. However, the FCA closed 186 cases in 2020/21, reducing the number of open cases from 645 to 593.
• The average length of time of enforcement investigations has also increased again to 24.7 months in 2020/21 (up from 23.9 months and 17.5 months in the previous two years respectively).

Interestingly, the FCA also noted that 2020/21 saw an increase in firms and individuals who appeared to be carrying out regulated business without authorisation. The FCA issued 1,292 consumer alerts, an 80% increase on the previous year. The FCA also opened 1,293 enquiry cases and has a total of 184 individuals and firms under investigation for carrying out unauthorised business. This is a trend that firms operating close to the edge of the FCA’s regulatory perimeter should consider carefully.

Looking forward to 2021/22

Whilst enforcement activity slowed down significantly in 2020/21 (having already slowed down the previous year), we expect that it will increase again as the recovery from the pandemic continues.

The FCA’s Business Plan sets out a number of priorities for the year ahead, in particular the FCA intends to:

• Continue to deliver for consumers by taking forward the four priorities identified in last year’s business plan, as well as the new Consumer Duty. The four consumer priorities in last year’s business plan were enabling effective consumer investment decisions, ensuring consumer credit markets work well, making payments safe and accessible and delivering fair value in a digital age.
• Continue to enhance market integrity by reinforcing the effectiveness of the UK wholesale markets and enhancing its supervisory approach to specific issues.
• Focus on six of the most important cross-market issues (fraud, financial resilience, operational resilience, improving diversity and inclusion, enabling a more sustainable financial future and international cooperation).

Based on these priorities and the current trends that we have observed, we expect that the FCA’s Enforcement division will focus on the following areas in the year ahead:

• Whether financial products offer value for money to consumers, with the FCA building on its longstanding work with asset managers on this topic and its current consultation around a potential new Consumer Duty.
• Whether products are fair, clear and not misleading, especially as regards liquidity and claims made around ESG factors.
• Whether firms treated customers fairly during the pandemic, including the approach taken with regards to vulnerable customers.
• The culture of firms, particularly around diversity and inclusion. The FCA makes it clear in its Business Plan that an inclusive culture in which all staff can speak up allows conduct risk to be managed and reduces groupthink. We predicted at the start of this year that this would be a focus point of the FCA.
• A continued focus on market abuse (to reinforce market integrity), building on the several cases that the FCA has concluded in the past year and concerns that the effects of the pandemic might lead to disorderly markets.

It is possible (and indeed likely) that the FCA will open up enforcement investigations in some or all of these areas. However, the FCA may seek to use some of the other tools at its disposal, such as skilled person reviews, in particular areas to find out more information about firms.

If you would like to discuss any of these topics further, please do not hesitate to reach-out to one of the contacts listed on the right-hand side of this page or to your usual Simmons & Simmons contact.