Senior Managers - the FCA will see you now

This article was first published by Thomson Reuters on 06 December 2016, who have agreed to it being made available on Simmons & Simmons elexica.

The Senior Managers Regime (SMR) came into force in March 2016, heralding a “new era of increased individual accountability” for the banking sector according to the FCA. On 08 November 2016, the FCA’s Chief Executive, Andrew Bailey, told the Treasury Committee that investigations under the new regime could begin in early 2017, noting that there would inevitably be a lag between the regime bedding in and the emergence of FCA investigations and enforcement cases in this area.

Under the new regime, the FCA can investigate and hold Senior Managers to account for any misconduct that falls within their area of responsibility. The FCA’s investigations may require Senior Managers, their colleagues and third parties to attend the FCA for interview, either voluntarily or under compulsion pursuant to the regulator’s statutory powers. That is not new: these powers have been exercised by the FCA for some time. However, given the increased focus on individuals, the duty of responsibility placed on Senior Managers and the imminence of the first SMR investigations, it is an opportune time to consider how the FCA conducts interviews. We offer practical guidance below to individuals who may be questioned about their own, or others’, suspected misconduct.

What powers does the FCA have to interview me?

The FCA can compel a person who is the subject of an investigation, or any person connected with the person under investigation, to attend an interview pursuant to its powers under sections 171 to 173 of the Financial Services and Markets Act 2000 (FSMA 2000). For certain types of investigations, for instance, market abuse investigations, the FCA can summon any person who is necessary or expedient to the investigation for interview. If you are compelled to attend an interview and you refuse, you risk being found in contempt of court and subject to a fine or imprisonment, and you may be in breach of your obligation to deal with the regulator in an open and co-operative way (section 177 FSMA 2000, Individual Conduct Rule 3).

The FCA does not always use its formal statutory powers. Occasionally, you may be invited to attend an interview on a voluntary basis and, in circumstances where you are suspected of a criminal offence or market abuse, the voluntary interview will be conducted under caution. Interviews under caution are likely to be rare for Senior Managers though not impossible (consider the criminal offence of reckless management of a bank under the Financial Services (Banking Reform) Act 2013) and so we do not consider them further in this article.

It is perhaps self-evident that you are not required to attend a voluntary interview. The FCA will not bring disciplinary proceedings if you do not attend, even in circumstances where you are obliged to be open and cooperative with the regulator (as an approved person or if subject to the Conduct Rules). The practical reality for a Senior Manager, however, is that a failure to attend a voluntary interview runs the risk of appearing uncooperative and the consequences would need to be considered carefully. In certain circumstances, it may be preferable to be compelled as it limits any criticism of you for providing commercially sensitive or confidential information in an interview.

Am I under investigation if I am asked to attend an interview?

The FCA interviews many people as part of its investigations, including individuals suspected of misconduct, but also their colleagues and associates who may have relevant knowledge. Where an individual, such as a Senior Manager, is the subject of an investigation, it would perhaps be more remarkable for that person not to be interviewed. If you are the subject of the investigation, the FCA is required to provide you with a notice of the appointment of the investigators and the reason for the investigation. If you do not receive a notice, you or your lawyer can find out from the FCA in advance why you are being interviewed. You will usually be told the scope of investigation, at least to the extent needed to enable you to respond appropriately in the interview.

Even if you are not the subject of an investigation, it is worth giving some thought to whether you may need legal representation and whether there is any risk that you might become the subject of a future investigation. In the new era where individual accountability is front and centre of the FCA’s agenda, this may be particularly apposite for Senior Managers attending interviews to assist the FCA’s investigation of their firm.

How does the FCA conduct its interviews?

Most senior individuals will have had some tough interviews in their careers but there is a discernible difference to the quality of an interview by a regulator that can unnerve even the most experienced veterans. The FCA’s interview process is formal, likely to involve at least two but probably more interviewers, and will follow certain procedures including reference to the statutory powers that are being relied upon including the duty to be open and cooperative with the regulator. Interviews can be lengthy – sometimes lasting days – and are therefore demanding, requiring both stamina and appropriate preparation. They are taped, which naturally has an impact on the dynamic and tone of the interview. They will also be confidential, as is usually the case for the whole investigation. There will potentially be implications for deliberately or recklessly providing information which is false or misleading to the FCA.

What will the FCA ask me about?

The length, nature and scope of the interview can be as varied as the nature of the work that crosses the desk of an FCA enforcement team. Given the obligations on a Senior Manager to comply with the four Senior Manager Conduct Rules, the focus of questioning is likely to go towards demonstrating that reasonable steps have (or have not) been taken in ensuring that individual’s business area is controlled effectively, that relevant requirements and standards of the regulatory system have been maintained and that any delegation of responsibilities has been appropriate and effectively overseen. Let us not also forget the requirement under Senior Manager Conduct Rule 4 that you must disclose appropriately any information of which the FCA or PRA would reasonably expect notice (which is relevant beyond FCA interviews), and which is more onerous than Individual Conduct Rule 3 to be open and cooperative with the regulator.

Who can accompany me to the interview?

The FCA will allow you to have a lawyer present. While not essential, it is often helpful to have a lawyer accompany you - he or she will proactively represent your legal rights, ensure that the questions remain in scope, that you are given time to review documents in responding to questions, that you are not required to deal with any issues relating to privileged communications and ensure that the FCA interviewers ask clear, appropriate and not leading questions.

You should be mindful that any lawyer for your employer represents the company’s interests, and not your own and, indeed, this will usually need to be clarified in advance of the interview and repeated in the interview itself. If you face potential liability as an individual, you should carefully consider seeking independent legal advice, separate from your employer, in advance of the interview. The cost of such advice may be covered by your employer or by Directors and Officers Liability insurance.

How should I prepare for the interview?

You, or your lawyer, can ask the FCA in advance for information about the interview topics and for the documents about which the interviewers intend to ask you questions. Depending on the nature of the interview, and indeed the nature of the investigation, there may be very few documents or they may be extensive. It is possible you will be able to anticipate of the type and volume of documents as a result of any prior Information Requirements made to you or your employer. The FCA will typically provide the interview material, and usually in good time, although it is not obliged to. As with all interviews, reviewing the documents in the interview pack will assist you in preparing for the FCA’s questions, will enable you to give your best recollection and - if you are an investigation subject - consider how to respond robustly to any allegations. However, caution will need to be used in discerning between documents that you can recall from the relevant time period, and those that you have been shown subsequently. You will also need to be careful about discussing information that arises from privileged communications.

In the case of Senior Managers, a solid understanding of the Statements of Responsibility, the Responsibility Map for your organisation, the reporting lines and committees for which you are responsible as well as your obligations pursuant to the Conduct Rules will be expected - at all times - but acutely in interviews.

Do I have to answer questions?

You are only required to answer the FCA’s questions if you have been compelled to attend the interview. In that case, the FCA’s questions must be within the scope of its investigation. If you are attending voluntarily, you need not answer any questions (although consider the need to act openly and cooperatively). It is perhaps an obvious practical point but if something is simply outside of the scope of your knowledge that needs to be said rather than attempting to speculate what others knew or guess at an answer.

It can be a demanding and stressful experience, but a calm and cooperative approach is essential. That is why regular breaks (which will be offered), preparation and legal advice may all assist. There will also be the opportunity to make additional comments or clarify certain issues at the end.

Will the interview be recorded?

The interview will be taped by the FCA and a copy of the audio tape will usually be provided at the end of the interview. The written transcript will follow as soon as one is available and it is advisable to review it, not least for obvious errors but also in case it prompts any further thoughts for clarifying or amplifying with the FCA. If you are required to attend further interviews you will be provided with a copy of the transcript of the previous interview before any subsequent interviews.

How might the FCA use my answers?

Information provided to the FCA in interviews is evidence. That evidence may never be used, for example, if the investigation is terminated; it may result in further investigations being opened (including into the individual interviewed); or it may result in enforcement notices and fines and even be referred to in the Upper Tribunal and beyond (provided it is admissible in the circumstances). However, the FCA may need to give consideration to whether a person, who is not the subject of the investigation, has third party rights, ie where a third party’s interview evidence is quoted or referenced and where that individual is identified and prejudiced.