The BoE/PRA has published an important Consultation Paper (“CP”) on its approach to enforcement and its enforcement / supervisory decision-making procedures.
It includes major changes to financial penalty calculations, measures to streamline enforcement processes, and other policy and procedural changes and consolidation.
The key points are as follows. If you want more detail, read our note. The consultation closes on 4 August 2023.
- Early Account Scheme (“EAS”): The PRA proposes an EAS giving firms and individuals the subject of non-criminal investigations an opportunity to provide the PRA with a detailed factual account of the matters at issue to expedite the information gathering phase of an investigation.
- The subject of the investigation would need to propose giving an account within 28 days of commencement of the investigation, and it would generally need to be completed within 6 months. The PRA expects to provide significant input into the methodology and scope of work and indeed reserves the right to participate in or observe interviews conducted as part of the giving of the account.
- For firms, the PRA proposes that the account would need to be supported by an independent Senior Manager confirming that there are no other relevant matters which need to be drawn to the PRA’s attention.
- In providing a structure for proactive investigation and (as discussed below) the opportunity for tangible credit for cooperation, the EAS has many potential advantages for firms subject to investigation, not least the ability to substantially accelerate the resolution of a PRA investigation. There are, however, a number of potential complexities which will need to be worked through, such as the interplay between a firm account and parallel investigations into individuals, the potential for PRA participation in aspects of the investigative process and how the attestation process would practically operate.
- Enhanced settlement discount: Along with the EAS, the PRA is proposing a possible enhanced settlement discount (from the current 30%) up to 50%, where, as well as participating in the EAS, without prejudice (“WP”) admissions are made at an early stage and the firm’s co-operation merits, in the PRA’s view, a higher discount. While it is encouraging that the PRA wishes to incentivise early admissions, it will only apply if the EAS is engaged (which is at the PRA’s discretion) and there are several (highly subjective) relevant factors the PRA can consider in determining whether sufficient cooperation has been given, including the completeness, accuracy and timeliness of disclosures made as part of the account, the degree of assistance given, the timeliness and adequacy of remediation and prior supervisory/disciplinary records.
- A proposed “Step 2 Starting Point Matrix”: This major change would, for firms, replace the Step 2 starting point of firm revenue with a seriousness multiplier applied. Instead, the Matrix would provide an indicative range of actual figures for the penalty starting point by reference to: (1) the firm’s impact categorisation; and (2) the seriousness of the breach. The PRA would, however, retain significant discretion to increase/decrease the starting point as necessary/appropriate. How this discretion is used in practice will impact how effective the Matrix is at rendering financial penalties more predictable and consistent, but the paper is perhaps a welcome acknowledgment (reflected in the number of recent PRA decisions where the PRA has departed from it) that the current Step 2 approach is not working.
- Revising Step 2 starting point for individuals: The PRA has proposed to align its Step 2 starting point approach for individuals in line with the FCA’s current approach for individuals. This should result in greater consistency between the FCA and PRA in joint / concurrent enforcement actions by the FCA / PRA against individuals.
- FMI enforcement activity: The BoE has updated issued its April 2013 penalty policy in respect of financial market infrastructures (“FMIs”) to provide greater clarity with respect to the BoE’s investigation and disciplinary processes in FMI enforcement cases, including, introducing the ability to reach a settled outcome. To date, the BoE has published no enforcement action or penalty in respect of an FMI – however, this development may foreshadow some enforcement activity in the FMI space.