Do the right thing: Therese Chambers’ first speech sets the tone for a new era

Therese Chambers has used her first speech as Co-Executive Director of the FCA’s Enforcement Division to send some clear messages about areas of focus during her period of tenure.

All the bases are covered

Ms Chambers joins from the FCA’s Consumer Investments in the Supervision, Policy and Competition Division, a team overseeing firms’ activities in relation to what can be one of the most financially uncertain activities a retail customer undertakes. She also has many years of experience as a lawyer and investigator. Her Co-Director Steve Smart was most recently Director of Intelligence at the NCA, reflecting the FCA’s ongoing desire to become more data and intelligence-led across the board. The message from the speech was clear – two Directors combined are greater than the sum of their parts. They have all the ‘bases covered’ and firms will have nowhere to hide.

Top of the class 

The speech heaps praise on Quilter, the new owners of Lighthouse Advisory Services, for ‘taking responsibility’ for historic unsuitable advice given by the firm to former members of the British Steel Pension Scheme, and offering proactive redress. Such was the value of Quilter’s co-operation – described as ‘exemplary’ - that the FCA chose not to impose a financial penalty on Lighthouse.

Such praise from the FCA is rare indeed, but equally so is a 100% reduction in a financial penalty purely on the grounds of co-operation (the 2017 Tesco decision is one other example that springs to mind). With no established policy setting out they type of behaviour meriting a co-operation ‘credit’, these are awarded purely based on the FCA’s subjective view of a firm’s behaviour at the conclusion of the enforcement process. Firms might genuinely do their best to work with the FCA, but still fall short of its uncertain standards. This is what makes the PRA’s proposed Early Account Scheme so interesting. Here there is a defined process to follow with the potential for a reduction of up to 50% of any eventual penalty. The PRA will inevitably exercise some subjective judgment, but the process is significantly more transparent and predictable.

When questioned after the speech, Ms Chambers suggested the FCA would be reviewing industry responses to this proposal. She cast doubt on the idea that any senior executive would want to give the required attestation that an Early Account contains all relevant information (details of the proposed requirements are set out here). This misses the point - it is precisely this ‘structured’ process that is likely to be attractive to firms. If the PRA thinks carefully about the terms of any attestation, and if firms have a solid governance and assurance process to support the executive signing off, there is no reason why this would necessarily be a deal-breaker. The requirement is to take reasonable care when signing – executives are not being asked to give a guarantee.

More broadly, both regulators have a tendency to see co-operation in binary terms – a firm either co-operates sufficiently well to receive credit, or is “duck[ing] and div[ing] to avoid doing the right thing” as Ms Chambers put it. The reality is far more nuanced.

Foreseeing the future

Picking up on a theme often espoused by her predecessor Mark Steward, Ms Chambers challenged firms facing issues to consider whether something could have been done earlier to prevent harm occurring. Where harm has occurred, a strong theme of the speech was to extent to which the FCA expects firms to respond quickly and well, and that they will be judged on the quality of their response. This is, as the eagle-eyed amongst you will have noted, an approach that sits at the very heart of the new Consumer Duty. The entire structure of this new regime, and its focus on data and monitoring, is intended to facilitate the prompt identification of harm and the swift offer of redress or remediation.

In further questioning after the speech Ms Chambers indicated that, as an enforcement practitioner, she is ‘very keen’ on the cross-cutting rule to prevent foreseeable harm. This alone tells you all you need to know about where the future enforcement risk in the Consumer Duty lies. Although there will be something of a time-lag between July 31st and the first enforcement action under the Duty, EMO will be supporting work to impose business restrictions on firms in breach now. This will be the FCA's first response here.

As an overview of EMO’s priorities its new leadership, this speech is clear. For the other half of the picture, we await Co-Director Steve Smart’s first speech with interest!