Big moves in the FCA's annual interventions and enforcement data

The FCA's annual report and metrics are out.  The metrics contain most of what's useful, but as usual the message is hidden in the detail and needs careful analysis.  Let's bring it into the spotlight with five top insights and how you and your teams can respond accordingly.

5. Mushrooming supervisory teams

The FCA is growing rapidly, but almost exclusively within its Supervision and Data/Innovation teams.  Ready yourself for more supervisory engagement, though be aware you may be dealing with some newer recruits so offer help where you can!

Interestingly the PSR, whilst still small, is growing rapidly.  Perhaps this will equip it to take a more active interventions and enforcement role in the coming couple of years.  Payments firms should devote attention to their regulatory liaison and investigations capabilities accordingly.

4. Supervision: biting off too much?

The FCA divides these into Interventions (requirements, directions and the like) and Threshold Conditions (self-explanatory).

Interventions cases are steeply rising, with the FCA doubling down on supervisory interventions as, often, an efficient way to further their objectives.  These can be fast-moving, so stay agile and ready for them (and keep your external advisers briefed).

Threshold Conditions cases are substantially increasing, driven by the FCA's Use It Or Lose It initiative.

All this work may well slow down shortly, though.  Remember Enforcement's moment a couple of years ago when it opened too many investigations for it to progress with its resources?  There are early signs of something similar in Interventions (more cases are being opened than closed) and in the more "commoditised" aspects of the FCA's Threshold Conditions work (e.g. Use It Or Lose It, regulatory returns and fees).

But the hidden story is the significant increase in the FCA's "failure to meet standards" Threshold Conditions cases, suggesting that the FCA is more often critically examining firms' resources and controls.  And here the FCA is pushing cases through its pipeline perfectly adequately, so this type of intervention may well be here to stay.  Prepare accordingly.

3. The PRA: go home - and occasionally go big

A surprise detour here.  PRA-regulated firms in particular are facing a more volatile enforcement environment.  How so?  PRA investigations are falling fast.  But the number of PRA fines is steady and the total £ value is sharply up.  Looks like the PRA is pursuing smaller but surer and higher-value enforcement cases.  So the PRA enforcement risk is not to be under-estimated.

2. FCA Enforcement - what's left?

This year the FCA changed the way it reports metrics about its enforcement work - from investigations (each into a single firm or individual) to "operations" each comprising potentially multiple investigations.  And it's offering less granular data about the subject matter of their operations, instead organising its data - and, it says, its enforcement work - around the key strategic priorities of (i) financial crime; (ii) wholesale; (iii) consumers and (iv) other (it's a mystery …)

Not to be deterred, we've used available data accurately to derive investigations numbers for 2023-2024.  And what a story they tell.  Because open investigations dropped precipitously, with the FCA closing investigations into firms but especially individuals.

"Operations" too have posted a decline - 16% year-on-year.  Straight "regulatory" cases are down big.  Notably, though, the "dual-track" and "criminal" categories are in a stable up-trend.

And the spike in financial penalties in 2022-2023 looks increasingly like it was temporary, with the number of penalties returning to its longer-run average and the total £ value steeply declining.

But good things come to an end.  Surely FCA Enforcement is now close to finished consolidating its historic case pipeline.  Given the above trends, firms' investigations teams should next position themselves for an FCA that is more prosecutorial and increasingly focused on financial crime and market abuse.  2023-2024 was the FCA's busiest ever in this regard: it brought all-time high of 21 financial crime prosecutions.

1. Skilled Persons (or: outsourcing)

And here's the secret sauce.  Facing resourcing headwinds, the FCA appears to have maintained its investigations work by, well, farming it out.  Skilled Person commissions are rising significantly.  Portfolio supervision firms are especially targeted.  All major retail-facing sectors are in the cross-hairs (there's a decent growth in wholesale markets work too).

The FCA's annual report lists "Consumer Duty" first amongst Skilled Persons' key activities.  Perhaps this part of the strategy to, in FCA Chair Ashley Alder's words, pursue Consumer Duty implementation "in a manner which is consistent and proportionate".  But if you're within scope of the Duty, don't get complacent about your enforcement risk.  Remember that Skilled Person reports are often a precursor to formal interventions and enforcement action.  If you face a Skilled Person appointment, you'll benefit from carefully and proactively managing it from the outset.