FCA enforcement? All eyes on supervision

FCA Co-Head of Enforcement, Therese Chambers, recently gave a speech praising supervisory interventions as a means of swiftly protecting both markets and consumers.

The FCA’s pivot towards supervisory interventions and away from formal enforcement action is not new. Where the FCA identifies concerns, it has for some time favoured pre-emptive remediation by firms and the imposition of requirements or variations of permission where previously we might have seen an enforcement referral. This approach was bolstered in 2024 by the Court of Appeal’s decision during the FCA’s investigation of conflicts management by BlueCrest Capital Management, which gave the regulator considerable flexibility to require redress via an OIREQ, without demonstrating breach, causation and loss. The FCA's toolkit extends well beyond fines, and it is not shy about using all of it.

Supervisory tools are a key means by which the FCA ensures that firms make the changes it wants to see. Therese’s message is that these should be regarded as much a part of ‘enforcement’ as any final notice. Restrictions have been an important tool for the FCA in tackling financial crime for some time (albeit still coupled with considerable amounts of enforcement action). We now see them as the key means by which the FCA is leveraging the Consumer Duty to raise standards. There are some solid examples of this approach in the FCA’s response to the Which? super-complaint about practices in the home and travel insurance market. ‘Traditional’ enforcement, we are told, is now reserved for true outliers and the most egregious behaviour.

This has implications for firms. 

• First, the market as a whole (both firms and consumers) is accustomed to making judgments about the FCA’s areas of key concern — and overall efficacy — based on the number of enforcement outcomes concluded and fines levied. It is now much more of a risk to conclude that the absence of final notices means that the FCA is satisfied with how industry is managing a particular area.

• This is especially the case with the Consumer Duty where, as Therese Chambers noted, the swifter action supervisory interventions offer is vital to protect consumers and nip harm in the bud. Firms eagerly awaiting the first fine for a breach of Principle 12 before reviewing the strength of their implementation may miss what the FCA is doing here. In addition, supervisory engagement can be extremely uncomfortable for firms. Section 166 reviews, restrictions on business and remediation exercises are often just as burdensome in terms of management time and cost as formal enforcement action. Reading between the lines where the FCA highlights general concerns, interrogating any read-across for your business, and proactively addressing potential issues is more important than ever. Firms should not wait for a final notice to tell them where they might be able to make improvements.

• This leads to a second point: to what extent is the use of the FCA's superviory toolkit inthis way educating the wider market? In an era of outcomes-focused regulation, my experience is that the market wants educating. Good and poor practice reviews are instructive as far as they go, but many firms are hungry for more — specifically, what tips the balance in terms of the FCA requiring a s.166 review or a Variation of Permission? Even if a firm combs through the Financial Services Register to identify VREQs etc, these will only ever set out that improvements need to be made, not what they were or why they were deemed necessary.

• There is a role for the FCA’s new Enforcement Watch publication in communicating (on a highly anonymised, generic basis) lessons for other firms from its supervisory work on the Duty (and potentially other areas). Given that supervisory outcomes are no longer ‘separate’ from enforcement, their inclusion seems logical. Otherwise, the FCA's approach here risks a kind of regulatory ‘whack-a-mole’, in which it addresses harm at individual firms but misses an important opportunity raise standards across the industry.