FCA has increasing appetite to use alternative enforcement penalties
In a recent appearance before the Treasury Select Committee the FCA has hinted that it may make further use of its restriction and suspension powers as an alternative as well as an addition to the power to impose financial penalties.
The regulators were given the powers to restrict or suspend authorised firms and approved persons in June 2010. The power was to be used where it would be more effective than a financial penalty in changing behaviour.
Since June 2010, the power (found at DEPP 6A of the Handbook) has had limited use. In part this would have been because the power can only be used for misconduct occurring after that date. However it is also likely that this has been driven by the fact that the FCA has continued to be focussed upon the size of fines it has been able to publicise to the market. A renewed focus upon using these powers may reflect an evolution in how the FCA will seek to deliver 'credible deterrence' in the future.
The FCA only used its restriction power for the first time in July 2014, imposing a recruitment ban on The Financial Group for 126 days for failing to control its appointed representatives.
In March 2015, it took similar action against the Bank of Beirut, stopping it from acquiring new customers from high-risk jurisdictions for 126 days. The bank was found to have repeatedly provided misleading information about its financial crime systems and controls. The bank was also given a hefty £2.1m fine. Whilst it is common for the FCA Supervisors to take similar action, such as discouraging firms from embarking on expansion plans whilst they still have to integrate previously acquired businesses, the formalisation of this restriction in an enforcement notice is significant development.
Both cases show that the regulator can use the restriction and suspension powers in a focussed and meaningful way to intervene directly in the way firms run their business, and target in particular the firm's regulated activities linked to the breach. Whilst they do not attract the headlines associated with blockbuster fines these sanctions are very significant for the firms concerned.
So could these powers signal the end of hefty fines being imposed by the FCA? In truth it seems unlikely that the FCA will completely shift its focus away from large fines and to these other penalties. However as the FCA will struggle in the future to regularly match the recent blockbuster fines for benchmark related misconduct we are likely to see an increasing use of these penalties. Indeed it seems likely that the FCA will use the powers in tandem with financial penalties, as was done in the Bank of Beirut case and as would have been done in the Financial Group case, if it were not for the firm's financial circumstances.