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FCA investigations into directors of financial services companies jump 29% in a year

Published on 20 May 2019

The number of investigations opened by the Financial Conduct Authority (FCA) into directors of financial services companies jumped 29% to 58 in 2018* (year to December 2018), up from 45 in 2017

RPC says the increase in investigations is being partly driven by the FCA’s crackdown on financial services directors who run companies that target vulnerable or low-income individuals. This includes debt management advice companies, sub-prime lenders in areas such as car loans and other forms of consumer credit.

The FCA has been paying particular attention to unregulated products that are being missold as regulated products. This includes products such as mini-bonds, which may have a high risk/return profile.

RPC says pressure is likely to increase on this area of the market following the collapse of London Capital Finance (LCF), which promised rates of up to 8% on high-risk mini-bond schemes, as the FCA is now proposing to investigate the risks posed to consumers by the sale of all mini-bonds by regulated and unregulated firms alike.  Therefore, it is possible that the sale of mini‑bonds may become subject to FCA oversight in the future.

Price comparison website sites are also being scrutinised by the FCA.  An example of this is a high-profile case relating to Secure My Money Limited, which ran an online consumer credit broker business.  The four directors of the company were banned from the financial services industry for running consumer credit websites which ‘consistently misled vulnerable customers.’ The LCF scandal also included a “comparison” website as a key part of LCF’s marketing.

Jonathan Cary, Partner at RPC, says: “The FCA has ramped up investigations into directors it believes have used underhand tactics for personal gain. Whilst much of the recent activity has been focused on directors of smaller firms, the FCA is clear that no directors are immune.”

“Investigating and fining directors has a much greater deterrent effect on individuals than just fining a large corporate.”

Last May the FCA and the PRA fined the CEO of a FTSE 100 bank.

Culture and governance investigations almost triple

RPC says the number of investigations launched into directors based on ‘culture and governance’ reasons rose to 27 in 2018 from just 10 in 2017. These investigations now represent nearly half of the total number.

The extension of the Senior Managers and Certification Regime (SMCR) is expected to lead to more investigations by the FCA.  The FCA introduced the Senior Managers and Certification Regime (SMCR) in 2016 in order to hold senior managers to higher standards, making them personally accountable for any wrongdoing in their departments. The SMCR will be extended to all financial services firms by the end of 2019.

Jonathan Cary continues: “The number of investigations into directors has more than doubled since 2016 demonstrating the FCA's increasing focus on individual accountability.  Once SMCR is rolled out to apply to all financial services firms in December 2019, we can expect a further surge in investigations into directors.”

“The FCA's business plan makes reference to the FCA's aim to ‘transform culture in financial services firms so that firms cause less harm to consumers, businesses and the real economy’. This gives it huge scope to track down and investigate business leaders.”