Messages about governance from recent FCA enforcement decisions 

The FCA expects financial services firms and the individuals that work in them to show positive respect for governance. Good governance starts with good culture. Poor culture can lead to poor conduct and poor conduct can lead to failings in governance. Failings in governance can lead to exacerbated risks and regulatory failings. Read our previous article on what culture is here.

In a recent speech the FCA said this:

‘As a conduct regulator, the FCA’s objectives are to protect consumers, ensure market integrity, and support the UK’s economic growth and competitiveness. But time and again, when we investigate failures of consumer protection or market conduct, what do we find? The same root cause: failings in culture and governance. That is no coincidence. Because it is culture that drives conduct. Culture that shapes decisions and actions at every level.’

The message is clear.

In a series of recent thought-leadership pieces we have examined the details of numerous high-profile FCA enforcement cases. These cases include examples of regulatory breaches arising from governance failings and impacting a variety of critical operational areas including the high-stakes area of financial crime risk where failings have the potential for market wide impact.

They also include examples of individuals who work in financial services firms and who have failed to hold culture and good governance in sufficiently high regard. The outcomes of these cases demonstrate that individuals who show disregard for governance, and who may frustrate sound processes for their own ends or place their own interests above those of their firm, will have their integrity and candour called into question. Any individual found wanting in this regard by the FCA, risks being found unable to meet the fitness and propriety requirements and could be subject to severe regulatory sanctions including financial sanctions and being prohibited from performing any function in relation to regulated activity.

Financial services firms are expected to embrace and deploy governance which ensures the application of internal controls that are suited to the financial services sector. They are expected to operate checks and balances that enable effective decision making and support appropriate challenge. Appropriate challenge will be encouraged by boards that are made up of senior individuals who embody the FCA’s prized values of honesty, integrity, independence of mind, expertise, experience and respected reputations.

Boards should ensure the functional separation of key roles to ensure objectivity and appropriate challenge. A firm that balances breadth of experience with clear and separate areas of responsibility aligned to expertise and experience with no one individual holding ultimate authority will be well placed to safeguard against the risks that it faces.

The topic of regulatory enforcement is never far from the news headlines. You can read our digest of enforcement cases, which looked at enforcement trends and the importance of good governance, and our more recent edition from June this year, which looked at learning from the mistakes of others