FCA Steps up action against Directors - Enforcd Blog

FCA Steps up Action Against Directors

By The Enforcd Team

Directors are feeling the heat as the number of them being investigated by the city watchdog doubles in just two years. It’s a clear signal from the regulator that if directors fail to take action on issues such as diversity, harassment, culture and governance, their jobs could be at risk.

The figures released this month show that as of December 2018 the FCA has been investigating 58 financial directors, up from 24 in 2016. Nearly half of those are being scrutinised for failures in culture and governance at a time when complaints about non financial issues have been surging.

Complaints about issues such as sexual harassment, bullying and homophobia increased by 220% within the last 12 months. This comes at a time when the FCA has shifted its focus from purely financial related issues to take in wider issues of culture, accountability and governance.

Examples include the investigation into sexual harassment allegations made by Nathalie Abildegaard a former analyst at IFM Investors, who claimed one of the senior managers harassed her during a business trip in Madrid in 2018.
The figures suggest the Senior Managers Regime which heightens the accountability of senior managers for problems with culture on their watch is having a significant impact on the FCA’s approach. With the rules set to be rolled out for the entire financial sector at the end of 2019 this should cause firms to sit up and take notice.

So far, the only public finding has been the case against Jes Staley, Barclay’s former Chief Executive who twice tried to discover the identity of an anonymous whistleblower. He was ordered to pay a fine of £642,430 and hand back a £500,000 bonus. The bank was also ordered to report annually to the FCA about how it is handling whistle-blower cases.

Under SM&CR, senior managers could be liable to heavy fines and possible exclusion from the financial services if they are found to have fallen short of the standards expected of them by the regulator. The increase in investigations against directors suggests the regulator has found plenty of material to work with as it attempts to clean up the image of the banking sector.

It could also be down to attempts to tighten the regulator’s protection of vulnerable customers. The FCA has come in for heavy criticism that it was not quick enough to respond to the problems with London Capital & Finance in which investors were lured into believing unregulated funds were protected by the FCA.

The problem with London Capital & Finance is that it used its own FCA-regulated status to give investors a false sense of security about structures which weren’t regulated. Marketing material was vague and gave the impression – without actively stating it – that those funds would be protected. MPs have issued a call for the head of the FCA to step down in the wake of the scandal.

The regulator, then, is coming under pressure to ensure the financial sector is not only playing by the rules, but also the spirit of the rules. That pressure, in turn, is already being applied to the sector, and if directors fail to get a grip on culture – in all its forms they could come under scrutiny. They will need to show that they are doing everything to ensure customers are protected, that they create a workplace culture which is free from bullying and in which all employees feel protected.