On 4 April 2019, Mark Steward (Director of Enforcement at the Financial Conduct Authority) delivered a speech at the Global Investigations Review Live event covering partly contested cases, the FCA’s recent cases and AML investigations.
Focussed Resolution Agreements
As readers will know, partly contested cases were introduced in 2017 to allow those subject to FCA disciplinary action to agree part of the FCA’s case against them and challenge other aspects to then be determined by the Regulatory Decisions Committee (RDC).
Three cases have concluded under the partly contested case process (Linear Investments (covered elsewhere in this issue, see 10 April 2019: Tribunal's first decision in an FRA case), Carphone Warehouse and Standard Chartered (also covered in this issue, see 9 April 2019: FCA fines Standard Chartered Bank £102.2 million for poor AML controls) and in all three cases the parties agreed the facts, but contested the level of penalty imposed. Their agreement to accept the FCA’s findings meant that each qualified for a 30% discount.
Steward set out some of his observations on the new process which included that the agreed statement of facts, which is effectively the Warning Notice, should carefully particularise what is in dispute. Further, submissions on penalty and sanction, and the mitigating/aggravating factors which influence them, should also be properly particularised with an evidential basis for each. He no doubt did so in order to avoid extended argument about facts of the type hinted at in Linear (covered here, 10 April 2019: Tribunal's first decision in an FRA case).
Recent cases
Steward highlighted some enforcement action resulting in sizeable fines including, against Tesco Bank, Santander, UBS, Goldman Sachs and Carphone Warehouse. Two key themes emerging from these cases are: (i) a failure to detect foreseeable consumer harm; and (ii) a lack of sufficient escalation protocols.
The Tesco Bank and Carphone Warehouse cases related to, respectively, a failure to protect current account holders against a cyber-attack and the mis-selling of insurance policies. Steward observed that there were obvious red-flags in the events which led up to the failures and that the harm to consumers was therefore “wholly foreseeable”.
Santander was fined for failing to effectively process the accounts of deceased customers over many years and UBS and Goldman Sachs for transaction report failings over a 9-year and 10-year period. In particular, Steward commented on the importance of proper transaction reporting, not just to assist in the fight against market abuse, but also to allow a firm to “understand their own activities properly.” One of the aggravating features present in these cases was the length of time it took the firms to detect the problem and for it to be escalated to the appropriate person with the authority to fix it.
Money-laundering investigations
Steward was clear that the FCA intends to give full effect to the Money Laundering Regulations, which allow for criminal prosecutions. The trend to date has been for AML failings to be dealt with in a civil / regulatory context, however (tantalisingly) Steward suggested that we may see more criminal prosecutions for poor AML systems and controls related failings.
To determine whether civil or criminal action should be taken, and in keeping with their approach to market abuse investigations, the FCA will conduct dual-track investigations into suspected AML failings. Dual-track investigations are those which may result in civil or criminal proceedings if issues are identified. Steward went on to highlight the FCA’s approach to investigations, citing their “investigative mindset”, which gives the FCA room to investigate potential criminal and civil wrongdoing without narrowing the scope until all of the facts and information have been gathered. As we note elsewhere in this publication, as yet the FCA has not laid criminal charges against anyone for breach of money laundering regulations (in this edition of enforcement watch, What the FCA business plan tells us about enforcement in the forthcoming year).