FCA’s recent speech on teamwork: Will it target existing issues?

At the recent 2024 Financial Services Investigations and Enforcement Summit, Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, set out the importance of teamwork in the ongoing fight against financial crime.

Focussing on greater integration between the supervision, enforcement, and authorisation arms of the FCA, Smart stressed that the FCA is “in many respects a law enforcement agency as well as a regulator”. This will not surprise practitioners in the area or those at the receiving end of the FCA’s enforcement powers.

Smart suggested that, whilst “far too many” incidents of fraud remain, there are half a million less victims and a 16% drop in reported incidents of fraud in 2023 than 2022. Overall losses to fraud are down by 4%. He acknowledged, however, that fraud “continues to evolve”, as does the targeted victim demographic which has decreased dramatically in recent years owing to the development of new technology and a rise in social media scams.  

Smart outlined the following preventative measures:

1. Preventing harm through awareness 

Smart reminded listeners of the public campaigns it has rolled out such as the ScamSmart campaign, social media 'finfluencer' guidance and collaboration with large tech platforms such as Google. He also urged the FCA’s cross sector partners and firms to “participate in data sharing initiatives” in order to tackle crime, not just domestically but internationally. Despite identifying itself as a law enforcement agency, the FCA appears to acknowledge that its investigations across a complex spectrum of offending cannot be completed in isolation without external resource, and that it may currently be experiencing roadblocks to achieving this. 

2. Authorisations are key to high standards 

Although the FCA “make no apologies for high standards”, Smart acknowledged the system is blighted by an “operational backlog”. 86% of crypto firms had their applications rejected, withdrawn, or refused on the basis that they did not meet the appropriate standards. Whilst this implies the FCA is failing to keep up with the pace of change, the FCA say that they are “working with potential entrants” to navigate the process, and that more crypto firms (44 firms as at the date of the speech) are now registered. Smart was silent, however, on improvements to authorisation timelines across the board. 

3. Pursuing criminals and justice 

21 individuals have been charged with financial crime offences by the FCA in the last year, more than any previous year. Smart emphasised the two large fines awarded by the FCA Against HSBC (£6.3m) and Citigroup (£27m) following regulatory investigations. Despite the eye watering numbers, the FCA has faced public criticism for its failure to act against individuals, blinkered by the version of events put forward by the corporate who is motivated to settle its own proceedings. Without more clarity on improvements to the execution of investigations, enforcement may still be blighted by continuous failings and result in costly, long running, but ultimately unsuccessful cases for the FCA in the long term.

Smart acknowledged that a deterrent increases in potency if conduct is investigated and subject to enforcement at a quicker pace. How can the FCA make this happen? Reference was made to a “streamlined caseload” informed by the strategic priorities of protecting consumers, assertive action on market abuse and reducing and preventing financial crime. Although these are admirable aims, it is unclear what, if anything, will change on the ground. 

The 'elephant in the room' continues to be the FCA’s recent proposal, outlined in a February 2024 consultation paper, to publicise the names of organisations under investigation more frequently and at an earlier stage. The FCA has admitted that it did not expect the backlash it received to the proposal from senior business leaders and lawyers, many of whom expressed concerns at the undermining of the principle of ‘innocent until proven guilty’. Whether those voices will be heard remains to be seen.

A word on non-financial misconduct

Smart reiterated the new focus on non-financial misconduct, which the FCA views as damaging to recruitment, retention, and workplace culture and undermining the standards and reputation of the industry where there are “the wrong people in positions of trust”. 

An update from the FCA following a consultation from over 1,000 firms in wholesale and insurance markets about their experience of non-financial misconduct is due to be released in the autumn.