Although too soon to comment on how the duty will be enforced, the regulator has informed the market of its exacting expectations. Any future enforcement action will rely heavily on these publications, such as the recent “Insurance sector multi-firm review of outcomes monitoring under the consumer duty”, and leave companies with no excuse in the event of non-compliance.
Aside from the general jurisprudence of the consumer duty, it is increasingly likely that individual customer stories will become central to conveying misconduct within enforcement notices. In our view, it is only a matter of time until these “human stories” make their way into the detail of notices — much to the detriment of offending companies.
Humanising the harm, particularly where the misconduct has devastated a person’s financial life, would be an extremely powerful narrative tool for use in front of the FCA’s enforcement decision-makers, the Regulatory Decision Committee, or a tribunal. If so, this may well increase the attractiveness of early settlement where examples of consumer harm are compelling.
Don’t count on accountability
Despite the FCA’s long-held intention to “expand the scope of individual accountability”, there is no sign it will ever materialise.
Enforcement action before the introduction of the senior managers and certification regime, specifically the senior managers regime, was dogged by a lack of enforcement action against senior individuals.
The SMR tried to change this, the theory being that senior managers were held accountable for actions or omissions that resulted in failures within one of their prescribed responsibilities. However, the it ultimately proved toothless, with only a smattering of enforcement notices having surfaced as a result. The SMR has been muzzled by the low-bar requirement for senior managers to merely have taken “reasonable steps” to manage their part of the business to escape accountability.
Nevertheless, the FCA retains its focus on seeking individual accountability. As such, it is likely that senior individuals will be placed under investigation during the initial stages of an enforcement action into the company, only for these allegations to probably fall away as the prospects of success fade.
Naming and shaming — where do we stand?
A tectonic tremor was felt across the financial sector when the FCA announced its proposals to increase transparency in the enforcement process by naming companies under investigation. The regulator had sought to use the stick of naming and shaming to incentivise good behaviour and deter misconduct from occurring in the first place.
However, this tremor did not leave companies quaking in their boots but shaking in anger. A huge backlash from trade bodies and industry representatives ensued — drawing an initial retreat from the FCA.
