FCA predicts rise in litigation battles as firms reject fines

The FCA has imposed more than £3 billion in financial penalties over the last 5 years, largely by agreement of an ‘early settlement’ in return for closure of the underlying investigations.

In most of these cases, the firm took the full weight of responsibility and culpability without any action being taken against any member of the senior management of the firm.

Mark Steward, Director of Enforcement and Market Oversight at the FCA, says the "leverage that regulators have been able to apply to firms and the preparedness of firms to resolve cases in this way though agreements has been unprecedented and remarkable".

Most of these fines were imposed before 1 April 2016, and Steward says that since that date, "the aggregate level of fines appears to have reduced markedly".

The senior manager’s regime applies the notion that senior managers have obligations to act reasonably to prevent misconduct by the firm from occurring.

Importantly, liability may arise not only for unreasonable steps but also from a failure to take sufficiently reasonable steps or no steps at all.

In a speech delivered at the Practising Law Institute, Steward said: "We don’t expect senior managers to agree so readily to pay high fines to resolve cases. We expect there will be more contest and more litigation.

"Secondly, firms may well be reluctant to spend such high sums to resolve investigations where those resolutions do not also resolve cases against senior managers who may also be in our cross-hairs.

"And thirdly, there lurk latent tensions in the way in which firms may self-report misconduct or cooperate with the FCA where senior managers in the firm may also be or become subjects of investigation for the same matters.

"While there is an undoubted public interest in cases resolving themselves through agreement, I would like to make early detection rather than early settlement our primary virtue."