FCA secures just one enforcement action under SMCR

A recent FOI request from financial regulation consultancy Bovill shows that from the introduction of SMCR in March 2016 to September this year, the FCA opened 34 investigations, closed 11 without action and only successfully enforced a fine on one occasion. This is despite the regulation being extended to approximately 48,000 solo-regulated firms in December 2019.

Bovill’s research from February last year showed that one individual had been censured from 19 investigation under SMCR. At the time the regime applied to 811 banks, building societies, and credit unions and 546 insurers.

The FCA has posted a notice to impose a financial penalty and prohibition for a second individual, but this decision notice has been referred to the Upper Tribunal.

Ben Blackett Ord, chief executive officer at Bovill, said: “SMCR was introduced to hold senior individuals in the financial sector to account. But four and a half years after it first came into effect, these numbers suggest that the regime might not have the right tools for the job. Questions should be asked as to why there are so few investigations and punishments, and whether SMCR is fit for purpose.

“It might have been assumed that the extension of SMCR to smaller firms would result in more investigations and enforcement actions, since it could be easier to identify the decisions made in a smaller firm, than a larger one. However, this does not seem to have been the case, with only 15 further cases opened and still only one fine enforced.

“We also don’t believe that the low number of enforcements is a sign that SMCR has been an effective deterrent for Senior Managers, since the case closed without action to enforcement ratio is high.

“Covid-19 may have played a role in terms of delaying or disrupting any investigations, and the remote working situation also makes monitoring and reporting misconduct much more difficult. in time, as it has begun to already, the regulator will find ways to adapt and we may see more enforcements.

“As the MAS in Singapore look to introduce a similar regime to hold senior individuals to account in September next year, it will be important for the regulator there to learn from the FCA’s experience with SMCR and what has proven effective or ineffective about the regime in the UK.”