FCA action against companies dropped at start of pandemic

Michelle K. Wallace

The City of London regulator took significantly fewer action over financial misconduct at the start of the coronavirus pandemic, with enforcement cases against companies and individuals falling 76 per cent in the period around the national lockdown.

Data obtained from the Financial Conduct Authority show that only 36 new enforcement cases were opened between March 1 and May 31 this year, compared with 148 during the same period in 2019.

Of these cases, those involving companies were more sharply reduced, with only 14 being started between March and May, compared with 73 in the same period one year earlier. New cases against individuals fell to 22, from 75 a year earlier.

But more FCA warning notices — which are a precursor to a possible investigation and enforcement case — were issued by the regulator during the period around the lockdown. These notices increased 8 per cent to 77 between March and May.

UK prime minister Boris Johnson introduced the national lockdown on March 23, and it was not significantly eased until June.

FCA approvals of new companies seeking to operate in the financial services industry also dropped at the start of the pandemic. There was a 56 per cent decline in the number of companies the regulator authorised between March and May, to 613, from 1,388 in the same period one year earlier.

Douglas Cherry, a partner at law firm Reed Smith which obtained the FCA data through a freedom of information request, said the sudden drop in regulatory activity reflected the “organisational challenges” of trying to pursue companies and individuals when officials were having to work from home.

“Given the importance of confidentiality in regulatory investigations, the FCA has doubtless had to wrestle with trying to ensure that its employees are able to maintain the necessary level of confidence in their own homeworking environments,” he added. 

At the FCA’s annual meeting last month, Jonathan Davidson, director of retail supervisions and authorisations, acknowledged a “number of challenges to do with dispersed working”. But he also said the FCA had needed to recruit more staff and contractors, and have them work overtime, to keep up with its workload.

The FCA said fewer enforcement cases did not mean it was overlooking wrongdoing.

“Enforcement has continued as normal during the pandemic,” said a spokesperson. “The FCA will open cases where it suspects serious misconduct, with the number of new cases fluctuating month on month and year on year.”

However, a former FCA official suggested that switching from crisis mode to normality was proving difficult.

Nick Bayley, who now works as head of UK regulatory consulting at Duff & Phelps, said: “Understandably, when the Covid-19 outbreak really got under way, the FCA’s focus switched almost entirely to matters such as operational continuity and financial stability. It seems to have taken several months from the start of the crisis for the FCA to return to anything approaching business as usual.”

Mr Cherry predicted a rapid recovery in the FCA’s capabilities. “Firms should not be complacent,” he said.

“We are already seeing the FCA starting to ramp up activity and . . . [it] will not look too fondly on firms or individuals that seek to rely upon the pandemic as an excuse for poor behaviour. Whilst not relishing the prospect, we should all expect the regulator to be back, with its foot firmly on the gas.”

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