Britain’s financial regulator is still working on a high volume of investigations into potential wrongdoing by firms and individuals, but delivering a relatively low proportion of clear outcomes at an increasing cost, according to new data.
On Wednesday, the Financial Conduct Authority’s annual report provided details of its enforcement actions in the year to March 31 2020, and showed 185 cases were concluded in that period, leaving another 646 ongoing. In the previous year, 189 cases had been closed, leaving 647 open.
However, despite this persistently high caseload, only 15 investigations resulted in financial penalties being handed down in the latest 2019-20 period — down on the 16 cases that led to fines in the two previous years.
Cases also took longer to resolve, and at a higher cost. In the year to March, the length of time taken for regulatory and civil cases — including those closed with no further action taken — increased by half a year, to an average of 23.9 months, from 17.5 months previously. At the same time, the average cost of those cases more than doubled, to £229,000 from £103,400 in 2018-19.
“The resource required for each case varies depending on factors including scale and complexity,” the FCA explained. “The cost of regulatory cases we have conducted can range from around £2,000 to over £2m.”
Nick Bayley, the head of UK regulatory consulting at advisory firm Duff & Phelps, said clear outcomes from FCA cases were what financial services firms wanted most.
“We see a lot of enforcement activity: a lot of cases opened, and lots of cases being closed,” he noted. “But what the market really benefits from is being able to see outcomes. It is those public outcomes that cause [company] boards and executives to look at their systems and controls to ensure they do not fall foul in the same way.”
Overall, £224m-worth of financial penalties were imposed in the 15 cases where there were findings of serious misconduct.
During the period, the regulator also had to deal with an increase in the number of firms and individuals trying to carry out business without its authorisation. “We received 20,326 reports, the highest number we have received in a single year and a 11 per cent increase from 2018-19,” the FCA said. In response, it had to issue 715 alerts during 2019-20 — a 37 per cent increase on 2018-19 — and open both criminal and civil investigations.
Activities carried on by unauthorised firms have been features of some of the biggest financial scandals in recent times, including the £236m collapse of mini-bond issuer London Capital & Finance.
But the FCA was able to protect consumers from unfair treatment by financial products providers. It ensured £135m was paid to pension customers who had not been given adequate information about so-called enhanced annuities, and it saved some of the UK’s most vulnerable borrowers an estimated £19.6m a year by putting a price cap on high-cost credit.
While the period covered by the annual report largely predates emergency measures to support consumers through the coronavirus pandemic, the regulator said its immediate response had helped more than 3.4m individuals.