FCA Senior Managers and Certification Regime – 2.0 Enforcement


The SM&CR was developed as a result of the 2008 financial crisis and the outcry from the public following its perception of the lack of accountability and punishment of those running and controlling the banks and other financial sector firms, whilst by way of the ripple effect, the public paid the economic price for the actions of these banking officials and the reckless manner in which they ran their businesses.

The first casualty

Despite being brought into effect in 2016, the first casualty of the SM&CR only fell in May 2018, which is largely understandable as with any enforcement action, there first has to be an allegation followed by an extensive period of investigation and evidence gathering, especially when the outcome could result in personal fines, reputational damage to the individual and firm alike and possibly even imprisonment.

At the time that this enforcement action was taken, the regulators had a further five investigations under way.

So, in May 2018, the FCA and PRA brought a joint prosecution against the CEO of Barclays Bank, resulting from him failing to act with due skill, care and diligence with regards to the bank’s whistle blowing procedures, following receipt of an anonymous whistle blowing letter to the bank in June 2016.

Perhaps there are some key messages to be taken away from this enforcement action:

1. Individuals will be held accountable. With a personal fine of £642,430, (10% of the CEO’s net relevant annual income), it is clear that the regulator will use its powers as and when it deems it necessary, and the fines being imposed for failing to discharge a senior management role effectively are significant.Of note however, is that the CEO, whilst found to have not acted with due skill, care and diligence was not found to be in breach of the requirement to act with integrity. Had he been done so, this would most likely have led to his dismissal.

2. Despite the fine being levied against the individual, when that individual is the CEO, the reputational damage caused by not only the fine but also the fact that it was made against the CEO brings the firm into disrepute too. A firm and its senior management should not underestimate the domino effect of reputational damage, and the dynamic manner by which it will travel around the world. Proven or not proven, innocent or guilty, bad news always makes good press, and the public at large will not necessarily distinguish between the actions of the CEO and those of the firm.

3. The bank has not necessarily gone unscathed. The regulator has imposed enhanced scrutiny and monitoring to the bank’s whistle blowing systems and controls, which includes annual reporting to the FCA and PRA.

4. It would be wrong to tar the whole regulated sector with the same brush, but it does beg the question, if an organisation as big, and as well run as it should be can still have a CEO that can make such fundamental errors of judgement in relation to whistle blowing, how does the rest of the regulated market fare?

Is whistle blowing considered with such low levels of seriousness that regulated firms can make such obvious errors in applying the controls that should surround it?

Maybe from this enforcement action will come a new raft of regulatory attention for all firms in relation to whistle blowing, who knows. However, one thing is for sure, if every other person within the SM&CR does not learn from the mistakes of this CEO, then the personal fines are only likely to get bigger.

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