Last week, the FCA published its Annual Report for 2022/23, which included the usual FCA annual enforcement performance data. Below we have selected 10 key points from the Annual Report that are interesting from an enforcement perspective:
1. The FCA has sustained its high number of open enforcement investigations, but the total number of new and closed cases has reduced significantly
As at 31 March 2023, the FCA had 591 open enforcement investigations relating to 224 cases. Although the total number of open enforcement investigations has remained almost static, there has been a noticeable reduction in the number of new enforcement cases being opened (100, down 48% from last year – the lowest since 2015/16) and the number of enforcement cases being closed by the FCA (107, down 33% from last year).
The FCA Enforcement team has also been in a period of transition following the departure of Mark Steward and the appointment of Therese Chambers and Steve Smart as joint Executive Directors of Enforcement and Market Oversight in March of this year. It will be interesting to see what impact their arrival has on enforcement activity (including whether the FCA continues to have such a large number of open enforcement investigations) over the coming months, as they begin to implement their enforcement agenda.
2. Just over half of open FCA enforcement investigations involve criminal allegations
51% of open FCA enforcement investigations involve criminal allegations (either solely, or as part of dual-track investigations alongside civil or regulatory allegations). The majority of these criminal cases involve suspected unauthorised business, but the FCA has healthy numbers of open enforcement investigations that are looking into criminal allegations relating to misleading statements, insider dealing, financial crime and pension scams.
3. The number of staff working in FCA Enforcement remained almost static
Although FCA headcount grew by 6% over the last financial year, the number of staff working in FCA Enforcement remained almost static (but still 11% down from the number of staff working in FCA Enforcement in 2021).
4. The average length of enforcement investigations has risen
The average length of enforcement investigations increased slightly during the last financial year from 2.5 to 2.8 years. With staff numbers now rising again and the FCA under increasing pressure to complete its investigations within a reasonable time period following recent criticisms by the Upper Tribunal in relation to unacceptable delays, will we start to see the FCA trying to reduce the length of time it takes to complete investigations?
5. The number of financial penalties has increased, but overall and average fine amounts have decreased
During 2022/23, the FCA imposed 24 financial penalties on firms and individuals – more than double the total in 2021/22. However, the overall total amount of financial penalties imposed (£199.3 million) decreased by 36.3% from £313 million in 2021/22. The average financial penalty imposed also decreased significantly from £28.4 million in 2021/22 to £8.3 million in 2022/23, a decrease of 71%.
6. The FCA remains focused on reducing and preventing financial crime despite a recent decline in open enforcement cases
Financial crime remains a key priority for the FCA. However, financial crime cases now represent only 5% of the FCA’s overall enforcement caseload (down from 8% last year, and down from an all-time high of 17% in 2017/18). It would be unfair to view the FCA’s lower number of open enforcement investigations in this area without recognising the high number of cases that have resulted in public enforcement action (almost 30% of public enforcement action taken by the FCA in 2022/23 related to financial crime, attracting the highest financial penalties by some margin).
But will we see history repeat itself? The FCA opened 613 financial crime supervision cases in 2022/23 (an increase of 54% from last year) – these cases often provide a strong pipeline of enforcement investigations, which we may see come to fruition over the coming years.
7. Regulatory Decisions Committee – fewer decisions but slower outcomes
The Regulatory Decisions Committee (RDC) made only 39 decisions on cases in the last financial year, which marks a significant decrease on the previous year (when it made 132 decisions). This is largely a reflection of the narrower remit of the RDC since November 2021, which means it focuses on contested enforcement decisions.
The average time it takes the RDC to consider cases increased to 15.4 months (from 10.6 months last year, an increase of 45.2%). However, this timing reflects a number of factors, including a significant increase in cases closed this year compared with the previous year and those cases involving several complex legacy matters that took longer to conclude than standard cases.
8. A more assertive approach to supervision and interventions
The FCA’s Interventions team sits within Enforcement and supports the FCA’s efforts to reduce and prevent serious harm and to deal with “problem firms”. Enforcement opens an intervention case when Supervision has concerns about specific firms that may cause ongoing harm or loss to consumers. The tools that Interventions use range from informal early engagement, to formal and statutory powers.
In 2022/23, the FCA opened 158 interventions cases – 11% more than in 2021/22. During the same period the FCA secured 70 VREQs (voluntary impositions of requirements on firms), 19 OIREQs (own initiative impositions of requirements on firms) and eight formal undertakings from firms. These figures are likely to represent a significant increase in comparison to previous years.
9. Whistleblowing to the “listener of last resort” remains steady
The number of whistleblowers who approached the FCA direct with their concerns crept up by 5% in 2022/23, with the FCA receiving a total of 1,089 reports from whistleblowers.
Earlier this year, the FCA described itself as the “listener of last resort” for whistleblowers who may feel unable to speak up within their firms, or that their firms are not taking their concerns seriously. The FCA has committed to providing more feedback to whistleblowers in order to “give them a fuller picture of [the FCA’s] actions and the outcome of their disclosure”. As we explained in a previous blog post, this move towards greater transparency may not be entirely straightforward for the FCA, or for firms.
10. Skilled Person Reviews – on the rise again
Although not an enforcement tool, skilled person reviews can (in certain cases) be precursors to enforcement investigations, or at least provide a further indication of the key areas of supervisory and potential enforcement focus for the FCA.
In the last financial year, the FCA commissioned 47 skilled person reviews, which cost firms subject to them a total of £35.1 million. This represents a slight increase on last year where the FCA commissioned 38 skilled person reviews. Controls and risk management frameworks was the most popular topic for skilled person reviews commissioned last year (36%), followed by conduct of business (23%) and financial crime (21%).
