Independent review and analysis

FCA and PRA fines – firms can no longer ignore them

Firms should now have their 2022 compliance plans in place. Information sources that often influence those plans include regulator consultation papers and ‘Dear Chief Executive’ letters as examples. However, one of the most useful sources is often overlooked; analysis of the previous year’s fines issued by regulators. Fines in 2021 were up three-fold on 2020 and exceeded half a billion pounds. Less commonly, the PRA added to the fines amount, where a further £50m was added in December alone.

It is not uncommon for a firms’ compliance needs to outweigh the resources made available by businesses for compliance activities. However, managers holding regulated senior function approvals need to ensure appropriate oversight to regulatory issues. The simple fact is the old adage of ‘fines are just a cost of doing business’ has to end; it is not a sustainable position.

So, how do the 2021 fines help any 2022 thinking?

1) A large percentage of the fines were for money laundering and financial crime failings, so there is no doubt regulators have lost patience with firms who can’t control their procedures.
2) Failing to treat customers fairly was the cause of another group of fines. TCF has been around for many years and the fines show more work needs to be done by certain firms who continue to adopt inappropriate customer practices.

FCA new ‘customer duty’ requirements confirms that blunt fines have not changed behaviours and that a new regulatory tack is needed. Firms have been warned.

Secondly the reason why fines keep coming must be addressed. In our opinion, the three lines of defence model is failing. Why? because too often the independence of the third line is compromised. It just doesn’t work when the third line staff go to the same Christmas party, summer BBQ and share the same bonus pot. Firms need to refocus on the independence of their third line or the FCA and PRA will just keep applying and banking the fines.

It’s time to change. If you’d like to debate our views, give us a call.

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