Independent review and analysis

The cost of compliance failure

The FCA website shows the level of fines imposed during 2019 currently stands at a shocking £392 million.

That number is significantly up from £60m in 2018 and £229m in 2017.  The total cost of failure is, of course, substantially higher than just the fine! It needs to include the investigation costs, administration costs of putting things right, the cost of any redress, the addition of statutory interest and the costs of lost business as a result of tarnished reputations.

A review of the fines highlights some common themes.  Even though TCF has been on regulators’ agendas since 2004, many of the fines are still as a result of the unfair treatment of customers plus mis-selling, culture, governance and procedural failings.  Lay observers don’t understand how firms can get it so wrong and continue to suffer high financial penalties.  Unless our industry fixes its attitude to compliance and oversight it looks like the fines will continue to grow as regulators lose patience.

When a regulator says, “You know we are coming, the least you can do is prepare” you know its tolerance has expired.  Clearly there is a need for quick and effective change.

So, what is the root cause of these failings?  Most firms are familiar with and adopt, to a greater or lesser extent, a ‘three lines of defence’ model.  In theory that is fine, but too often each line simply relies on colleagues in the other lines.  Whether true or not, the adage “I don’t want people in my third line going to the same Christmas party” seems to be seasonally timely, but also thought provoking against the current fines environment.  Frankly, third lines have become too complacent and reliant on the first two lines.  Forward looking businesses are more often seeking the security of a truly independent view that is not influenced by corporate thinking or objections.

We look forward to 2020 with continued enthusiasm about our proposition to ‘tell it as it is’ and are always happy to discuss your requirements, so do give us a call.  In the meantime, we wish you all a happy and prosperous new year.

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