SMCR investigations halve, despite extension to almost 50,000 firms

SMCR investigations halve, despite extension to almost 50,000 firms

NEWS RELEASE: Research from financial regulation consultancy Bovill finds that the Financial Conduct Authority (FCA) launched fewer than half as many investigations into senior manager misconduct in 2021 than in 2020.

A Freedom of Information (FOI) request reveals that by 15 November, only six enforcement investigations had been opened under the Senior Managers and Certification Regime (SMCR) in 2021, less than half the number in each of the three previous years. This is despite the fact SMCR was extended to 48,000 solo-regulated firms at the start of the year. Bovill believes this raises questions about the effectiveness of the regime, as well as the current capacity of the regulator to enforce the SMCR.

While the number of enforcement investigations opened between 2018 and 2020 was consistent – never dropping below 13 – 2021 sees a fall to the same level as 2017. The FOI request from Bovill also reveals that nearly two-thirds (65%) of the 54 SMCR investigations opened by the FCA since 2016 have not yet been resolved. This may indicate that the FCA is not in a position to open new investigations, because open investigations are taking such a long time to resolve.

Moreover, the FOI revealed that, since 2016, only two investigations have resulted in a penalty being imposed.

Ben Blackett-Ord, chief executive officer at Bovill, said:

“In recent years we have questioned SMCR’s ability to hold individual senior managers to account, pointing to consistently low numbers of investigations and enforcement actions. This year’s statistics show that SMCR currently lacks bite, and is not biting often enough to be considered as an effective enforcement tool.”

“Most would assume that the extension of SMCR in 2021 would result in an increase in investigations and enforcement actions, especially as it should be easier to identify decisions made in smaller firms. The low number of investigations last year suggests that this hasn’t been the case. And that instead economic and pandemic pressures have hindered the regime’s SMCR efforts.”

“With such low enforcement statistics, it brings into question SMCR’s role as an effective deterrent from poor behaviour by senior management.”

The FOI further revealed that of the 19 investigations concluded by the FCA, 10 resulted in no further action being taken, or the investigation being discontinued.

Ben Blackett-Ord, chief executive officer at Bovill, continued:

“The pandemic has likely played a role in disrupting and delaying investigations, as have staff-shortages which have impacted employers across the country. However, enforcing only two penalties means that the FCA is five times more likely to take no action at the end of an investigation. This is not a good return after five years, and the FCA will need to adapt to these challenges if we are going to see more enforcements and, ultimately, a more effective regime.”

ENDS

For further information, please contact:

Polly Barton – Bovill

+44 (0)20 7620 8440

pbarton@bovill.com

Hamish Venters – Luther Pendragon

+44 (0)7827 971741

bovill@luther.co.uk

About Bovill

Bovill is a specialist financial services regulatory consultancy, established in 1999 and headquartered in the UK with offices in London, the US, Singapore and Hong Kong. Our sole activity is the provision of high-quality, technically-focused advice and consultancy services on all aspects of financial services regulation. We aim to develop effective solutions to the complex problems of our clients, and do not offer commoditised advice or services. Bovill has experts spanning all aspects of financial regulation in the UK, Asia and the Americas.

Notes to editors

Freedom of Information: Right to know request

Request received on 15 November 2021:

Q1) For each year since 2016:

  1. a) How many investigations have been opened under the Senior Managers’ Regime, where one or more of the individuals investigated is a Senior Manager?
  2. b) How many successful enforcement actions have been taken due to an investigation under the Senior Managers’ Regime, where one or more of the individuals investigated is a Senior Manager?

Q2) How many enforcement investigations under the Senior Managers’ Regime, where one or more of the individuals investigated is a Senior Manager, remain open as of 15th November 2021?

Q3) For each year since 2016:

  1. a) How many investigations opened under the Senior Managers’ Regime, where one or more of the individuals investigated is a Senior Manager, involved non-financial misconduct?
  2. b) How many successful enforcement actions, resulting from an investigation under the Senior Managers’ Regime where one or more of the individuals investigated is a Senior Manager, involved non-financial misconduct?

Thank you for your email of 15 November 2021, in which you asked for information in relation to investigation cases opened where the individual investigated is a Senior Manager. Please see Annex A for full details of your request.

Please accept our sincere apologies for the delay in responding. We have processed your email in line with the provisions of the Freedom of Information Act 2000 (FOIA) and our response is below.

We would like to explain that, where you refer to ‘investigations’, we have taken this to mean investigations in which investigators have been formally appointed under section 168(2)(a) of the Financial Services and Markets Act 2000.

In response to question 1 (a), the below table sets out the number of enforcement investigations opened under the Senior Managers’ Regime, where one or more of the individuals investigated is a Senior Manager.

Research from financial regulation consultancy Bovill finds that the Financial Conduct Authority (FCA) launched fewer than half as many investigations into senior manager misconduct in 2021 than in 2020. A Freedom of Information (FOI) request reveals that by 15 November, only six enforcement investigations had been opened under the Senior Managers and Certification Regime (SMCR) in 2021, less than half the number in each of the three previous years. This is despite the fact SMCR was extended to 48,000 solo-regulated firms at the start of the year. Bovill believes this raises questions about the effectiveness of the regime, as well as the current capacity of the regulator to enforce the SMCR. While the number of enforcement investigations opened between 2018 and 2020 was consistent – never dropping below 13 – 2021 sees a fall to the same level as 2017. The FOI request from Bovill also reveals that nearly two-thirds (65%) of the 54 SMCR investigations opened by the FCA since 2016 have not yet been resolved. This may indicate that the FCA is not in a position to open new investigations, because open investigations are taking such a long time to resolve. Moreover, the FOI revealed that, since 2016, only two investigations have resulted in a penalty being imposed. Ben Blackett-Ord, chief executive officer at Bovill, said: “In recent years we have questioned SMCR’s ability to hold individual senior managers to account, pointing to consistently low numbers of investigations and enforcement actions. This year’s statistics show that SMCR currently lacks bite, and is not biting often enough to be considered as an effective enforcement tool. “Most would assume that the extension of SMCR in 2021 would result in an increase in investigations and enforcement actions, especially as it should be easier to identify decisions made in smaller firms. The low number of investigations last year suggests that this hasn’t been the case. and that instead economic and pandemic pressures have hindered the regime’s SMCR efforts. “With such low enforcement statistics, it brings into question SMCR’s role as an effective deterrent from poor behaviour by senior management.” The FOI further revealed that of the 19 investigations concluded by the FCA, 10 resulted in no further action being taken, or the investigation being discontinued. Ben Blackett-Ord, chief executive officer at Bovill, continued: “The pandemic has likely played a role in disrupting and delaying investigations, as have staff-shortages which have impacted employers across the country. However, enforcing only two penalties means that the FCA is five times more likely to take no action at the end of an investigation. This not a good return after five years, and the FCA will need to adapt to these challenges if we are going to see more enforcements and, ultimately, a more effective regime.” ENDS For further information, please contact: Polly Barton – Bovill +44 (0)20 7620 8440 pbarton@bovill.com Hamish Venters – Luther Pendragon +44 (0)7827 971741 bovill@luther.co.uk About Bovill Bovill is a specialist financial services regulatory consultancy, established in 1999 and headquartered in the UK with offices in London, the US, Singapore and Hong Kong. Our sole activity is the provision of high-quality, technically-focused advice and consultancy services on all aspects of financial services regulation. We aim to develop effective solutions to the complex problems of our clients, and do not offer commoditised advice or services. Bovill has experts spanning all aspects of financial regulation in the UK, Asia and the Americas. Notes to editors Freedom of Information: Right to know request Request received on 15 November 2021: Q1) For each year since 2016: a) How many investigations have been opened under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager? b) How many successful enforcement actions have been taken due to an investigation under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager? Q2) How many enforcement investigations under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager, remain open as of 15th November 2021? Q3) For each year since 2016: a) How many investigations opened under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager, involved non-financial misconduct? b) How many successful enforcement actions, resulting from an investigation under the Senior Managers' Regime where one or more of the individuals investigated is a Senior Manager, involved non-financial misconduct? Thank you for your email of 15 November 2021, in which you asked for information in relation to investigation cases opened where the individual investigated is a Senior Manager. Please see Annex A for full details of your request. Please accept our sincere apologies for the delay in responding. We have processed your email in line with the provisions of the Freedom of Information Act 2000 (FOIA) and our response is below. We would like to explain that, where you refer to ‘investigations’, we have taken this to mean investigations in which investigators have been formally appointed under section 168(2)(a) of the Financial Services and Markets Act 2000. In response to question 1 (a), the below table sets out the number of enforcement investigations opened under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager. In response to question 1(b), the below table sets out the outcomes which have been reached so far in those investigations. Pursuant to question 2, we can confirm that 35 of those investigations remain open. At question 3, you have asked about investigations opened under the SMCR which are specifically concerned with non-financial misconduct and subsequent outcomes of those investigations for each year from 2016. We can confirm that four investigations have been opened since 2016: one in 2017, two in 2019 and one in 2021. Of these investigations, we have issued one financial penalty: https://www.fca.org.uk/publication/final-notices/mr-james-edward-staley-2018.pdf and closed one, following a full investigation with no further action. Two further investigations remain open within enforcement teams. In addition to investigations opened under the SMCR regime, since 2016 we have taken action to prohibit five additional individuals in connection with non-financial misconduct. All misconduct in these five cases concerned misconduct which took place prior to the introduction of the SMCR regime.

In response to question 1(b), the below table sets out the outcomes which have been reached so far in those investigations.

Research from financial regulation consultancy Bovill finds that the Financial Conduct Authority (FCA) launched fewer than half as many investigations into senior manager misconduct in 2021 than in 2020. A Freedom of Information (FOI) request reveals that by 15 November, only six enforcement investigations had been opened under the Senior Managers and Certification Regime (SMCR) in 2021, less than half the number in each of the three previous years. This is despite the fact SMCR was extended to 48,000 solo-regulated firms at the start of the year. Bovill believes this raises questions about the effectiveness of the regime, as well as the current capacity of the regulator to enforce the SMCR. While the number of enforcement investigations opened between 2018 and 2020 was consistent – never dropping below 13 – 2021 sees a fall to the same level as 2017. The FOI request from Bovill also reveals that nearly two-thirds (65%) of the 54 SMCR investigations opened by the FCA since 2016 have not yet been resolved. This may indicate that the FCA is not in a position to open new investigations, because open investigations are taking such a long time to resolve. Moreover, the FOI revealed that, since 2016, only two investigations have resulted in a penalty being imposed. Ben Blackett-Ord, chief executive officer at Bovill, said: “In recent years we have questioned SMCR’s ability to hold individual senior managers to account, pointing to consistently low numbers of investigations and enforcement actions. This year’s statistics show that SMCR currently lacks bite, and is not biting often enough to be considered as an effective enforcement tool. “Most would assume that the extension of SMCR in 2021 would result in an increase in investigations and enforcement actions, especially as it should be easier to identify decisions made in smaller firms. The low number of investigations last year suggests that this hasn’t been the case. and that instead economic and pandemic pressures have hindered the regime’s SMCR efforts. “With such low enforcement statistics, it brings into question SMCR’s role as an effective deterrent from poor behaviour by senior management.” The FOI further revealed that of the 19 investigations concluded by the FCA, 10 resulted in no further action being taken, or the investigation being discontinued. Ben Blackett-Ord, chief executive officer at Bovill, continued: “The pandemic has likely played a role in disrupting and delaying investigations, as have staff-shortages which have impacted employers across the country. However, enforcing only two penalties means that the FCA is five times more likely to take no action at the end of an investigation. This not a good return after five years, and the FCA will need to adapt to these challenges if we are going to see more enforcements and, ultimately, a more effective regime.” ENDS For further information, please contact: Polly Barton – Bovill +44 (0)20 7620 8440 pbarton@bovill.com Hamish Venters – Luther Pendragon +44 (0)7827 971741 bovill@luther.co.uk About Bovill Bovill is a specialist financial services regulatory consultancy, established in 1999 and headquartered in the UK with offices in London, the US, Singapore and Hong Kong. Our sole activity is the provision of high-quality, technically-focused advice and consultancy services on all aspects of financial services regulation. We aim to develop effective solutions to the complex problems of our clients, and do not offer commoditised advice or services. Bovill has experts spanning all aspects of financial regulation in the UK, Asia and the Americas. Notes to editors Freedom of Information: Right to know request Request received on 15 November 2021: Q1) For each year since 2016: a) How many investigations have been opened under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager? b) How many successful enforcement actions have been taken due to an investigation under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager? Q2) How many enforcement investigations under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager, remain open as of 15th November 2021? Q3) For each year since 2016: a) How many investigations opened under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager, involved non-financial misconduct? b) How many successful enforcement actions, resulting from an investigation under the Senior Managers' Regime where one or more of the individuals investigated is a Senior Manager, involved non-financial misconduct? Thank you for your email of 15 November 2021, in which you asked for information in relation to investigation cases opened where the individual investigated is a Senior Manager. Please see Annex A for full details of your request. Please accept our sincere apologies for the delay in responding. We have processed your email in line with the provisions of the Freedom of Information Act 2000 (FOIA) and our response is below. We would like to explain that, where you refer to ‘investigations’, we have taken this to mean investigations in which investigators have been formally appointed under section 168(2)(a) of the Financial Services and Markets Act 2000. In response to question 1 (a), the below table sets out the number of enforcement investigations opened under the Senior Managers' Regime, where one or more of the individuals investigated is a Senior Manager. In response to question 1(b), the below table sets out the outcomes which have been reached so far in those investigations. Pursuant to question 2, we can confirm that 35 of those investigations remain open. At question 3, you have asked about investigations opened under the SMCR which are specifically concerned with non-financial misconduct and subsequent outcomes of those investigations for each year from 2016. We can confirm that four investigations have been opened since 2016: one in 2017, two in 2019 and one in 2021. Of these investigations, we have issued one financial penalty: https://www.fca.org.uk/publication/final-notices/mr-james-edward-staley-2018.pdf and closed one, following a full investigation with no further action. Two further investigations remain open within enforcement teams. In addition to investigations opened under the SMCR regime, since 2016 we have taken action to prohibit five additional individuals in connection with non-financial misconduct. All misconduct in these five cases concerned misconduct which took place prior to the introduction of the SMCR regime.

Pursuant to question 2, we can confirm that 35 of those investigations remain open.

At question 3, you have asked about investigations opened under the SMCR which are specifically concerned with non-financial misconduct and subsequent outcomes of those investigations for each year from 2016.

We can confirm that four investigations have been opened since 2016: one in 2017, two in 2019 and one in 2021.

Of these investigations, we have issued one financial penalty:

https://www.fca.org.uk/publication/final-notices/mr-james-edward-staley-2018.pdf

and closed one, following a full investigation with no further action.  Two further investigations remain open within enforcement teams.

In addition to investigations opened under the SMCR regime, since 2016 we have taken action to prohibit five additional individuals in connection with non-financial misconduct. All misconduct in these five cases concerned misconduct which took place prior to the introduction of the SMCR regime.

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