Appendix 4: Green report - Summary of recommendations
1)The Terms of Reference invite me to make recommendations arising out of my findings. I have, therefore, set out below four recommendations. The FCA and the PRA have inherited the FSA’s enforcement powers and therefore my recommendations are addressed to both of those regulators (referred to below as ‘the Regulators’).258
Recommendation 1: Pre-referral decision-making
2)Before making a referral in connection with a particular set of events, the Regulators should identify each firm or individual in respect of whom the statutory threshold test for conducting an investigation is met in respect of those events. The Regulators should create a record of the potential subjects of investigation so identified.
3)Having identified all potential subjects of an enforcement investigation, the Regulators should then decide, by considering the referral criteria, which, if any, of the potential subjects should, in fact, become the subject of an investigation. The Regulators should record the reasons why each potential subject is either being referred, or is not being referred, for investigation.
4)An identified individual (at an appropriate level of seniority) should be made responsible for this pre-referral decision-making process (i.e. from the point in time at which a referral is being considered) and, in particular, for determining the subject(s) for referral and the scope of that referral (‘the Decision-Maker’).
Recommendation 2: Ongoing dialogue between Enforcement and Supervision during an investigation
5)Following a referral to Enforcement, the Decision-Maker should meet regularly with a representative of the referring department (i.e. Supervision) and a representative of the Enforcement investigation case team. During that meeting the appropriateness of the scope of the ongoing investigation should be discussed. In particular, consideration should be given to (1) any matters that have arisen that might require the scope of the investigation to be reconsidered, and (2) whether there are other subjects in respect of whom the statutory threshold test for conducting an investigation are met and, if so, which potential subjects should be investigated by reference to the referral criteria.
6)Such meetings should take place at least quarterly and should be recorded; and a record should be made of the reasons why any new potential subject is either being referred, or is not being referred, for investigation.
Recommendation 3: Informing the subject of an investigation about the matters under investigation
7)The Memorandum of Appointment of Investigators (‘MAI’) issued to Mr Cummings did not communicate in any real sense the matters the FSA intended to investigate. By the time the FSA had issued the MAI, it had already decided in broad terms the subject matter of the proposed investigation and had recorded this, succinctly, in the ERD (see for example the section of the ERD issued to Mr Cumming’s entitled ‘Summary of potential breaches of legislation or FSA Principles or Rules’).
8)Unless the Decision-Maker considers there to be compelling reasons not to do so (such reasons being properly recorded), the Regulators should include within the MAI (or alternatively in a separate document which is also sent to the subject of an investigation) a succinct summary of the potential breaches and a succinct explanation of the matters that are said to give rise to those breaches. The level of detail envisaged is similar to the level of detail contained in the ‘Summary of potential breaches of legislation or FSA Principles or Rules’.
9)This recommendation is consistent with the Government’s sixteenth recommendation in HM Treasury’s ‘Review of enforcement decision-making at the financial services regulators: final report’: “The government recommends that regulators provide more information within [MAI] or in accompanying documents, as to the basis for a subject’s referral to enforcement. In particular, explanations for referral should link expressly to the published referral criteria, to enhance transparency.”
Recommendation 4: Accuracy of ExCo minutes
10)The Regulators should put in place a system whereby minutes of ExCo meetings are properly reviewed and approved. The minutes of a meeting must accurately record the discussions and decisions that take place during the meeting as, otherwise, they are of limited use and potentially misleading. It is, therefore, important that a procedure is put in place whereby ExCo minutes are properly reviewed and approved.
258 All text in Appendix 4 from Andrew Green QC, Report into the FSA’s enforcement actions following the failure of HBOS, 19 November 2015, pp 91-92
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22 July 2016