10 Sanctions and enforcement
Introduction
1116. In previous chapters we have examined various
ways in which the standards and culture of banks and individuals
working in banks can be changed—through changes to the competitive
environment (Chapter 5), through radical changes to the incentives
offered by remuneration (Chapter 8), through a new framework for
individual responsibility (Chapter 6), through changes to bank
governance and culture (Chapter 7) and through changes to the
supervisory and regulatory approach (Chapter 9). Our proposals
in those chapters are predominantly preventative in their aims—to
reduce the chances of things going wrong. However, it is essential
that preventative measures are backed up by suitable sanctions
when things do nevertheless go wrong. It is also important to
consider the role which effective sanctions and powers of enforcement
can play as a deterrent in changing behaviour. Box 21 sets out
how the recommendations from these chapters will together result
in significant changes to individuals' incentives and the consequences
for standards.
Box 21: The effects of reforms on individuals
The Commission's reforms are intended to create a
banking sector where failures in banking standards are less likely
to arise, where there are stronger mechanisms for correcting failures
when they start to escalate, and where, when serious failures
do nevertheless occur, there are robust tools for holding those
responsible to account and imposing appropriate penalties. The
prospect of such penalties would in turn feed back into better
incentives for bankers to behave correctly in the first place.
This box sets out some illustrations of the practical differences
which some of the proposed reforms might make.
SENIOR PERSONS REGIME
Senior managers of banks will no longer be able to
hide behind an accountability firewall, where they are too distant
from the consequences of their responsibilities to be held directly
accountable when things go wrong. A future investigation into
a scandal such as Libor manipulation should not result in the
trail going cold half-way up an organisation, but should be capable
of leading directly to the senior executive whose lack of oversight
permitted it to happen. More clarity over responsibilities should
also help avert future disasters comparable to PPI mis-selling,
where shared responsibilities and decisions by committee meant
that nobody felt responsible for checking that the products were
appropriate for customers and appropriately sold to them.
The Senior Persons Regime will clearly attribute
responsibilities to individuals. Senior Persons will know that
they can be held accountable and subjected to enforcement measures
if they fail to uphold those responsibilities. The regulators
will have two enhanced enforcement tools which can be applied
to those individuals within the Senior Persons Regime.
The proposal to reverse the burden of proof for imposing
regulatory penalties on Senior Persons in certain circumstances
would make sure that those who should have prevented serious prudential
and conduct failures would no longer be able to walk away simply
because of the difficulty of proving individual culpability in
the context of complex organisations. Once successful enforcement
action had been taken against a bank, such as for the failures
relating to Libor manipulation or the near-failures of RBS and
HBOS, the Senior Persons with responsibilities for the areas that
failed would have to show how they upheld those responsibilities
and acted properly in trying to prevent the failure.
The introduction of a criminal offence for reckless
mismanagement of a bank would provide a new range of sanctions,
which could include imprisonment. It would provide stronger deterrence
for individuals in the Senior Persons Regime. Criminal prosecutions
would only be used in cases resulting in the most serious public
harm and with the most serious misbehaviour, where civil penalties
alone would not suffice.
LICENSING
The Licensing regime will cover a broader range of
individuals than those who are currently within the Approved Persons
Regime. For example, all the traders and rate submitters who were
involved in Libor manipulation, as well as their managers, would
have been within scope of the new Licensing regime as their actions
could—and did—cause serious harm to the bank. Many
of these individuals were not covered by the APER. The APER has
since been extended to cover rate submitters, but moving to Licensing
avoids reliance on such a reactive approach and makes it less
likely that the next scandal will emerge in an area found again
to be outside scope of the framework for enforcement.
The Licensing regime requires individuals to sign
up to and abide by the new Banking Standards Rules. The Rules
should be much clearer and more accessible than the Principles
for Approved Persons, and banks will have a duty to ensure Licensed
staff fully understand how the Rules apply to their work. As a
result of the Licensing Regime, no bankers who can cause serious
harm to the bank or to customers, such as those involved in areas
such as the submission of Libor rates or selling interest rate
swaps, will be able to claim ignorance of what is and is not acceptable
behaviour.
The Licensing regime allows the regulators to use
their existing range of enforcement tools against anybody within
its scope when the Rules are breached. Available sanctions include
suspension, prohibition and unlimited fines.
REFORMS TO REMUNERATION
The Commission's proposals for a new Remuneration
Code would encourage a much higher degree of deferred compensation,
and for a wider range of employees. It would ensure that more
compensation would be lost to employees if it emerged that they
contributed to failures in banking standards or were awarded compensation
on the basis of illusory successes. For example, this could cover
executives who presided over weak control frameworks which led
to scandals such as Libor or money laundering. Likewise, it could
cover individual bankers who engaged in excessively risky lending
which gave high returns for a few years—resulting in high
bonuses—then caused a large loss when the loans went bad.
Aligning the length and amount of deferral more closely with the
period over which risks in banking become visible will help reduce
the chances of bankers playing "heads I win, tails you lose"
with the bank's money. In addition, where a bank received taxpayer
support, the authorities would have powers to render void all
deferred compensation, entitlements arising from change of control
and unvested pension rights for Senior Persons and other licensed
staff, ensuring that the taxpayer would not pick up the bill for
paying those who drove the bank to failure to head off into comfortable
retirement.
Enforcement against banks
THE CURRENT APPROACH
1117. When there are significant failings within
a bank, one regulatory response has been enforcement action against
the bank in question. In relation to one of the largest prudential
failings of recent years, the FSA issued an enforcement notice
against HBOS in 2012 for serious misconduct during the period
2006-2008, which contributed to its failure. The FSA enforcement
notice stated:
The severity of Bank of Scotland's failings during
this time would, under normal circumstances, be likely to warrant
a very substantial financial penalty. However, because public
funds have already been called on to address the consequences
of Bank of Scotland's misconduct, levying a penalty on the enlarged
Group means the taxpayer would effectively pay twice for the same
actions committed by the firm. Therefore, to reflect these exceptional
circumstances, the FSA has not levied a fine against Bank of Scotland
but has issued a public censure to ensure details of the firm's
misconduct can be viewed by all and act as a lesson in risk management
failings.[1820]
The FSA has not taken enforcement action against
the firm in relation to most of the other notable prudential failures
in recent years, including RBS, Northern Rock, and Bradford and
Bingley, even though the logic of the HBOS enforcement action
could be held to have applied in those cases.
1118. The most notable recent enforcement actions
against banks were those in relation to LIBOR manipulation. This
Commission was established in the aftermath of the first fine
announced in late June 2012 against Barclays. Since then, the
FSA has imposed two even larger fines on UBS and RBS in relation
to the same issue. There have been a number of less high profile
actions, for example a £1.5m fine on Santander in 2012 for
failing to clarify Financial Services Compensation Scheme cover
on structured products,[1821]
a £4.3m fine on Lloyds Banking Group in 2013 for delayed
PPI redress payments,[1822]
and a £9.45m fine on UBS in 2013 for mis-selling an investment
fund.[1823]
1119. In relation to one of the biggest conduct scandals
of recent years—PPI mis-selling—formal enforcement
action against the largest perpetrators has been limited. Clive
Briault, a former Managing Director at the FSA, told us that,
following a thematic review in 2006, five firms were referred
to enforcement, one of which was Lloyds TSB:
the FSA's enforcement division then spent the
best part of two years in a much more extensive investigation
of the sales practices of Lloyds TSB in the area of PPI. [...]
at the end of that, although the enforcement division found that
there were a number of sales practices which were not necessarily
of the highest standard, nevertheless, overall, there was not
a case to bring enforcement action against that particular firm.[1824]
He noted that enforcement action was pursued against
the other four firms investigated in 2006, but conceded that these
were:
much, much smaller institutions, where it would
have been much easier for the enforcement division to review the
relevant files and take a view whether the deficiencies in sales
practices were such as to merit enforcement action.[1825]
The largest penalty imposed on a bank for mis-selling
PPI was the £7m fine on Alliance and Leicester in 2008, a
tiny proportion of the revenue gained from selling the product.
1120. Far more significant as a penalty, in the case
of PPI, has been the cost of providing customer redress, for which
Natalie Ceeney told us banks have already provisioned over £12bn.[1826]
Such compensation payments are likely to exceed the level of fines
that could have been sustained had the FSA pursued enforcement
action. It is notable that in the case of interest rate swap mis-selling,
the response to-date appears to be focused on redress. No enforcement
investigations have yet been announced, although Martin Wheatley
has been reported as saying that enforcement would not be ruled
out.[1827]
1121. In order to initiate enforcement proceedings,
regulators consider that they must have a basis for investigating.
Sir Hector Sants told us that "you need a trigger",
noting that in cases such as LIBOR manipulation it was unrealistic
to expect the supervisor to spot the wrongdoing before it became
apparent to the firm itself:
When we are talking about misbehaviour by individuals
in very large institutions, it is difficult to envisage that you
could ever construct a regulator that would be able to discover
that misconduct if it was not visible to the firm. [...] It would
take a regulator of massive resource to find these sorts of issues.
The number of instances of them is very small. There are millions
of e-mails and documents involved, so the idea that a conduct
regulator will proactively spot these issues on its own is a false
hope [...]without a trigger of information it is relatively unlikely
that, even if a supervisor had 40 people rather than four, it
would make a huge difference.[1828]
1122. Sir Hector Sants and Tracey McDermott argued
that the FSA had responded swiftly and decisively once evidence
of LIBOR manipulation emerged,[1829]
but Ms McDermott also identified some indicators that the regulators
could employ more effectively to assist in identifying potential
problems in future:
one of the things that drives bad behaviour is
that people think it is a way of making profit. If you look at
PPI or if you look at LIBOR, it is driven by that. As a conduct
regulator, we need to be much clearer about where the firm's money
is actually being made, and then we need to be looking very clearly
at whether there is adequate control around that.
The other thing that I would say is a series
of red flags—it was demonstrated by UBS, but also by some
other firms—is a series of serious failures in different
bits of the business. Some of them may not individually be massively
significant, but what does that say about the culture if people
in quite disparate parts of the organisation can basically get
around the rules?[1830]
THE LEVEL OF FINES FOR BANKS
1123. While a completed enforcement action might
have reputational effects on the bank concerned, the most direct
effect can be in the form of a fine. Former regulators indicated
that the level of fines historically had done little to dent bank
balance sheets. Clive Briault noted, in the context of PPI mis-selling,
that, "if you compare the level of the fine against the big
profitability of the business, you could choose to regard it as
a cost of doing business".[1831]
This view was echoed by another form member of FSA staff, Thomas
Huertas:
If the penalty were only monetary and only on
the firm, the great danger is that the firm will simply see this
as a cost of doing business. There is no more insidious element
from a supervisory standpoint than trying to deal with a firm
when it has a view that bad behaviour is something that can simply
be priced in.[1832]
Sir Hector Sants acknowledged that:
the deterrence element of the historical approach
of the FSA was not sufficient for this type of wilful wrongdoing.
I think we do need to be very clear about the distinctions between
different types of regulatory action, but I'm talking about the
fact that people ought to believe that if they are wilfully engaged
in conduct wrongdoing, they have a reasonable chance of being
caught, and that if they are caught, the sanction is significant,
both to the firm and to the individual.[1833]
1124. The three FSA fines relating to LIBOR manipulation,
of £59.5 million on Barclays, £160 million on UBS and
£87.5 million on RBS, were the largest that the FSA has ever
imposed. The FSA pointed out that the Barclays penalty, the lowest
of these, was "approximately double the previous highest
penalty that the FSA had imposed on a firm".[1834]
The fines imposed on these three firms by the US authorities were
significantly larger, at $360 million, $1.2 billion and $475 million
respectively. The US authorities have recently imposed a series
of other large fines on UK banks, including a $1.9 billion fine
on HSBC for inadequate compliance with money-laundering and sanctions
rules,[1835] and
a total of $667m of fines on Standard Chartered in relation to
inadequate compliance with sanctions rules.[1836]
1125. The FSA explained that the legal basis for
imposing fines was different in the two countries. The UK regime
requires the fine to be determined in relation to a number of
factors in the round, including consideration of penalties in
comparable cases. In contrast, the CFTC in the US imposes penalties
by applying a tariff to each violation, although the CFTC orders
did not disclose the basis for its calculations of LIBOR fines.[1837]
1126. Sir Hector Sants noted that the FSA has already
taken steps to allow larger fines to be imposed on firms:
it has been a consistent approach of mine, during
my time at the FSA, to seek to change the FSA's regime so that
its fines would increase in size. Those changes were brought in
[...] so any offences that occur after 2010 are likely to lead
to much higher fines.[1838]
The FSA confirmed that the policy change with effect
from March 2010 had led to a doubling or trebling of penalties
compared with the previous tariffs.[1839]
They also noted that, because most of the misconduct relating
to LIBOR manipulation had taken place before 2010, the penalties
were calculated on the basis of the old policy.[1840]
1127. The FSA's penalty policy now allows for the
level of fines to be adjusted to take account of a number of factors.
These include aggravating or mitigating factors such as the firm's
level of cooperation, whether the case is brought to the attention
of the regulators quickly, and whether the misconduct was the
result of a breach of previous warnings or requirements.[1841]
For example, the FSA stated that they took consideration of the
co-operative approach by Barclays in the investigation into fixing
of LIBOR when determining the fine.[1842]
A fine can be increased if the resulting fine would otherwise
provide insufficient deterrence,[1843]
and a discount of up to 30 per cent is available for early settlement,
intended to reduce the probability of protracted and costly litigation.[1844]
1128. Banks have moved towards linking fines more
strongly to employee remuneration, so that the cost of fines is
not simply passed on to shareholders but also falls on employees,
thereby creating incentives for good behaviour.[1845]
However, the tendency to deduct fines predominantly from the current
year's bonus pool reduces transparency and undermines the effectiveness
of the policy. Sir Philip Hampton, when questioned in evidence,
was unable to state clearly how RBS would prove that its bonus
pool would actually be reduced as a result of the Libor fine,
given that the initial size of the bonus pool had yet to be determined:
Mark Garnier: How do we know that you are not
just going to increase the bonus pool sufficiently to be able
then to reduce it by the fine, getting around the vexing problem
that way?
Sir Philip Hampton: As we said earlier, we have
to be very clear and public—to this Commission and elsewhere—that
we have exercised clawback properly.
Mark Garnier: Is it clear when something doesn't
exist yet—this year's bonus pool?
Sir Philip Hampton: We will have to support the
argument that we have committed to clawing back the US elements
of this fine.[1846]
Sir Philip Hampton admitted that the pool of unvested
bonuses from previous years would more than cover the size of
the fine, but was unable to confirm how much was coming from this
pool compared to the current year's bonus pool.[1847]
CONCLUSIONS
1129. Effective enforcement action against firms
represents an important pillar of the overall approach to enforcement.
In many cases, it serves as the gateway to enforcement action
against responsible individuals, which is also necessary. It can
draw wider attention to a failure, providing incentives for firms
to strive to maintain high standards, and establishes penalties
when banks depart from those standards. The record of the regulators
in enforcement against firms is patchy at best. It is notable
that both significant prudential failures, for example at RBS,
and some widespread conduct failures in the selling of PPI did
not lead to successful enforcement against banks. In the investigations
those at the top often absolved themselves by attesting their
ignorance about the organisation of which they were in charge.
It would run contrary to the public interest if the idea were
to gain currency that banks can be too big or complex to sanction.
1130. It is to be hoped that the LIBOR investigations
have set a pattern for the future. In relation to prudential failings,
formal action will assist in determining what went wrong and help
to provide the basis for pursuing responsible individuals. In
relation to conduct failings, a visible and costly redress process
may not be enough: enforcement has the benefit of more clearly
setting out where failures occurred and that rules were broken,
so that culpability is not obfuscated and so that lessons can
be learned.
1131. It is right that an element of the fine
should fall on shareholders, to provide a continuing incentive
for them to monitor standards of conduct and supervision within
the banks they own. However, our recommendations on recovery of
deferred payments in Chapter 8 are designed to ensure that, in
future, a significant proportion of fines on firms may be met
from deductions from the remuneration of staff of the bank at
the time of the misconduct, thereby making the prospect of fines
on firms a more direct incentive on individuals to prevent it.
There should be a presumption that fines on banks should be recovered
from the pool of deferred compensation as well as current year
bonuses. The recovery should materially affect to different degrees
individuals directly involved and those responsible for managing
or supervising them, staff in the same business unit or division,
and staff across the organisation as a whole. The impact and distribution
of fines on deferred compensation should be approved by the supervisors
as part of a settlement agreement.
1132. Firms cannot be permitted to regard enforcement
fines as a "business cost". The FSA recognised that
in the past the level of its fines was too low to prevent this.
The reforms to its penalty policy are supposed to address this,
but they have yet to be properly tested, and the credibility of
enforcement has been damaged by a legacy of fines that were pitiful
compared to the benefits banks gained from the misconduct. To
provide greater incentives to maintain high levels of professional
standards, both the FCA and the PRA should be prepared to review
again their penalty setting framework in the future to allow for
a further substantial increase in fines. They should ensure that
in responding to any future failures they make full use of the
new rules for calculating fines and build on the encouraging examples
set by the LIBOR fines. If regulators believe that the current
legal framework still inhibits them from imposing the necessary
level of penalties, they should tell Parliament immediately.
1133. In its Report on LIBOR, the Treasury Committee
concluded that "the FSA and its successors should consider
greater flexibility in fine levels, levying much heavier penalties
on firms which fail fully to cooperate with them".[1848]
We agree. Cooperation by firms in bringing issues to regulators'
attention and assisting with their investigation should be a given.
Regulators should make full use of the flexibility in their penalty
policy to punish cases where this does not occur. However, regulators
should also make it clear to firms that the same flexibility will
be used to show leniency where inadvertent and minor breaches
are swiftly brought to their attention and rectified, so that
the fear of over-reaction does not to stifle the free flow of
information.
1134. Enforcement action against individuals normally
only takes place after completion of enforcement action against
the firm, in part because the risks of delay with individual enforcement
are greater.[1849]
A protracted process of enforcement with a firm can delay enforcement
against individuals, weakening the prospect of its success and
of meaningful penalties, particularly if the delay means that
the individual can continue lucrative work for several more years
and approach retirement. The Commission recommends that the regulators
bear in mind the advantage of swift resolution of enforcement
action against firms, in particular in cases where settlement
with the firm is a precursor to action against responsible individuals.
Enforcement against individuals
THE NEED
1135. As we noted in Chapter 3, one of the most striking
features of the recent years has been that the failures of the
banking sector—including both the prudential failures which
led to the near collapse of some major banks and required massive
taxpayer bailouts, and the conduct failures which led to large-scale
mis-selling—did not lead to action against individuals on
anything approaching a seemingly commensurate scale. Actions against
individuals are still outstanding in relation to LIBOR, but the
evidence received made clear that these actions would not be against
the most senior individuals within the banks subject to enforcement
action.
1136. Enforcement action against Approved Persons
at senior levels is as rare as hens' teeth. As Andy Haldane put
it: "the sanctions are never imposed. Everyone is 'fit and
proper' all of the time".[1850]
Exceptions prove this rule. Peter Cummings, the former head of
the Bank of Scotland's corporate division, has been fined £500,000
and given a lifetime ban from the industry.[1851]
The FSA intended to pursue an industry ban on Johnny Cameron,
but ended their investigation in 2010 when he voluntarily agreed
not to work in the industry again. In neither case did enforcement
action intrude into the world of those at the very top of these
failed banks. The Chairmen and successive Chief Executives of
HBOS have so far escaped any public enforcement action. The same
can be said in the context of the Chairman and Chief Executive
of RBS. Nor has the most significant conduct failure of recent
years with the largest impact on bank customers—the systematic
mis-selling of PPI over a long period—led to any enforcement
action against senior individuals in banks, as we noted earlier.[1852]
1137. The apparent failure of the sanctions regime
in the context of the multiple failures of standards in banking
industry matters for several reasons. One reason was set out by
Lord Turner in his Foreword to the FSA's Report on the failure
of RBS:
Banks are different because excessive risk-taking
by banks (for instance through an aggressive acquisition) can
result in bank failure, taxpayer losses, and wider economic harm.
Their failure is of public concern, not just a concern for shareholders.
There is therefore a strong public interest in
ensuring that bank executives and Boards strike a different balance
between risk and return than is acceptable in non-bank companies.
This argues for ensuring that bank executives face different personal
risk return trade-offs than those which apply in non-banks.[1853]
1138. Second, as we noted in the context of the collapse
of HBOS, the absence of fitting sanctions for those most responsible
meant that such sanctions could not serve as a suitable deterrent
for behaviour contributing to the next crisis.[1854]
Andy Haldane emphasised the importance of sanctions in encouraging
those at the most senior levels to assume greater personal responsibility:
Not knowing cannot be a legitimate excuse. If
it was made clear that, whatever the product or whatever the asset,
if it is not doing what it is meant to be doing, the sanction
will be meted out at the highest level of the firm, and that those
incentives would run down the core of the firm from the top, that
would help. I think that if the CEO, or the chief risk officer
or the chief operating officer, knew that their job was on the
line, their behaviours would then rub off all the way down the
organisation. You would find fewer of these products being sold
in the first place; you would find fewer of these assets finding
their way on to the balance sheet.[1855]
1139. Antony Townsend, Chief Executive of the Solicitors
Regulatory Authority, suggested that a credible sanctions regime
was an essential component in creating a professional ethos:
The risk of public identification and, of course,
ultimately, loss of livelihood, is a very powerful sanction. There
is an element of regulation being an act of faith, but the research
we have [...] suggests that those we are regulating see the existence
of the sanctions regime as an important part of being in a regulated
profession, almost driving professional pride.[1856]
1140. There is also a simple utilitarian reason why
a sanctions regime that bites upon more individuals matters. Many
of those who served at senior levels in banks that failed during
the financial crisis have gone on to work elsewhere in the financial
services sector. For example, many members of the RBS board and
executive committee went on to work for other banks or financial
services firms.[1857]
Some of the facts released about LIBOR fixing in just three banks
indicates that certain key individuals implicated in wrong-doing
moved on from bank to bank. If it were to be demonstrated that
such individuals bear responsibility for failings in standards
in one bank, and they are prevented from carrying in activities
in the banking sector, then the further damage is prevented as
a consequence.
1141. An effective sanctions regime is also essential
for the restoration of public trust in banking. The public distaste,
and at times even revulsion, at the failures of bank standards
in recent years has been magnified by outrage that those who were
rewarded so well when things seemed to be going well can walk
away without any realistic likelihood of enforcement action or
the imposition of sanctions, having benefited from very high levels
of remuneration and with massive pension entitlements
THE SANCTIONS CURRENTLY AVAILABLE
1142. The regulators have several sanctions available
to them in relation to those individuals—around 10 per cent
of bank staff—who are subject to the Approved Persons Regime
and thus required to act in accordance with the Statement of Principles—concepts
we explained in Chapter 6. In respect of such people the regulators
can, for example:
· publish a statement of the individual's
misconduct (i.e. a public censure);
· impose, for such period as the regulators
consider appropriate, such limitation or other restrictions in
relation to the performance by the individual of any function
to which the approval under the Approved Persons Regime relates;
· suspend, for such period as the regulators
consider appropriate, any approval of the performance by the individual
of any function to which the approval under the Approved Persons
Regime relates;
· withdraw an individual's approval;
· impose a financial penalty on an individual
of such an amount as the regulators consider appropriate.[1858]
These are civil penalties which can be imposed directly
by the regulator (subject to independent decision-making through
structures we consider further in the next chapter) without reference
to the courts. However, an individual who does not accept a finding
or a proposed penalty may appeal to the Upper Tribunal, effectively
a court of law.[1859]
1143. For all bank staff, including the 90-odd per
cent who operate outside the Approved Persons Regime, the regulators
can apply their power to prohibit such an individual from working
in the financial services industry, although it is harder to justify
exercise of this severe power (in relation to both approved and
non-Approved Persons) because an extended set of criteria needs
to be met.[1860]
1144. Some witnesses argued that the range of sanctions
available, at least in relation to those within the Approved Persons
Regime, was adequate. Jon Pain, a former managing director of
supervision at the FSA, characterised the sanctions as "pretty
severe", including as they did a ban from the industry.[1861]
Professor Julia Black also remarked:
the FSA has a decent range of sanctions. It can
fine and it can ban somebody from working in the industry, which
probably has a much bigger impact than a fine because it has a
long-term impact on the ability to earn a living in a very well-remunerated
business.[1862]
EVIDENTIAL STANDARDS AND INDIVIDUAL
CULPABILITY
1145. The severity of these sanctions in principle
has, of course, been circumscribed in practice by the rarity of
their being applied in the context of the banking sector. As Tracey
McDermott put it, "even the regulatory sanctions at the moment
we have not been able to enforce".[1863]
She attributed this inability first and foremost to the evidential
standards required:
the test for taking enforcement action is that
we have to be able to establish personal culpability on the part
of the individual, which means falling below the standard of reasonableness
for someone in their position. The way in which our guidance is
drafted makes it very clear that we will not hold somebody to
account simply because there is a failure on their watch, particularly
if they have properly delegated and so on.[1864]
Under this guidance, an Approved Person will only
be held to be in breach of a Statement of Principle where he is
personally culpable. Personal culpability arises where an Approved
Person's conduct was deliberate or where the Approved Person's
standard was below that which would be reasonable in all the circumstances.
With a director and senior manager, the following factors are
to be taken into account:
· whether he exercised reasonable care when
considering the information available to him;
· whether he reached a reasonable conclusion
which he acted on;
· the nature, scale and complexity of the
firm's business;
· his role and responsibility; and
· the knowledge he had, or should have had,
of any regulatory concerns.[1865]
1146. As set out above, the basis for a judgement
on a decision by an individual director is not whether that decision
can be shown to be wrong with the benefit of hindsight, but whether
at the time he failed to reach a reasonable conclusion. Of the
two cases that the FSA has brought against senior bank executives
in recent years, only one went to the Upper Tribunal, and that
decision was overturned because this standard of proof had not
been met. The Tribunal decision concluded:
The FSA has not satisfied us [...] from the evidence
as a whole that Mr Pottage's standard of conduct was 'below that
which would be reasonable in all the circumstances' [...] In particular
we are not satisfied that [the alleged failure] was beyond the
bounds of reasonableness. Put positively, we think that the actions
that Mr Pottage in fact took prior to July 2007 to deal with the
operational and compliance issues as they arose were reasonable
steps.[1866]
1147. The direct challenges from the evidential standard
can be compounded by the complexity of decision-making structures
in banks. Decisions might be taken by committees, thus making
it harder to trace individual responsibility. Sometimes the attribution
of responsibility at senior levels has been unclear. Professor
Julia Black said:
For the FSA to bring a case under [the Approved
Persons' Regime] they have to be able to pinpoint whether you
were the person who made this particular decision and were responsible
for this particular line of business over probably quite a period
of time.[1867]
These may well have been important factors in explaining
the absence of enforcement action against senior managers in cases
such as PPI mis-selling and LIBOR manipulation. Despite the clear
failures in senior leadership collectively, identifying individual
responsibility and culpability is likely to have been more difficult.
1148. Tracey McDermott emphasised the particular
difficulties of enforcement action against individuals in large
and complex institutions in explaining why it appeared that the
US authorities were successful in taking action against individuals—the
FDIC told us that they had brought 742 cases against individuals
in 2012[1868]—while
the UK authorities were less so:
The big distinction between the FDIC's actions
and ours is that the FDIC's constituents are largely smaller institutions
[...] They are focused on the smaller institutions for which,
as I have already said, it is actually much easier to find evidence.
That is a practical matter, because the chains of command are
shorter. If you look at the larger US institutions—the ones
that failed, such as Lehman's, or those that were bailed out—there
has not been any enforcement action that I am aware of, and I
have checked this with the Americans, against the senior management
of those institutions.[1869]
THE APPROACH TO ENFORCEMENT
1149. Underpinning the challenges arising from evidential
standards and complexity there might also lie issues of approach.
As Tracey McDermott noted, the recent improvement in the FSA's
track record in enforcing the criminal sanctions in relation to
insider trading related to the priority accorded to it and increased
regulatory determination, rather than any change in the law.[1870]
Professor Julia Black pointed out that one of the most important
factors in determining whether the credibility of the enforcement
regime was the attitude of regulators:
When people ask me what a regulator should be,
I say that they should be three things: they should not be captured;
they should not be conned; and they should not be cowed. A lot
of what we are trying to drive at here is possibly not so much,
'If we change the sanctions regime, what kind of impact will that
have?' but driving the tougher, more credible, and less cowed
approach to very powerful individuals who are very successful
and very used to getting their own way.[1871]
Professor David Kershaw implied that, taking the
case of RBS as an example, enforcement action against individuals
might simply have been placed in the 'too difficult' pile:
One thing to focus on is an example of possible
poor behaviour where the directors and senior management are clearly
on the hook, such as the ABN AMRO decision in the context of RBS.
There a decision was taken that, in hindsight, looks highly problematic.
Clearly, those directors were involved in making that decision.
He went on to argue that the standards against which
individual directors and managers could be held to account were
in place and said:
The question then becomes: why haven't they been
deployed in relation to that particular example that, on the publicly
available facts, looks highly problematic? The answer to that
question is that it is still very difficult to prove that someone
has not taken the requisite degree of care in making a decision
of that magnitude. It is also clear from the public record that
you could make such a case. That leads directly to the question:
why did the FSA elect not to make that case?[1872]
1150. Tracey McDermott indicated that the FSA's methods
of investigation often explained the limitations on enforcement:
What you do in an investigation is follow where
the lines of inquiry take you. You do different investigations
in different ways, but typically you will start working up from
the bottom to get through the process, and see which direction
you are pointed in, in terms of who are the people with responsibility
and who are the people who are aware. You expect people who you
are interviewing-if they think that it is not their fault, but
that somebody more senior was actually responsible—to point
you in that direction. The questions you ask are around where
the trail takes you, and where this stops.[1873]
This approach can lead to the trail going cold well
before it reaches those in the most senior or supervisory positions
leading to the emergence of an "accountability firewall",
as discussed in Chapter 3. Martin Wheatley acknowledged the difficulty
in holding senior individuals to account:
You have to be able to show the clear evidential
trail from a senior figure, a particular abusive decision, to
what actually happened. There may be some—I am not saying
that [there] will not be any—but in many large organisations
it is very hard to provide that evidential trail.[1874]
1151. Tracey McDermott acknowledged that the FSA
had not usually succeeded in holding individuals to account, but
told us that the FCA was now focused on correcting this:
The FSA has attempted to hold people accountable.
I would accept [...] that we have not succeeded at doing that.
We are now looking to see how we can do that better. You can say
that we should have done that sooner—that is an absolutely
fair point—but I do not think that it is fair to say that
that was down to regulatory capture or a lack of integrity on
the part of the FSA. [...] It is something which has a huge amount
of focus for us, as I have said, across the organisation; not
just enforcement. I am confident we will do better.[1875]
Martin Wheatley also spoke about the FCA's focus
on holding individuals to account, but warned that this was a
difficult and resource-intensive task:
We have made it a policy that we want more individual
accountability, so we are pursuing more cases [...] you will see
a change of philosophy and approach, but what I am saying, and
being very realistic, is that it is difficult. We have to put
a lot of resource into it and it is difficult.[1876]
Enforcement of civil sanctions:
proposals for reform
REBUTTABLE PRESUMPTION
1152. In his Introduction to the FSA's Report on
the failure of RBS, Lord Turner proposed one way to make enforcement
more effective by:
Establishing rules which would automatically
ban senior executives and directors of failing banks from future
positions of responsibility in financial services unless they
could positively demonstrate that they were active in identifying,
arguing against and seeking to rectify the causes of failure.[1877]
He told us that he believed such an automatic mechanism
was needed because of the inherent difficulty of proving an individual
responsible:
I am much more attracted [...] to sanctions that
have a degree of automaticity, and which affect a large number
of people, rather than trying to pin it on one person [...] I
honestly feel, having looked very carefully at how these processes
of legal proof work, that it will always be difficult in courts
of law to have people proved directly responsible for prudential
problems going wrong.[1878]
1153. In July 2012, the Treasury published proposals
to introduce a mechanism along these lines, by creating a "rebuttable
presumption that a director of a failed bank is not suitable to
be approved by the regulator as someone who could hold a position
as a senior executive in a bank".[1879]
The FSA supported the Treasury's proposal:
we would welcome an effective rebuttable presumption
and believe that this would send a clear message that Parliament
views the failure of a bank as a very serious matter with significant
consequences for the careers of those senior figures involved
in the failure. If successfully implemented, the rebuttable presumption
should make it easier and more efficient for us to reject someone
whose involvement with a past failure makes them unsuitable to
hold another senior position in the financial services industry.[1880]
Lord Turner argued that the great strength of the
proposal for a rebuttable presumption was its automatic nature.
By removing discretion from the regulator on whether to pursue
an action, it removed the challenge of having to prove individual
culpability.[1881]
1154. The proposal for introducing a rebuttable presumption
has met with a number of objections. First, the Financial Services
Consumer Panel argued that "the presumption of guilt rather
than innocence of directors of failed banks [...] offends notions
of natural justice and due process".[1882]
This concern was echoed by Gregory Mitchell QC, who believed that
a rebuttable presumption would be "wrong in principle",
arguing that the resulting penalty was significant enough to require
"proof of wrongdoing". He pointed out that "A director
who was entirely innocent of any wrongdoing might be unable to
afford the cost of rebutting any such presumption and be unable
to work".[1883]
The Law Society expanded on this concern:
Individuals may struggle to gather the evidence
necessary to rebut the presumption if they have already left the
bank and no longer have access to documents and other relevant
material. The problem is particularly acute where the cause of
a bank's failure is a complex set of inter-related circumstances,
some of which may have been outside the control (and possibly
the knowledge) of a particular director. Gathering such evidence
could be time-consuming and costly, and in some cases not possible
at all for individual directors. This may mean that the director
is unable to prepare a proper case to rebut the presumption, which
raises obvious issues of fairness.[1884]
1155. Concern was also expressed about the effects
that an automatic mechanism of this kind would have on management
challenges of a failing bank. The Financial Services Consumer
Panel suggested that "such a mechanism might have a perverse
effect, discouraging the far-sighted and diligent from accepting
key management positions".[1885]
The Law Society also noted that a mechanism which applied to all
directors at the point of failure could have perverse effects
on banks facing difficulties, because "directors might be
incentivised to abandon a distressed bank before it failed"
and it could also "lead to difficulties in recruiting well-qualified
people to try to rescue failing banks".[1886]
Andrew Bailey also observed that a rebuttable presumption "may
hinder our ability to ask good people to go into firms in difficulty,
something that we do quite often—I would therefore not favour
this approach". [1887]
The Law Society noted that trying to address the first of these
problems by extending the presumption to directors who had left
the failed bank would carry its own problems, most notably that
it could cause disruption for any banks to which such directors
had subsequently moved.[1888]
1156. Questions were also raised about the scope
of a rebuttable presumption. The Treasury's proposal was restricted
to directors of failed banks. When we raised the point that there
may be cases where senior executives who are not directors are
to blame for a failure, Lord Turner responded that other senior
managers could be included in the proposal: "I did not intend
it that was limited to the board. It includes, but is not limited
to" the board.[1889]
A bank could be considered to 'fail' if the regulator judges it
to no longer meet threshold conditions, thereby triggering entry
into Special Resolution Regime under the Banking Act 2009, but
Andrew Bailey pointed to definitional problems with failure:
it will often be difficult to determine when
a firm is said to have failed. Our experience suggests that the
seeds of firm failure are often sown by decisions which are made
long before the firm is placed into the resolution process, or
public funds are used to support it.[1890]
1157. In view of the problems identified with the
scope of the rebuttable presumption as proposed by the Treasury,
Andrew Bailey proposed an alternative approach involving
reversing the burden of proof in cases where
a significant failing has been identified. This would require
an approved person who had responsibility for a particular area
to show that they had taken all reasonable steps to avoid the
failing concerned. The FSA believed this would make clear to approved
persons that delegation of authority does not equate to delegation
of responsibility or allow the person concerned to avoid accountability
if something goes wrong.[1891]
Sir David Walker make a similar proposal:
It may be that the regulators should have greater
capability to reverse the burden of proof and say that a senior
executive who had been involved in a palpable failure would be
struck off unless he could show that he had been effective, diligent
and challenging in seeking to avert that failure. This is relevant
to directors on bank boards and senior executives. That is not
a power that is currently available to the FSA. I would invert
and give them greater power.[1892]
1158. Tracy McDermott also made the case for linking
a rebuttable presumption to a concept of responsibility:
We currently state that we will not discipline
someone simply because something went wrong in an area for which
they were directly or indirectly responsible. We could look to
reverse that position by introducing a rebuttable presumption
that, in certain circumstances and for particular types of misconduct,
where something goes wrong in your area you are responsible unless
you can demonstrate that you took all reasonable steps to avoid
the misconduct and/or that there were no other reasonable steps
that could practically have been taken.
[...] It would be helpful for the regulator in
that the starting point would be that the relevant person would
have to establish why the steps taken met the standards and respond
to any areas of challenge where the regulator identified that
other steps could have been taken. This would shift, in a significant
way, the nature of the investigation and would in itself have
an important signalling effect.
She emphasised that such a change would not short-circuit
the requirements of a full investigation:
In order to meet requirements of fairness it
would be necessary to ensure that the presumption could actually
be rebutted. Although it should enable investigations to be more
focussed and limit the areas on which expert evidence is required
it would not avoid the need for detailed and complex consideration
of the steps taken by the relevant individuals.
She noted that such a change would almost certainly
require legislative change to give the regulators a clear foundation
for imposing "evidential burdens" on those potentially
subject to disciplinary action.[1893]
INTERIM PROHIBITION
1159. A second proposal for reform made by the FSA
related to the period pending the completion of an investigation:
a regulatory power to prohibit an individual
on an interim basis from performing controlled functions [...]
would be a significant tool which would allow the regulators to
act swiftly to counter any threat to their objectives by an approved
person remaining in position pending an appeal.[1894]
Such a power has parallels with other professions
such as medicine, where doctors can be suspended during an investigation
in order to limit the risk of harm to patients.[1895]
1160. In making the case for a power of interim prohibition,
Tracey McDermott referred to the time taken for the full enforcement
process, citing an instance relating to the director of a stock-broking
company:
Even if you take the time from [...] the end
of the FSA's internal decision making through the tribunal, we
have a case when it took one individual [...] two years and 11
months to go through that. Until that process is finished, he
is not prohibited. That is an extreme example, but most cases
take well over a year and usually closer to two years in the tribunal.[1896]
She argued that such delays could mean that an individual
could continue to work in the industry while there were significant
concerns of which the public might be unaware:
Many of them may not be working in the industry
any more, and many employers will dismiss them at least at the
end of our decision-making process, if not before, but as they
are not on the register as prohibited, the warnings to the public
who may deal with them are not there. That is the key issue: there
can be an extended period when someone we have serious concerns
around is still on the register.[1897]
1161. The FSA acknowledged the need for appropriate
safeguards to ensure that an interim prohibition power would be
properly used:
· Primary legislation would need to set
out an appropriate threshold that the regulators would need to
satisfy before it could exercise this power;
· The power could be exercised through the
Supervisory Notice process which would give the subject an immediate
right to refer the matter to the Upper Tribunal as well as the
right to make representations to the regulator.[1898]
1162. Andrew Bailey thought that interim prohibition
"would need to be carefully drafted to ensure the rights
of the individuals are adequately protected, and I think could
be quite difficult to put in to effect for the same reasons".[1899]
The BBA also noted that appropriate safeguards and compensation
arrangements would be required:
We see a case though for the circumstances in
which such a facility could be utilised being well defined and
the application of suitable safeguards including a high expectation
that full prohibition will be the outcome once due process has
been completed. We also see grounds for compensation in the event
that the regulatory action subsequently proves unjustified.[1900]
CHANGING THE LIMITATION PERIOD
1163. Under current legislation, for a regulator
to be able to take action against an Approved Person it must issue
a warning notice against them within three years, starting from
the date that the regulator becomes aware of the offence.[1901]
The FSA proposed that this limitation period be extended:
three years is likely to be insufficient time
for the PRA or FCA to determine whether there is a case to answer
in complex cases, some of which may require information from overseas.
This can include action taken against senior managers of large
firms where the regulators will need to establish personal culpability
on the part of those managers for their actions or omissions.
Such cases often lead to the regulators having to obtain and process
significant volumes of information, which can take a great deal
of time.
The time limit can mean that the investigation
into the individual's conduct is truncated, making it more difficult
for the regulator to pursue its case. In extreme circumstances,
this can mean that if the regulator is not in a position to issue
a warning notice within the three year time period then no action
can be taken against the individual concerned. [1902]
The FSA noted that no time limits apply to market
abuse cases, or to disciplinary action against firms. They queried
why senior managers, responsible for the conduct of their firms,
"should benefit from a limitation period for action particularly
when cases are often more difficult to bring against individuals
than they are to bring against firms".[1903]
The FSA stated that the limit:
has informed our decision in several cases not
to commence an investigation where the appropriate outcome would
have been a disciplinary sanction but not a prohibition. In other
cases, we frequently have to make difficult decisions to streamline
or limit our investigation in order to ensure that we meet the
time limit - this creates litigation risk and means that we may
not put forward as strong a case as we might otherwise be able
to.[1904]
The FSA also pointed out that holding senior managers
more to account will result in regulators taking on "increasingly
complex cases which will take time to investigate to the standard
required".[1905]
1164. The BBA opposed an extension, arguing that
a three year limit "should be viewed as providing suitable
discipline upon the regulatory authorities to progress an action
reasonably". They went on to argue that "if anything
the timeframe should be shortened", on the grounds that this
would ensure enforcement action concluded more rapidly and because
of "the significant impact such action can have over the
livelihood of Approved Persons and their families, in circumstances
where some will not be found to have been ultimately culpable".[1906]
Civil sanctions and powers of
enforcement over individuals
WHY ACTION IS NEEDED
1165. Faced with the most widespread and damaging
failure of the banking industry in the UK's modern history, the
regulatory authorities seemed almost powerless to bring sanctions
against those who presided over massive failures within banks.
Public concern about this apparent powerlessness is both understandable
and justified, but the need for a more effective enforcement regime
does and should not arise from a public demand for retribution.
It is needed to correct the unbalanced incentives that pervade
banking. These unbalanced incentives have contributed greatly
to poor standards. Redress of these is needed not merely as a
step to restoring public confidence, but also to create a new
incentive for bankers to do the right thing, and particularly
for those in the most senior positions fully to fulfil their duties
and to supervise the actions of those below them.
1166. Later in this chapter, we consider the case
for a new criminal offence specific to the banking sector. However,
in the context of civil sanctions, the Commission has not heard
the case advanced for a range of penalties which go beyond those
already available. The problems, and the proposals for change
which follow, reflect the fact that the sanctions already available
to the regulators, such as very large fines and permanent disbarment
from the UK financial services sector, have so rarely been applied.
PAVING THE WAY FOR A NEW APPROACH
1167. The foundations for a new approach are laid
in the Commission's recommendations in Chapter 6. In that chapter
we recommended that a successor to the Statement of Principles
in the form of Banking Standards Rules designed to ensure that
the full range of enforcement tools could be applied to a wider
range of individuals working in banking. This would be supported
by a system of licensing administered by individual banks, under
the supervision of the regulators, to ensure that all those subject
to the Banking Standards Rules were aware of their obligations.
This approach would prevent one barrier to effective enforcement
that we identified, namely that regulators lacked effective powers
to sanction misconduct by bankers who were not Approved Persons.
1168. In Chapter 6 we made another proposal designed
to address one of the most dismaying weaknesses that we have identified,
whereby a combination of collective decision-making, complex decision-making
structures and extensive delegation create a situation in which
the most senior individuals at the highest level within banks,
like Macavity, cannot be held responsible for even the most widespread
and flagrant of failures. We proposed the establishment of a Senior
Persons Regime to replace the Approved Persons Regime in respect
of banks, whereby all key responsibilities within a bank would
be assigned to a specific, senior individual. Even where certain
activities in pursuance of the responsibility were either delegated
or subject to collective decision-making that responsibility would
remain with the designated individual. The Senior Persons Regime
would be designed to ensure that, in future, it should be possible
to identify those responsible for failures more clearly and more
fairly. This should provide a stronger basis for the use of enforcement
powers in respect of individuals.
1169. These changes would also need to be accompanied
by a change of approach from the regulators. In respect of insider
trading, the increased effectiveness of criminal enforcement owes
less to changes in the law than changes in the approach of the
regulators, in particular to a realisation that a large-scale
commitment of time, effort and resources to seeing cases through
is both necessary and worthwhile. The same determination has not
been so apparent in enforcement action relating to bank failures,
LIBOR or mis-selling. At the root of this failure has been what
the regulators themselves have characterised as a bottom-up approach.
A key to success in the future is likely to be a top-down approach,
drawing on the clarity that the Senior Persons Regime is intended
to provide about who is exercising responsibility at the highest
levels, what they knew and did, and what they reasonably could
and should have known and done.
TAKING RESPONSIBILITY
1170. The proposal to create a rebuttable presumption
that directors of failed banks should not work in such a role
again is a well-intentioned measure for addressing the difficulty
of proving individual culpability, but it is a blunt instrument
with several weaknesses. The blanket imposition of a rebuttable
presumption risks having perverse and unfair effects; it will
act as a disincentive for new directors to come to the aid of
a struggling bank; it could encourage power structures in which
key decision-makers eschewed the title and responsibility of director.
Furthermore, the Government proposal as it stands is too narrow
to be of significant use. Notably, it would probably not have
been triggered in most of the recent scandals ranging from the
bail-outs of RBS and HBOS to PPI mis-selling and LIBOR manipulation.
We have concluded that a more effective approach than the blanket
imposition of a rebuttable presumption would be one which reverses
the burden of proof in a wider, but clearly defined, set of circumstances
covering both prudential and conduct failures.
1171. Greater individual accountability needs
to be built into the FCA's and PRA's processes. The Commission
recommends that legislation be introduced to provide that, when
certain conditions are met, the regulators should be able to impose
the full range of civil sanctions, including a ban, on an individual
unless that person can demonstrate that he or she took all reasonable
steps to prevent or mitigate the effects of a specified failing.
The first condition would be that the bank for whom the individual
worked or is working has been the subject of successful enforcement
action which has been settled or upheld by tribunal. The second
condition is that the regulator can demonstrate that the individual
held responsibilities assigned in the Senior Persons Regime which
are directly relevant to the subject of the enforcement action.
1172. The FSA made the case for a power to impose
an interim prohibition on individuals against whom enforcement
action has been commenced. The case made by the FSA was not clearly
targeted on banks. An interim prohibition could cause serious
harm if used unfairly or arbitrarily. In the case of very small
financial firms in particular, having a key individual prohibited
for even a short period might cause irreparable damage to their
reputation and see clients leave never to return, even though
the case might be dropped or not upheld. Given that the FSA has
only rarely taken public enforcement action against senior individuals
in large banks, it may be that the cases through which they have
identified the need for a suspension power involve smaller firms
or non-bank financial institutions. Based on our consideration
of issues relating to banking standards, the Commission has concluded
that the case has not been made for providing the regulators with
a general power to impose interim prohibitions on individuals
carrying out controlled functions in the financial services sector.
1173. The current time limit of three years between
the regulator learning of an offence and taking enforcement action
against individuals could act as a constraint on the regulators'
ability to build credible cases. This could be a particular barrier
to the regulators' ability to place greater priority on pursuing
senior individuals in large and complex banks, as we are recommending.
In view of our proposal that enforcement action against a firm
must be completed before the regulator can deploy the new tool
of a reversed burden of proof, more than three years may well
be required to complete this process and make the new tool usable.
The Commission recommends that the Government should address this
problem by allowing for an extension of the limitation period
in certain circumstances. However, swift enforcement action should
be the priority. Regulators should be required retrospectively
to provide a full explanation for the need to go beyond three
years. They can expect to be challenged by Parliament if it were
to transpire that they were using this measure as an excuse for
delaying enforcement action.
A new criminal offence?
A NEW OFFENCE: THE NEED
1174. A number of 'financial crimes' already exist
relating to money laundering, insider dealing, market abuse, misleading
statements and fraud or dishonesty. The Serious Fraud Office,
for example, is able to investigate and prosecute investment fraud,
corporate fraud and public sector fraud under the Fraud Act 2006,
the Theft Act 1968, the Proceeds of Crime Act 2002 and the Money
Laundering Regulations 2007. Individuals are prosecuted under
these and other powers. Eleven people were sent to prison in 2012
for insider trading as a result of FSA enforcement actions. The
FSA confirmed that a number of individuals connected with LIBOR
manipulation were being investigated by the SFO in relation to
potential criminal offences.[1907]
However, the types of offence which give rise to criminal sanctions
at present tend mostly to involve individuals or small groups,
and do not cover the apparent mismanagement and failure of control
by senior bankers which has been at the heart of the recent concerns
about standards and culture in banking.
1175. There is a widespread view, reflected in some
of our evidence, not only that more bankers implicated in recent
failures should have been sanctioned, but also that these sanctions
should have included criminal sanctions. Joris Luyendijk summarised
this when he said:
the rules themselves are deficient. Otherwise,
after the crisis of 2008, a lot of people would have gone to jail.
The fact that nobody went to jail after such a breakdown means
that there is something wrong with the rules themselves.[1908]
The Financial Services Consumer Panel stated that
it "strongly supports tougher and more effective criminal
sanctions for directors of UK banks—and of other financial
institutions—in appropriately defined circumstances".[1909]
The FSA acknowledged that, in cases where the option of criminal
sanctions existed, there were benefits to pursuing that route
for its deterrent effect:
One element of the FSA's credible deterrence
strategy over the past few years has been to pursue criminal prosecutions
for insider dealing and market manipulation in appropriate cases
notwithstanding that the FSA also has the ability to bring regulatory
cases for market abuse under FSMA. This is based on the belief
that the threat of a custodial sentence is a greater deterrent
than the threat of a financial penalty.[1910]
THE TREASURY CONSULTATION
1176. Following the FSA's report into the failure
of RBS in December 2011, the Government consulted on proposals
to extend the current criminal regime by creating a new offence
geared specifically to the circumstances of the banking industry.
In July 2012, the Treasury published a consultation on creating
a new criminal offence of serious misconduct in the management
of a bank. The Treasury's proposal for a new offence of managerial
misconduct in a bank considered four main possibilities for the
kind of managerial misconduct by bank directors and senior management
that might be subject to new criminal sanctions:
· Strict liability—being a director
at the relevant time of a failed bank;
· Negligence—failure in a duty of
care which leads to a reasonably foreseeable outcome;
· Incompetence—failure to act in accordance
with professional standards or practices;
· Recklessness—failure to have sufficient
regard for the dangers posed to the safety and soundness of the
firm concerned or for the possibility that there were such dangers.[1911]
THE STANDARD FOR A NEW OFFENCE
1177. Strict liability for directors of failed banks
would be similar to the rebuttable presumption examined earlier,
in that it would involve an automatic mechanism. However, it would
go a big step further because it would remove the right to a defence
and make being a director of a failed bank itself a criminal offence.
It might create stronger incentives to avoid failure, but it might
also recreate, in magnified form, some of the problems and perverse
incentives already identified with the rebuttable presumption,
such as the incentive to jump ship ahead of failure and the difficulty
of attracting directors to a bank that is facing difficulties.
The Treasury consultation recognised that imposing severe criminal
penalties on individuals who "were not plainly at fault would
be controversial".[1912]
Professors Black and Kershaw observed:
In other areas of regulation where there are
strict liability offences, for example in health and safety or
environmental regulation, the result has been that the sanctions
imposed have often been negligible. This weakens the deterrent
effect and diminishes the stigma attached to the criminal liability
standard.[1913]
The FSA echoed this view:
custodial sentences may be less likely if the
offence of mismanagement were a strict liability offence, due
to the absence of the element of personal culpability.[1914]
1178. Some witnesses argued that neither negligence
nor incompetence were sufficiently rigorous standards to support
criminal convictions. Professors Black and Kershaw referred to
a Law Commission recommendation that
criminal liability should only be imposed where
there was a 'harm-related moral failure' and not simply to act
as a deterrent. Individuals should not be subject to criminal
liability unless their wrongdoing was knowing or reckless.[1915]
Professors Black and Kershaw also noted that, even
if a criminal offence using these standards were created, in practice
courts would be likely to be unwilling to impose meaningful penalties
as a result.[1916]
They concluded that the preferable standard for imposing criminal
sanctions would be recklessness, which was a more established
and tested basis for judging an offence in English law.[1917]
1179. Tracey McDermott told us:
A criminal offence will have a real deterrent
impact and satisfy public concerns only if it can be practicably
prosecuted. There are some big issues of fairness and individual
rights in relation to criminalising bad business decisions. There
are various stages along the spectrum in relation to business
decisions, but it is a very big step to say that we should criminalise
incompetence or negligence. It is a much wider question than simply
whether the public are angry about this.[1918]
She went on to say:
Recklessness is much more familiar to the criminal
law, so it is less of an issue. You can be prosecuted for recklessness.[1919]
PRACTICAL CONSIDERATIONS
1180. In its consultation document of July 2012,
the Treasury identified a number of practical considerations to
be considered in securing criminal convictions:
· The necessity to establish causation;
· The need to decide who to prosecute;
· The complexity and range of the material
that would to be examined, so that "investigations would
be extremely costly, and result in prosecutions that could run
into years rather than months".[1920]
As discussed earlier in this chapter, it is the difficulty
of proving individual culpability which already represents the
greatest barrier to imposing individual civil sanctions. The FSA
pointed out the main obstacle to the successful use of criminal
sanctions:
For a criminal case the evidential burden will
be even higher. There is, therefore, a risk that a criminal offence
of mismanagement however constructed would rarely be prosecuted
and consequently lose its deterrent value through its lack of
use.[1921]
Tracey McDermott added:
we invested a significant amount of time and
resource into the investigations we did into the failed banks,
but we were not able to establish the evidence necessary to take
regulatory action, so even if there had been a criminal offence
on the statute book, that would not have got us there [...] a
note of caution has to be sounded that this will not be an easy
offence to prove [...] If the evidence is not there, it will not
be there for criminal cases in the same way as it won't be there
for regulatory cases. You can debate whether we got that call
right or wrong, but ultimately the evidential standard is higher
in criminal cases rather than lower.[1922]
To these practical considerations might be added
another, namely that the possibility of criminal action, with
the associated risk of prejudice, might greatly inhibit the publication
of information about a particular sets of problems within a bank
until such time as it is a decision is taken on whether the criminal
path will be followed.
A PUNISHMENT THAT FITS THE CRIME
1181. In consulting on a possible criminal sanction
for a criminal offence last year, the Treasury made no reference
to the possible penalties for commission of the offence.[1923]
Wide-ranging civil penalties, including large fines and effective
denial of livelihood, are already available to the regulator.
It might therefore be thought that the penalties for any criminal
offence might need to be significantly different to make it worthwhile
to seek to overcome the practical barriers facing an attempt to
secure a conviction, unless it were felt that the stigma associated
with criminal conviction alone warranted such action. Sir Donald
Cruickshank argued for severe penalties to be available for an
offence: "the penalties for individuals would be unlimited
fines and up to 10 years in jail".[1924]
Gregory Mitchell QC argued that prison would not be an appropriate
response to many of the failures seen in banking:
The wrongdoing that one has seen in the various
reports to what led up to the crisis appears to be largely a failure
on the part of people who should have known better to exercise
a greater degree of care and skill, so the culpability essentially
appears to be that of negligence. In our system, people do not
generally get sent to prison for negligence.[1925]
By way of contrast, the maximum sentence for a director
found guilty of consent, contrivance or neglect where a company
has been convicted of health and safety offences is an unlimited
fine and to a prison sentence of up to two years, even in cases
where that has led to someone's death.[1926]
CONCLUSIONS AND RECOMMENDATIONS
1182. The Commission has concluded that there
is a strong case in principle for a new criminal offence of reckless
misconduct in the management of a bank. While all concerned should
be under no illusions about the difficulties of securing a conviction
for such a new offence, the fact that recklessness in carrying
out professional responsibilities carries a risk of a criminal
conviction and a prison sentence would give pause for thought
to the senior officers of UK banks. The Commission recommends
that the offence be limited to individuals covered by the new
Senior Persons Regime, so that those concerned could have no doubts
about their potential criminal liability.
1183. The Commission would expect this offence
to be pursued in cases involving only the most serious of failings,
such as where a bank failed with substantial costs to the taxpayer,
lasting consequences for the financial system, or serious harm
to customers. The credibility of such an offence would also depend
on it being used only in the most serious cases, and not predominantly
against smaller operators where proving responsibility is easier,
but the harm is much lower. Little purpose would be served by
the creation of a criminal offence if the only punishment available
to the courts were the imposition of a fine, because substantial
fines can already be levied as a civil sanction with a lower burden
of proof. We would expect the determination of the available sentences
to have regard to relevant comparable offences.
1184. It is inappropriate that those found guilty
of criminal recklessness should continue to benefit from remuneration
obtained as a consequence of the reckless behaviour. Fines may
not claw back the full amount. The Commission recommends that
the Government bring forward, after consultation with the regulators
and no later than the end of 2013, proposals for additional provisions
for civil recovery from individuals who have been found guilty
of reckless mismanagement of a bank.
1185. The Commission's support in principle for
a new criminal offence is subject to an important reservation.
Experience suggests that, where there is the possibility of a
criminal prosecution, public disclosure of failings might be greatly
limited until the criminal case is finished. It is important to
expedite any civil sanctions against individuals and to publish
information into banking failures in a timely manner. The Commission
recommends that, following a successful civil enforcement action
against a bank, the decision on whether to bring criminal proceedings
against relevant Senior Persons must be taken within twelve months.
Enforcement decision-making
THE CHALLENGE
1186. In the previous chapter we considered the powers
of enforcement and sanction that are and should be available to
regulators. Even when the powers are changed in accordance with
those recommendations, there will remain four challenges for the
new regulators in the field of enforcement:
· To ensure that a higher priority for enforcement
action even when it is not an easy or quick option is embedded,
so that it can survive a future era when attitudes to bankers
are less severe;
· To reflect the differences between the
demands relating to enforcement in the field of banking compared
with other areas of financial services, reflecting the particular
combination of systemic risk and social utility that is unique
to banking, which in turn should lead to the development of enforcement
powers specific to the banking sector in accordance with our recommendations;
· To retain the independence and separateness
of the enforcement function bearing in mind the high level of
engagement by real-time supervisors with the decision-making processes
of banks so that the prospect of ex post enforcement does not
become a replacement for effective supervisory intervention as
problems emerge;
· To secure effective coordination between
the enforcement processes of the prudential and conduct regulators.
In this section we consider the current arrangements
and make recommendations designed to overcome these challenges.
FCA ENFORCEMENT AND THE REGULATORY
DECISIONS COMMITTEE
1187. Tracey McDermott, Director of the Enforcement
and Financial Crime Division of the FSA, told us that the FSA
had still not solved the problem of ensuring that senior figures
were properly subject to the enforcement process:
The focus on senior management is something that
we have talked about a lot in the FSA but we have found it very
difficult to bring home the responsibility, particularly in larger
firms, to those who are further up because of confused lines of
accountability and because of confused responsibility.[1927]
On enforcement's interaction with supervisors, Tracey
McDermott stated:
The FSA has been very good at ensuring that things
do not get swept under the carpet. One of the things that an enforcement
investigation has to do is to ensure that factors that are in
favour of the individual or the firm are taken into account as
well. Inevitably, where there has been interaction with supervision,
which the firm thinks is in its favour, that will be part of it.
In terms of how we communicate those lessons internally, it is
very much through going back to the head of department or the
director of the relevant area in supervision to say, "This
is what has come out in this case. We need to think about whether
that is just an individual making a mistake or whether it is something
about our process and system that does not work.[1928]
1188. Within the FSA and now the FCA, the enforcement
process generally begins with an internal referral to the Enforcement
and Financial Crime Division for investigation. Staff from the
referring department and the Enforcement and Financial Crime Division
will work together to reach an initial decision. If a referral
is made to the Enforcement and Financial Crime Division, investigators
are appointed and scoping discussions with the firm or individual
begin. At the end of the investigation stage a preliminary findings
letter, usually together with a Preliminary Investigation Report
(PIR), is sent by the Enforcement and Financial Crime Division
to the person under investigation. If the Enforcement and Financial
Crime Division decides to proceed, the matter is submitted to
the decision maker (in most enforcement actions this will be the
Regulatory Decisions Committee (RDC)).
1189. The RDC is a committee of the FCA Board and
is answerable to the FCA Board. It reports to the Board via the
Risk sub-committee, with a direct right of access to the Chairman
and the whole Board in the event of any major difficulties. The
RDC also has its own legal advisers and support staff. All RDC
staff are separate from the FCA staff involved in conducting investigations
and making recommendations to the RDC. The procedures of the RDC
are designed to ensure that there is an appropriate degree of
separation from the enforcement case team. All substantive communications
between the Enforcement and Financial Crime Division case team
and the RDC must be disclosed to the firm or individual. The RDC
has its own dedicated legal function. Therefore, the RDC does
not take advice from lawyers in the Enforcement and Financial
Crime Division. After the giving of a warning notice or first
supervisory notice there cannot be any subsequent meeting or discussions
between the Enforcement and Financial Crime Division case team
and the RDC while the case is still ongoing without the firm or
individual not being present or otherwise having the opportunity
to respond.[1929]
1190. The RDC is outside the FCA's management structure
and, apart from the Chairman, none of its members is an FCA employee.
The members of the RDC are appointed by the FCA Board for fixed
periods. In April 2013, the RDC comprised an Acting Chairman,
two Deputy Chairmen and eight other members. Their biographies
on the FCA website indicate that three are qualified lawyers,
including one with judicial experience. The other members have
backgrounds in audit, consultancy, client management, the insurance
industry and the actuarial profession. The RDC will not seek to
invite a member to join a particular panel to consider a case
where that member has a conflict of interest and RDC members who
have potential conflicts of interest are required to disclose
them. The FCA Board may remove members of the RDC, but only on
grounds of misconduct or incapacity. The members' function is
to represent the public interest and the FSA has previously indicated
that the intention is that the RDC's membership includes current
and retired practitioners with financial services industry skills
and knowledge as well as non-practitioners. In April 2013 there
was no member of the RDC who did not have either a legal background
or a background in the financial services industry.[1930]
PRA ENFORCEMENT
1191. The PRA has stated that its "preference
will be to use its powers to secure ex ante, remedial action"
which if successful "should mean that enforcement actions
are rare". [1931]
However, it does have a set of enforcement powers analogous to
those of the FCA for breaches of regulatory requirements. Graham
Nicholson, Chief Legal Advisor at the Bank of England, told us:
I see enforcement, in the context of the PRA,
as being closely related to supervision. I think you will see
from our supervision approach document published in the autumn
that our focus is very much on accountability, on the management
of risks, and the duty of directors, not simply to look at their
bottom line but to ensure that they run a safe and sound institution.[1932]
1192. In a consultation on PRA supervisory and enforcement
powers, the FSA stated:
A key element of the PRA's regulatory approach
will be the personal responsibility of a PRA-authorised firm's
board of directors and senior management to ensure that the firm
is run prudently.
Where a PRA-authorised firm, Approved Person
(or a person performing a controlled function without approval),
or a qualifying parent undertaking acts in breach of PRA requirements,
a financial penalty can act as a direct and quantifiable punishment
for the breach. Further, it may provide an incentive to other
firms and persons to effect behavioural changes, as well as those
who are subject to enforcement action by the PRA. Responding to
actual breaches of the PRA's requirements, as well as dis-incentivising
future breaches, may therefore ultimately aid the PRA in advancing
its general objective.[1933]
1193. The most obvious cases for PRA enforcement
will be where a bank has failed and there is evidence of mismanagement.
In our Report on HBOS we concluded that simply suspending the
Approved Persons status of senior managers in respect of their
HBOS roles was clearly inadequate, and that the regulator should
consider removing their right to operate within the financial
services sector as a whole. In cases where there have been serious
prudential problems that have fallen short of failure, the PRA
may have an incentive to rely on supervisory actions and informal
pressure to replace key people rather than pursuing formal enforcement
action against responsible individuals, for fear of destabilising
the firm. Given that the number of prudential enforcement cases
may well be influenced by the economic cycle, there is also an
interesting question about how the PRA will resource its enforcement
team and maintain the necessary expertise over time, in comparison
to the FCA where misconduct cases might be expected to be less
cyclical. The Bank of England said:
There will be cases that have a bearing on "safety
and soundness" of an institution and the competence or integrity
of its senior management which the PRA will be keen to pursue,
but which may not give rise to issues of concern to the FCA; the
PRA would pursue such cases on its own. The PRA will have its
own enforcement capability to enable it to act on its own where
this is necessary, drawing on external expertise as required.[1934]
COOPERATION BETWEEN THE REGULATORS
1194. The FSA's Approved Persons regime and enforcement
powers have been split between the FCA and the PRA, and the two
bodies will have to coordinate how the regime operates given the
potential for overlap or conflicts.[1935]
The FCA has inherited the majority of the staff currently working
on enforcement, including its current head of division Tracey
McDermott. Graham Nicholson told us that the PRA will be reliant
to some extent on the FCA's resources and experience.[1936]
He assured us that the PRA and FCA "have worked-up detail
below the level of the rather broad MOU, particularly in relation
to enforcement actions",[1937]
although the effectiveness of these arrangements has yet to be
tested over time. The MoU in question sets out that:
Senior official from the FCA and the PRA responsible
for enforcement and legal interaction respectively will meet quarterly
to discuss potential and ongoing enforcement actions against relevant
firms [...] Any significant public communications related to the
general approach to enforcement or related policy that may materially
affect the other's objectives will be notified to the other regulator.[1938]
CONCLUSIONS AND RECOMMENDATIONS
1195. In established professions, a number of steps
are taken to separate disciplinary functions from supervision
of professional development. In the legal profession, for example,
the Solicitors Disciplinary Tribunal is "totally separate"
from the Solicitors Regulation Authority (SRA) and has a mixture
of lay and professional members. The SRA has no say in its composition;
it is in effect a prosecutor before a tribunal.[1939]
Sir Peter Rubin, who chairs the General Medical Council, described
similar recent developments in the medical profession:
Following the Shipman inquiry, it was pointed
out to the GMC by Dame Janet Smith that our previous arrangements,
whereby we were the police, the Crown Prosecution Service, the
judge, the jury and everything else, was incompatible with Article
6 of the Human Rights Act. Essentially, no one should be a judge
in their own cause. So last year we hived off our adjudication
processes, by which cases against doctors are heard, to a separate
body in a separate building. It is funded by us but, crucially,
it is run by a judge. They now run the adjudication process. The
final bit of the jigsaw is we are asking Parliament to give us
the power to appeal when we do not agree with one of its findings.
That would really get the complete separation going.[1940]
1196. One possible approach to resolving the tensions
caused by having supervision and enforcement side-by-side within
the same organisation could be to move enforcement powers out
of the FCA and PRA to another body. Such a structure could also
be the eventual outcome of establishing a new standards body with
enforcement powers, such as the Banking Standards Review Council
proposed by Barclays and the BBA.[1941]
However, we concluded earlier in this Report that the industry
is a long way from being at the stage where the assumption of
disciplinary powers by an autonomous, self-governing professional
body or a distinct sister body of such an organisation would be
appropriate.
1197. A single statutory body with a sole focus on
enforcement could provide a number of benefits. It could help
address the possibility of conflict or missed opportunities from
divided responsibilities between the FCA and PRA. It should be
able to structure itself in a way which better delivers effective
enforcement, rather than having to fit into the structure and
staff policies of a broader regulator. It would have clearer objectives
and accountability. It could address the risk of conflicts of
interest with supervisors and could find it easier to initiate
investigations without a referral from supervisors. It could free
the remaining supervisory body to focus on day-to-day supervision
and risk mitigation, and could generate some useful accountability
and feedback channels that could force the supervisors to become
more effective. A new enforcement body would represent more of
a clean break with the past and assist with more radical changes
to the Approved Persons regime.
1198. However, there would also be significant obstacles
to such a move, not least because it would generate a new regulatory
body which could be a source of confusion and conflict. An independent
enforcement body would still be reliant on supervisors for many
referrals, which could result in fewer cases if there were any
problems cooperating with the FCA or PRA. Careful consideration
would need to be given to what the scope of a new body would be,
in particular whether it should take both individual and firm-level
enforcement and whether it should cover the whole financial services
sector or just banking.
1199. There is an inherent tension between the
role of real-time regulators and the enforcement function, which
can involve reaching judgements about matters in which supervisors
were involved at the time. Regulators are also focused on the
big picture, such as maintaining financial stability. Greater
priority needs to be placed on the role of enforcement, with adequate
resources devoted to this function and leadership with a willingness
to pursue even the difficult cases, often involving the larger
and more powerful players, in order to build up a credible deterrent
effect.
1200. A higher priority for the enforcement function
could be achieved by replacing the Enforcement and Financial Crime
Division of the FCA with a separate statutory body, which might
also assume the enforcement functions of the PRA. However, we
have concluded that to propose this change now would involve a
new organisational upheaval for the financial services regulators,
almost immediately after a major set of organisational changes
have come into effect.
1201. We have, however, concluded that the body
responsible for making enforcement decisions arising from the
work of the Enforcement and Financial Crime Division of the FCA,
namely the Regulatory Decisions Committee, is not best-suited
to the specific enforcement needs of the banking sector. At the
moment, the Committee's composition seems to offer the worst of
all worlds; it appears to contain neither a depth of banking expertise
nor a clear lay element separate from banking and allied financial
services sectors.
1202. The Commission recommends the creation of
an autonomous body to assume the decision-making role of the Regulatory
Decisions Committee for enforcement in relation to the banking
sector. The body should have a lay (non-banking or financial services
professional) majority, but should also contain several members
with extensive and senior banking experience. The body should
be chaired by someone with senior judicial experience. The body
should have statutory autonomy within the FCA. It should be appointed
by agreement between the boards of the FCA and PRA. The body should
also assume responsibility for decision-making in respect of enforcement
action brought by or under the auspices of the PRA. The new body
should publish a separate annual report on its activity and the
lessons for banks which emerge from its decisions, and the chairman
should appear before Parliament, probably the Treasury Committee,
to discuss this report. The Commission further recommends that
the FCA and the PRA be required to publish a joint review of the
working of the enforcement arrangements for the banking sector
in 2018. This should, as part of its work, consider whether a
separate statutory body for enforcement as a whole has merit.
1820 "FSA publishes censure against Bank of Scotland
plc in respect of failings within its Corporate Division between
January 2006 and December 2008", FSA press note FSA/PN/024/2012,
9 March 2012 Back
1821
"Santander fined £1.5 million for failing to clarify
FSCS cover on structured products", FSA press release FSA/PN/017/2012,
20 February 2012 Back
1822
"Lloyds Banking group fined £4.3 million for delayed
PPI redress payments", FSA press release FSA/PN/017/2013,
19 February 2013 Back
1823
UBS, FSA Final Notice, 8 February 2013 Back
1824
JQ 160 Back
1825
JQ 163 Back
1826
KQ 771 Back
1827
"Banks face £10bn bill over swaps mis-selling
scandal", The Telegraph, 1 February 2013, www.telegraph.co.uk Back
1828
Qq 2245, 2252 Back
1829
Q 2306 Back
1830
Q 2317 Back
1831
JQ 191 Back
1832
EQ 57 Back
1833
Q 2308 Back
1834
Ev 1025 Back
1835
"HSBC Announces Settlements with Authorities", HSBC
announcement, 11 December 2012 Back
1836
"Standard Chartered pays $327m to settle Iran fine",
The Telegraph,10 December 2012 Back
1837
Ev 1052 Back
1838
Q 2308 Back
1839
Ev 1052 Back
1840
Ibid. Back
1841
PRA and FSA Handbook, DEPP 6.5A.3, www.fsahandbook.info Back
1842
Barclays, FSA final notice, 27 June 2012, para 208 Back
1843
PRA and FSA Handbook, DEPP 6.5A.4, www.fsahandbook.info Back
1844
PRA and FSA Handbook, DEPP 6.5A.5, www.fsahandbook.info Back
1845
"RBS reaches LIBOR settlements" RBS statement, 6 February
2013, www.rbs.co.uk Back
1846
Qq 4198-4199 Back
1847
Qq 4200-4207 Back
1848
Treasury Committee, Second Report of Session 2012-13, Fixing
LIBOR: some preliminary findings, HC 481,para 16 Back
1849
Q 2286 Back
1850
Q 172 Back
1851
Fourth Report, para 129 Back
1852
See Paragraph 198. Back
1853
FSA Board Report, The Failure of the Royal Bank of Scotland,
December 2011, p 9 Back
1854
Fourth Report, para 136 Back
1855
Q 172 Back
1856
Q1841 Back
1857
"Where are they now: What became of the18 Royal Bank of Scotland
directors who oversaw its demise?", Scotland on Sunday,
11 December 2011 Back
1858
Ev 1474 Back
1859
HM Courts and Tribunals Service, Tax and Chancery (Upper Tribunal)
guidance, www.justice.gov.uk Back
1860
PRA and FSA Handbook, FSA Handbook: Enforcement Guide,
Chapter 9.9, www.fsahandbook.info Back
1861
JQ 218 Back
1862
Q 2626 Back
1863
Q 3034 Back
1864
Q 2992 Back
1865
FSA, APER 3.3 Factors relating to Statements of Principle 5 to
7, www.fshandbook.info Back
1866
Upper Tribunal (Tax and Chancery Chamber), Decision on John
Pottage and the Financial Services Authority, FS/2010/33,
20 April 2012, www.tribunals.gov.uk Back
1867
Q 2626 Back
1869 1868 Q 3021 Back
Back
1870
Q 3036 Back
1871
Q 2635 Back
1872
Q 2641 Back
1873
Q2263 Back
1874
Q 4496 Back
1875
Qq 3005, 3007 Back
1876
Q 4497 Back
1877
FSA Board Report, The Failure of the Royal Bank of Scotland,
December 2011, p 9 Back
1878
Q 4495 Back
1879
HM Treasury, Sanctions for the Directors of Failed Banks,
3 July 2012, para 3.11 Back
1880
Ev 1477 Back
1881
Q 4495 Back
1882
Ev 1071 Back
1883
Ev 1586 Back
1884
Ev 1192 Back
1885
Ev 1069 Back
1886
Ev 1193 Back
1887
Ev 1499 Back
1888
Ev 1189 Back
1889
Q 4499 Back
1890
Ev 1500 Back
1891
Ev 1499 Back
1892
Q 3578 Back
1893
Ev 1057 Back
1894
Ev 1061 Back
1895
GMC, Imposing Interim Orders: Guidance for the interim orders
panel and the fitness to practise panel, 14 February 2012,
www.gmc-uk.org Back
1896
Q 3038 Back
1897
Ibid. Back
1898
Ev 1474. Section 133(3) of FSMA already allows the Tribunal Procedural
Rules to make provision for suspending a decision of the FCA/PRA
pending determination of the reference or appeal. Back
1899
Ev 1499 Back
1900
Ev 876 Back
1901
Financial Services and Markets Act 2000, Section 66(4) Back
1902
Ev 1045 Back
1903
Ev 1061 Back
1904
Ev 1479 Back
1905
Ibid. Back
1906
Ev 876 Back
1907
Q 2312 Back
1908
DQ 95 Back
1909
Ev 1069 Back
1910
Ev 1476 Back
1911
HM Treasury, Sanctions for the Directors of Failed Banks,
3 July 2012, para 4.3 Back
1912
Ibid., para 4.4 Back
1913
Ev 821 Back
1914
Ev 1476 Back
1915
Ev 822 Back
1916
Ibid. Back
1917
Qq 2628, 2645, 2647, 2820 Back
1918
Q 3034 Back
1919
Q 3035 Back
1920
HM Treasury, Sanctions for the Directors of Failed Banks,
3 July 2012, paras 4.14-4.17 Back
1921
Ev 1475 Back
1922
Q 3035 Back
1923
HM Treasury, Sanctions for the Directors of Failed Banks,
3 July 2012 Back
1924
Ev 982 Back
1925
Q 2627 Back
1926
Health and Safety (Offences) Act 2008 Back
1927
Q 2295 Back
1928
Q 3051 Back
1929
Morgan Lewis, A summary of the Financial Services Authority's
enforcement procedures in the United Kingdom, April 2006 Back
1930
"RDC Members biographies", FCA, www.fca.org.uk Back
1931
Bank of England, Prudential Regulatory Authority, Our approach
to banking supervision, May 2011, para 80, www.bankofengland.co.uk Back
1932
Q 3047 Back
1933
Bank of England, Prudential Regulation Authority, The PRA's
approach to enforcement: consultation on proposed statutory statements
of policy and procedure, December 2012, paras 3.2 and 3.3,
www.bankofengland.co.uk Back
1934
Ev 798 Back
1935
FSA, Regulatory reform: the PRA and FCA regimes for Approved
Persons, October 2012, www.fca.org.uk; FCA, The new FCA
Handbook, PS 13/5, March 2013, www.fca.org.uk; PRA, Regulatory
reform: amendments to the Prudential Regulation Authority Handbook,PS1/13,
March 2013, www.bankofengland.co.uk Back
1936
Q 3047 Back
1937
Q 3048 Back
1938
Bank of England, Memorandum of Understanding between the FCA and
the PRA, paras 47 and 49, www.bankofengland.co.uk Back
1939
Q 1804 Back
1940
Ibid. Back
1941
Ev 809, 852 Back
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