Our thoughts

Market conduct culture may change faster than expected

Written by Sanjay Kaul

From Fines Galore!

Banks have been fined huge amounts for misconduct since the 2008 financial crisis. The Financial Times estimates £350bn for the total in Bank fines paid globally1, whilst others calculate £75bn in fines for the UK’s big four banks by the end of 2017.2

At the same time individuals, including within senior management, have not yet been the target of the Regulators based on a 2016 US study showing only 19% of actions brought against large banks had individual employees identified and charged.1

Towards Fines No More? 

However, the landscape appears to be changing quickly. The Financial Conduct Authority (FCA) in the UK has introduced the Senior Managers Regime (SMCR) which looks to hold senior executives personally accountable for misconduct under their watch. The SMCR regulation also requires responsibility maps that show the reporting lines for all individuals in a bank to avoid the challenge of multiple reporting lines and multiple functions or departments which in turn prevents individuals being held responsible.

The FCA banned 27 people in 2015 and this was the first time in four years this number increased, albeit by a slight uptick from the 25 people the previous year. In 2016, the Global Head of Foreign Exchange at a leading Bank was charged under US Regulations for misconduct. Some say this indicates the intent and direction of travel from Regulators to hold individuals to account, in particular executives.

The FCA, in its publication on 7th March 2017, recognises “culture change takes time and there is still more to do”. It goes on to say “in some cases, seen evidence of overlapping or unclear allocation of responsibilities” and “in other cases, firms appear to be sharing responsibility amongst some staff at different levels of management, obscuring who is genuinely responsible.”3

Culture change does indeed take time but if the narrative from Regulators is translated into action and embedded in practice, the implications and potential consequences on senior executives and managers at all levels could be sufficient to create a ripple effect on the conduct culture within Banks. If this were to happen, it would be in Bankers’ interests to prioritise effecting conduct culture change alongside profit enhancing objectives.

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1 Financial Times, 3rd October 2016

ThisisMoney.co.uk, 3rd August 2015; CityAM, 28th April 2015; The Guardian, 26th April 2016

3 FCA.org.uk/news/ – Senior Managers and Certification Regime: one year on, 7th March 2017