FCA enforcement activity drops in last financial year

by | Jul 10, 2023

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FCA enforcement activity against both firms and individuals fell in the last financial year, ending 31st March 2023, according to the findings of a freedom of information request published by global law firm Reed Smith.

The new data reveals that in the last financial year the number of enforcement cases opened against firms fell by 67% – from 79 to 26 – while cases opened against individuals fell by 33%, from 111 to 74. The downwards trend was also reflected in the number of cases closed against both firms and individuals, which fell by 10% and 44% respectively in the last financial year.

Despite the fall in cases opened and closed, the FCA has maintained its focus on opportunistic insider dealing, with such cases representing the largest proportion of cases opened and closed against individuals across the last three financial years. 

Meanwhile, for firms, unauthorised collective investment schemes accounted for the largest number of cases opened, while money laundering controls topped the list for most cases closed against firms, closely followed by pensions advice. 

 
 

Further findings of the freedom of information request included:

·        Overall, the FCA opened a total of 100 cases in the latest financial year, and closed 107 cases. This compares to 190 opened and 159 closed the year prior

·        There was a notable spike in enforcement activity in February 2022, with the number of cases opened against firms 155% higher than the monthly average over the last three years, and cases opened against individuals 121% more than the average 

 
 

·        Raids launched by the FCA rose from two during the 2020-2021 financial year, to six in both the following two financial years. During the 2022-23 financial year, there was an uptick in raids in the final quarter (January–March) with four being conducted

·        Across three financial years, opportunistic insider dealing was the FCA’s focus for cases against individuals, with 61 cases opened and 52 cases closed

·        For cases opened against firms, the largest proportion was for unauthorised collective investment schemes, which saw 13 cases opened across three years. Meanwhile, the most cases closed against firms were for money laundering controls, followed by pensions advice, with 27 and 15 cases closed in total respectively

 
 

Commenting on the findings, Romin Dabir, Partner at Reed Smith, said: “It is difficult to determine exactly why enforcement activity is falling, though it is possible that it is related to a backlog of issues created by the Covid-19 pandemic. It could also be that the drop in cases opened has occurred because the FCA has devoted resources to closing cases it has already opened. 

“The relative decline in enforcement activity may also reflect the government’s current objective to increase the competitiveness of the City of London. It is possible that the FCA may be adopting a lighter regulatory touch on certain issues than in previous years. 

“Having said that, it’s important to note that on a number of issues, be it insider trading or operating a collective investment scheme without being authorised, the FCA has continued to take action with activity levels remaining high. It could well be that the last year is something of an aberration as there is good evidence to suggest that in the first few months of the new financial year the FCA has redoubled its efforts. Consequently, we could see an uptick in enforcement activity in the not-too-distant future.”

 
 

Laura-May Scott, Counsel at Reed Smith, added: “What appears to be a lack of enforcement activity may also be a reflection of the FCA making greater use of its intervention powers – that could well be one of the reasons that explain why the FCA appears to have been less active in recent years.

“Insider trading is always a major focus for the FCA and, due to improvements in technology, it is easier for the FCA to monitor for suspicious activity. It is no great surprise to see that opportunistic insider trading accounted for the majority of investigations opened and closed against individuals.

“There is invariably a proportionality issue that comes into play with ‘dawn’ raids. Given the resources that raids require of the FCA, raids are typically only conducted where there is an urgent need to move quickly due to serious concerns in relation to financial crime activity and potentially in order to stop companies destroying relevant evidence.”

 
 

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