In this exclusive insight for IFA Magazine, Rahman Ravelli Partner, Niall Hearty, looks at the latest FCA annual report and shares his thinking on some of its key details.
In the following analysis, Niall reminds us how the FCA now has to wear two hats, effectively requiring it to be the financial sector’s ‘police officer and its cheerleader’
Niall highlights the FCA’s record-breaking number of criminal charges and regulatory actions, which he attributes to increased staffing and resources. The watchdog charged 21 individuals with financial crimes, opened 837 financial crime cases, and stripped over 1,200 firms of their authorisations. However, despite these successes, Niall notes the sharp drop in fines collected—falling to £35.3 million from the previous year’s £212.6 million—and the significant decrease in fraud cases opened.
The past year saw the Financial Conduct Authority (FCA) bring a record number of criminal charges against individuals and double the number of entities it took regulatory approval away from.
Those two facts are the main points to come out of the FCA’s annual report. Both, arguably, are the result of the watchdog benefiting from an increase in staffing and operating costs.
To run through the key statistics for the past year, the FCA charged 21 people with financial crime offences – the highest total in its history – and achieved 11 successful prosecutions, which was one more than the previous year. It also increased the number of financial crime cases it opened from the previous year’s tally of 613 to 837. And it stripped 1,261 firms of their authorisations.
Such figures could be viewed as a decent return on the extra investment that has been sunk into the FCA. The year just gone saw it hire nearly 1,000 extra staff, raising its workforce to 5,000. Its total running costs rose by £92 million to £761.7 million, due to the increased staffing, staff pay rises and increased investment in technology.
The question when any organisation has extra money put into it is whether that investment proves to be worthwhile. No doubt the FCA would point to the aforementioned figures as proof that it is providing adequate bang for the taxpayers’ buck. It could also cite the tough line it has taken on crypto. It rejected 87% of registration applications from cryptoasset companies and issued 450 consumer alerts against cryptoasset promoters within three months of rules being tightened on misleading marketing.
But there are areas where the FCA does not appear to be providing such a spectacular return on investment. The total amount it collected in fines fell to £35.3 million – a huge drop from the previous year’s figure of £212.6 million and the lowest for more than a decade. Meanwhile, the number of fraud cases it opened fell from 2,013 to 1,039.
A year ago, the government gave the FCA the task of trying to enhance UK economic growth and competitiveness. FCA Chief Executive Nikhil Rathi has talked of his organisation tackling financial wrongdoing while encouraging innovation and accepting “that we will not, nor should we try to, stop every failure’’.
In effect, the FCA now has to wear two hats: it needs to be the financial sector’s police officer and its cheerleader. Only time will tell whether it can carry out both successfully. It doesn’t take a cynic to point out that perhaps the two are – or at least should be – mutually exclusive.
For now, it is having some success in the former. Yet the picture is far from perfect when it comes to enforcement, with a number of commentators talking of the FCA’s need to get at least some of its numbers up. Precisely how it does this while acting as the financial sector’s encourager-in-chief remains to be seen. The next annual report may, therefore, make more compelling reading.
