The Financial Conduct Authority (FCA) has shown that it will adopt a more robust approach to regulating Financial Services firms. Last year saw the FCA hand out a total of £472,262,738 worth of fines, a significant increase to the £311,569,256 handed by its predecessor the Financial Services Authority (FSA) in 2012.
In line with this, the FCA has begun to place more focus on Senior Management of Financial Services firms through the use of attestation requests, a trend that is expected to increase in 2014 – writes Daniel Isokariari, Telefónica UK, Compliance Manager and Deputy MLRO.
This will be in the form of a letter sent to CEOs, Chairmen or other relevant positions of authority, asking them to declare that their firm’s systems and controls are compliant with the FCA’s rules. In doing so, the individual is accepting liability if the firm’s controls are found to be insufficient.
In adopting this strict approach, the FCA hopes it will force Senior Management to invest more time and money into ensuring any issues in their firm’s systems and controls are identified and dealt with accordingly. It is unlikely that a CEO would agree to sign such a document unless they had seen enough evidence to demonstrate their firm’s adheres to the FCA Principles.
Currently, it is not a legal requirement for Senior Management to agree to the attestation requests. However, refusal could lead to FCA becoming suspicious of the firm, and not adhering to Principle 11 of the FCA’s Principles for Business; “A firm must deal with its regulators in an open and cooperative way, and must disclose to the appropriate regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice.”
CEOs may still be held accountable even after they have left the firm. If the FCA found a firm’s systems and controls to be unsatisfactory, they could pursue whoever’s signature appears on the attestation letter regardless of whether or not they are still involved with the company. Furthermore, a CEO new to a firm does not automatically inherit accountability for the attestation letter signed by his or her predecessor. Nonetheless it is in their best interests to conduct an independent review to satisfy themselves that the firms systems and controls satisfactory.
Rabobank fined £105million following attestation
Although we have not yet seen the FCA issue a fine to an individual directly as a result of an incorrect attestation, a recent case from October 2013 demonstrated the FCA’s willingness to take action. Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) was fined £105million; the third highest fine ever handed out by the FCA or is predecessor. The fine was for a breach of the FCA’s Principle 2, which requires a firm to “conduct its business with due skill, care and diligence”. Rabbobank had written a statement that its systems and controls concerning their LIBOR submissions were for fit for purpose. In this case, the penalty was handed out to the firm but in any future similar cases, the attester may receive the fine directly.
FCA’s “name and shame” policy
The FCA announced in October 2013 in certain cases that they will publish the names of any individuals that are under investigation on their website. This would be through a warning notice statement and reinforces the hard stance taken by FCA to prevent firms from misbehaving. Previously, the FCA would only publish information after it had decided to take action against a firm or individual.
What the future holds?
The FCA has yet to provide detailed guidance on attestations and it is unclear whether or not they intend to in the near future. Scenarios such as what a CEO should do if they receive an attestation request and discover during their investigations that their firm’s procedures are inadequate, remains a question. Tracy McDermott, an Executive FCA Board member provided some clarification on this point at the FCA Financial Crime Conference in July 2013. She stated that the FCA will work with CEOs in such a predicament, so long as they had consequently taken steps to rectify the problems. One thing that is certain, senior management should ensure the appropriate level of investigation and due diligence along with supporting information before agreeing to attest on behalf of their firm.
An example of a signed attestation published on the FCA’s public website
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