Downward overall enforcement trend…

The FCA imposed 12 financial penalties (8 fines on firms, and 4 fines on individuals) in 2023/24, compared to 24 financial penalties in 2022/23 (15 fines on firms, and 9 fines on individuals).  The total amount of financial penalties also dropped from just over £199 million in 2022/23 to just over £42 million in 2023/24. 

In 2023/24, the FCA opened 25 "operations" (a new term the FCA is using when an individual, a firm, or a group of individuals and/or firms are under investigation at the same time), compared with 34 operations in 2022/23.

As at 31 March 2024, there were 188 ongoing enforcement operations (with the FCA investigating 341 individuals and 162 firms), down from 224 investigations as at 1 April 2023 (which related to 591 open enforcement cases).

These figures indicate a downward trend in overall enforcement activity.

…but (continued) upward trend in use of interventions powers

However, in line with previous years, the FCA continues to increase deployment of its interventions powers. The FCA’s Interventions team works closely with the FCA’s Supervision, Policy and Competition Division (SPC) to identify and respond to concerns about firms or individuals that present a risk of ongoing harm, including of financial loss to consumers or to market integrity.  The Interventions team uses a range of formal and informal tools (such as voluntary requirements or own initiative powers) to take early and swift action to address this harm. It can, for example, impose a requirement on a firm to do – or refrain from doing – something (such as onboarding new customers).  The FCA can act very quickly, in fact much more quickly than an enforcement action.

In 2023/24, there were 25 interventions using the FCA's own initiative powers, compared to 22 in 2022/23 - and 102 voluntary outcomes (such as the imposition of requirements or variation of a firm's permissions), compared to 82 in 2022/23.  The FCA reports that its Interventions team advised its SPC Division on 268 cases where it considered the use of voluntary requirements or its own initiative powers, up from 209 cases in the previous year.

Very few interventions cases are made public, so they do not have the benefit of sending a deterrent message to the market – which is good for firms who want to avoid any reputational damage, in particular in light of the FCA’s current proposals to publicise enforcement investigations.

…and (continued) upward trend in skilled person reports

Similarly, the FCA is deploying its section 166 power far more.  In 2023/24, there were 83 skilled person reviews, compared to 47 in 2022/23 (and 38 in 2020/21).

Of these 83 reviews, the majority (54) were in the retail banking sector (20 in retail banking and payments, 15 in retail lending and 19 in retail investments).

The reviews examined a wide range of regulatory issues, such as Consumer Duty; controls and risk management frameworks; financial crime; corporate governance and senior management arrangements, including culture; adequacy of advice; adequacy of systems and controls; client money and client asset arrangements; principal oversight of appointed representatives; and market abuse.

…and (continued) upward trend in use of criminal prosecution powers

Of the 25 new enforcement operations opened in 2023/24, 9 were regulatory, 4 were criminal and 12 were dual track (i.e. where both regulatory and criminal breaches are investigated).  As can be seen, over half of the operations opened by the FCA in 2023/24 were criminal or dual track.  Further, in 2023/24, the FCA charged 21 individuals with financial crime offences, being the highest number of charges it has achieved in any single year.

This upward trend in criminal enforcement activity is also reflected in enforcement outcomes. In 2023/24 the FCA secured 11 criminal convictions, compared with just one in 2022/23.  It also secured two confiscation orders to the value of £0.2 million in 2023/24, compared to no such orders in 2022/23. 

Two of these convictions were for insider dealing.  Having not been successful in securing an insider dealing conviction since 2019, the FCA was successful in two prosecutions in 2024. In February 2024, the FCA successfully prosecuted a former investment bank analyst, and in March 2024, the FCA announced the successful conviction of a former site manager at a plastics firm.  (This was a retrial, as the jury failed to reach a verdict following a trial in 2022).  

This demonstrates that the FCA is continuing its mission of being seen to be a serious criminal prosecutor. It is in keeping with a speech by Nikhil Rathi, Chief Executive of the FCA, at the start of the year, in which he said that the FCA expects to deploy its criminal powers more in the year ahead as a display of deterrence.  We should expect this trend to continue.

The FCA is more creative in its enforcement approach

The FCA is increasingly - and successfully - using more of the powers available to it.

This year has seen a number of FCA “firsts”.

In September 2024, the FCA brought its first criminal prosecution relating to unregistered cryptoasset activity under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.  The charges were brought against an individual accused of running a network of crypto ATMs in the UK. 

In August 2024, the FCA, for the first time, fined an audit firm £15 million for failing to alert the FCA to suspected fraudulent activity at London Capital & Finance plc.  And, in the same month, in another FCA first, another auditor was censured by the FCA for failing to adequately prepare client asset reports. The fines send a clear message to the accounting industry that audit firms, who play an important role in keeping our financial markets clean by helping to root out fraud, have moved into the FCA’s line of sight.  

In July 2024, in another “FCA first”, the FCA took enforcement action against a firm enabling crypto trading, and for the first time used its powers under the Electronic Money Regulations 2011 (EMRs). The EMRs impose requirements including, amongst other things, various provisions regulating the rights and obligations of electronic money institutions.  The FCA has investigation and sanctioning powers in relation to both criminal and civil breaches of the EMRs.

And recently, the FCA used its competition law powers for only the second time. In November 2023, the FCA fined three money transfer firms for breaking competition law by discussing and agreeing prices they were charging customers.  This was the second competition law infringement decision issued by the FCA since it gained its concurrent (with the Competition Markets Authority) competition law powers in 2015 (the first decision being issued to firms in the asset management sector in February 2019).

What does this mean for the future?

The FCA Enforcement Division seems still to be in a state of flux following the change of leadership last year.   We await to see the full impact of this on the FCA’s overall approach.  However, we can now begin to see at least some of the narrative emerging:

• A clean-out of some of the older cases, reflected in the resolution and/or abandonment of some historic cases, some of which have been on-going for a number of years.

• A refocussing of enforcement effort on fewer but (and the future will tell) more impactful cases that will deliver the strategic messages the FCA want to deliver.

• A focus on deployment of criminal law enforcement activity as a means of delivering effective deterrence to financial misconduct.  This is mostly around issues like anti-money laundering and financial services/perimeter frauds, but there is the capacity to expand this into some of the more challenging areas like market manipulation and some more controversial perimeter issues (e.g, in relation to crypto, e-money and payment services).

• Continuation of an existing theme of the use of supervisory and intervention powers to try to close down threats without direct use of enforcement powers.  Some of the use of such powers has already been challenged.  Typically the rights of parties subject to traditional enforcement powers are greater than those who are subject to supervisory interventions, but the latter can be equally devastating to a business, and we are already seeing this as a future source of potential challenge to the regulator via the Upper Tribunal.

• We think the use of section 166 (and potentially own-firm investigations) may increase in the future, as the FCA tries to do more, with fewer resources.  Outsourcing investigations is a potentially effective way for the FCA to achieve this.

• As noted above, we are seeing the FCA becoming more adventurous and willing to use the wider breadth of its powers in novel situations.

• We are seeing the expansion of the FCA’s powers beyond the strict boundaries of the financial services sector into industries which “touch” this space, and we are therefore likely to see FCA action against non-financial entities.  We have already seen the FCA flex its enforcement muscle for the first time against accountants (as detailed above).  It has new powers to discipline designated third parties who provide critical services to the financial services sector - and under its financial promotions regime, it may pursue any person or firm who promotes a financial product without approval from an FCA-authorised person with the right permissions. By way of example, it recently started criminal proceedings against several “finfluencers” for this very issue.

• And finally, let’s not forget the Prudential Regulation Authority, which continues to be active, is expanding its enforcement capabilities and is showing an increasing willingness to take on cases either in conjunction with the FCA, or now more often alone.

If you would like to discuss this article or any of the issues raised, please get in touch with one of the contacts listed.

Authored by Daniela Vella and Philip Parish.