What are the penalties for non-compliance or failure?

What are the penalties for non-compliance or failure?

The Prudential Regulation Authority (PRA) has a variety of powers to take regulatory action under the Financial Services and Markets Act 2000 (FSMA) including:

  • To vary a PRA-authorised person’s permissions or to impose a requirement
  • To refuse to authorise a firm, approve an individual to carry out a controlled function, or to object to a change of control (or to approve it subject to conditions)
  • To direct an unregulated parent undertaking
  • To investigate a matter under Part XI of FSMA
  • To impose a penalty, a public censure, a suspension or restriction

Equally, the FCA has the power to impose suspensions or restrictions and the power to impose penalties or public censures.

In very extreme circumstances, removal of an authority to conduct business means that the business will be closed down with ensuing and collateral damage to all stakeholders, including shareholders and staff and, possibly, customers unless some form of “life-boat” is launched to protect customers’ interests.

Policyholders may be protected by the Financial Services Compensation Scheme (FSCS), which is the compensation fund of last resort for customers of authorised financial services firms that fail.

Such matters are clearly to be avoided if at all possible, given that they carry implied severe reputational damage for any NED that sits upon a Board of a company that is censured or has sanctions imposed upon it by any regulatory body.

As we have seen, enforcement can also take the form of a Section 166 review. Whilst that would not necessarily constitute a penalty, sanction or public censure it may reflect less than well upon a Board of Directors or be perceived as some form of management failure.

Section 166 reviews can also be very expensive, given the nature of the experts who are appointed.

Such reviews should redress the inadequacies, normally by way of some form of risk mitigation and subsequent improvement in performance, procedure or protocol.

Electronic link to PRA / Regulatory Action

Electronic link to FCA / Deterrents and Restrictions

Electronic link to FSCS

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