When the firm in the headlines becomes your Firm

Regulators around the world are becoming more active when it comes to taking enforcement action; barely a day passes without a news report of regulatory failings leading to hefty fines and the subsequent reputational damage to the financial services firm caught in the Regulator’s spotlight.

Where misconduct or significant deficiencies are identified, the regulator has a wide range of sanctions available including significant fines, withdrawal of a firm’s authorisation and, in severe cases, prosecution.

More often than not, enforcement comes with a forward-looking, proactive obligation but it can also be used to make an example of the firm as a warning to the industry, regarding what is and is not acceptable.

Working with your Supervisor and then, with the Enforcement Team

There are many reasons why your Firm could become the target of enforcement action but whatever the reason, the way in which you respond is vital to reduce any regulatory sanctions and to manage any reputational risk. Any enforcement action which is published has the opportunity to acknowledge your response to the situation, and this may also impact the level of fine or severity of the regulatory action taken against you.

Once you are on the Regulator's radar, you have exposed your Firm to additional investigations that may reveal underlying weaknesses across your business. The Regulator will want to unpick governance, risk and compliance arrangements from the top down to identify and address any systemic weaknesses that put your stakeholders at risk.

There is a distinct change in the nature of the regulatory relationship once a matter goes to enforcement. The enforcement team is usually staffed with lawyers, and their actions are driven by adherence to the powers and obligations set out in the relevant regulatory laws. From here on, your conversations with your regulator:

  • require careful liaison with legal counsel
  • are structured, and formal
  • are likely under oath and recorded for evidentiary purposes.

Internal lines of communication should be established within your Firm to manage the information that may be discoverable during investigative proceedings.

The real cost of enforcement action

The cost of enforcement action is not limited to the extent of the fine or penalty that your Firm must settle, or the consequential black mark against your reputation and impact on share value. The cost of management time, legal expenses and third party expert reviews, relating to both the initial investigation, as well as monitoring the implementation of any remedial action, alongside any additional anticipated regulatory and administrative investigation, cannot be under-estimated.

What do you do when notification of enforcement action is received?

Regulators are increasingly putting the onus on firms to demonstrate their regulatory fitness by requiring them to provide a report by an independent expert, sometimes known as a Skilled Persons Report. CCL can undertake these reports and has been doing so for over 30 years. We can help you to identify the right legal counsel and together we will:

  • Establish the problem and determine the validity of the Regulator's concerns
  • Respond to your Regulator accordingly
  • Undertake an Independent Review of current processes and procedures
  • Identify and verify the weaknesses requiring rectification
  • Work with your Firm to rectify the problems and establish new policies and procedures to ensure ongoing regulatory compliance
  • Undertake training where knowledge gaps are identified

To get support with managing your response to Enforcement Action against your Firm, contact our Remediation Specialists.

We have a dedicated team of experienced compliance consultants who can provide expert assurance and peace of mind. Get in touch to see how we can help your Firm.