Plans to encourage self-reporting from financial firms under investigation have received mixed reviews from regulation experts.
Under proposals set out last week, the Prudential Regulation Authority (PRA) said subjects under investigation could halve their fines by cooperating early in the investigation.
The PRA said the so-called ‘early account scheme’ is designed to provide “greater clarity for ease of usage and introduce options for speedier investigatory outcomes.”
Financial regulation partner at Ashurst, Nathan Willmott, said the changes will mean the PRA will be “outsourcing much of the investigation of potential wrongdoing.”
“This reflects what we are already increasingly seeing in the way that the PRA is conducting its enforcement investigations,” Willmott continued. He argued it would likely speed up the investigation process and lead to more ‘quick and dirty’ fines.
The proposals come shortly after a rare fine was issued under the Senior Managers Regime (SMR). In April TSB Bank’s chief technology officer Carlos Abarca was fined £81,620 for failures relating to the bank’s botched merger of IT systems.
Financial regulators have increasingly sought to hold individuals to account for their decisions rather than fining the company more broadly.
Partner at Fladgate, Douglas Cherry, said the consultation “underscores the importance of culture at PRA regulated firms.”
“The emphasis on individual responsibility shows the continued commitment to ensuring that leaders have responsibility for Bank regulatory compliance,” Cherry continued.
Cherry argued that the proposals would be a positive step to improve the clarity of the system.
“Everybody benefits from greater clarity in the regulatory system and processes. This is especially important as the regulator is the investigator, judge and jury in matters it seeks to intervene on,” he said.
However, CMS partner Robert Dedman, former head of enforcement at the PRA, argued that the PRA’s proposed approach would pose problems if the firm agreed to settle but individuals chose to fight.
“The PRA could end up in a similar position to the SFO in recent DPA cases, where the facts agreed with the firm are later undermined by legal proceedings brought by individuals,” Dedman continued.
Harvey Knight, partner at Withers also drew attention to the potential difficulties individuals could face under the proposals. “The onus on each subject of the investigation to produce their own detailed factual account of the matters under investigation…is going to be a tough ask of any individual subject,” Knight said.
This was especially true if individuals are having “to self-fund their legal costs together with the potential for conflict with the bank’s lawyers”.
Other commentators argued the move would not have much of an impact. Sara George, partner at Sidley Austin, argued that most firms don’t contest PRA enforcement decisions as most firms need to have a good relationship with the regulator.
“While a 50 per cent reduction in the penalty for wrongdoing is no doubt very welcome, it is unlikely to lead to significantly more or earlier settlements with firms than there are at present,” she said.
The proposals form part of a wider consultation on its approach to enforcement. The consultation closes on 4 August.