What Compliance Officers Can Learn from the UK’s Recent FCA Enforcement Actions

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The UK’s FCA (Financial Conduct Authority), the foremost financial services industry regulator in the country, has been ramping up its compliance efforts in 2024.

So far this year, financial firms have racked up £35,311,740 (approx. $44,795,590) in fines from the regulatory body. Both companies and individuals have been penalized with monetary penalties and prohibition orders, disallowing them to participate in regulated activities.

Worryingly, as the year progresses, it is shaping up to be similar to the previous year, when financial firms had to pay £53,354,600 or the equivalent of around $67,700,264 in fines for non-compliance. The parallels don’t stop with the fines; the financial firms seem to be engaged in the same patterns of behavior as they did last year, which could mean that many companies will end the year with a substantial penalty and reputational damage.

Given this reality, compliance officers must take stock of what landed the penalized companies in trouble and adjust their compliance strategies accordingly.

Key takeaways for compliance officers from the year’s FCA enforcement actions

Along with its penalties, criminal cases, and actions against individual finance professionals, the FCA is even proposing the “name & shame” tactic, which would lead to the exposure of the names of firms and individuals it is investigating if it feels there is a strong case to be made in the interest of the public.

As a result of the serious consequences in store for non-compliant entities, compliance officers must identify potential areas of vulnerability that will make them a target of the regulator.

  • The need for individual accountability

One of the biggest themes that emerged from the reports released by the FCA regarding its recent penalties was the need for individual accountability and integrity, which compliance officers have to ensure.

Multiple individuals were hit with substantial penalties and prohibition orders for what the regulator termed as “failure to act with integrity and a failure to exercise due care, skill, and diligence” for mishandling investor funds.

As a preventative measure, compliance officers must ensure there is enough training and resources to facilitate a culture of integrity and due diligence when it comes to handling customer funds. Further, enhancing communication compliance per the FCA’s requirements by recording employees’ business-related messages and calls will go a long way in strengthening transparency and accountability in the firm’s activities.

  • Closely monitoring communications related to promotions

Compliance officers are especially liable if the financial firms’ promotions are not fair, clear, and non-misleading.

Case in point, the Former Director and Compliance Officer of London Capital & Finance plc was banned from working in financial services and fined for signing off on financial promotions despite compliance risks, which affected 11,625 bondholders and led to hundreds of millions of dollars in losses.

Consequently, it is worth noting that compliance officers must implement stringent controls and approval processes for promotional communication, especially when it is targeting retail customers with high-risk products. The case further underscores the importance of FCA-compliant recordkeeping of electronic communication that can serve as evidence when there is conflict.

  • Ensuring the fair treatment of customers and the dispensing of suitable advice

Major names in the industry, such as HSBC Bank plc and Marks and Spencer Financial Services plc were alleged to have breached the FCA’s Principles 3 and 6, CONC 7.2.1R, 7.3.4R, and 7.3.14R, and MCOB 13.3.2A, leading to millions of dollars in penalties.

The regulator identified that the bank’s “disproportionate action when people fell behind with payments” was due to issues with how the financial institution trained its staff and deficiencies in policies to identify when customers were treated unfairly.

In another case of a firm being penalized for how they handled their customers, Inspirational Financial Management Ltd received fines worth around a million dollars for unsuitable advice when it came to defined benefit pension transfer.

One of the most potent means to ensure that employee interactions with customers are in line with FCA rules is the implementation of an archiving system that can capture business-related messages, which can be utilized for identifying non-compliant communication and even training staff to provide effective advice. Internal monitoring mechanisms that alert compliance officers of potential violations can also go a long way in detecting issues early.

Best practices to avoid enforcement action

Since the regulator deems it vital for financial firms to have in place effective market abuse surveillance systems, compliance officers must prioritize these measures:

  • Comprehensive monitoring of all employee communication, without any gaps when it comes to capturing BYOD phones used for business communication.
  • Capturing all aspects of messages, including files, images, videos, audio recordings, etc., for enhanced context.
  • Recordkeeping and documentation of communication with all the relevant metadata, including sender information, receiver information, time, date, etc.
  • Implementing systems that can auto-flag potentially non-compliant communication from employees, whether it is among colleagues or with clients.
  • Secure reporting mechanisms to enable employees to bring non-compliant activities to the attention of the compliance team.

Conclusion

Compromising when it comes to your firm’s FCA compliance can cause massive damage to its reputation and balance sheet, along with causing the regulator to ban employees from financial services altogether.

The TeleMessage platform can help your firm strengthen its compliance processes by empowering you to undertake text message, call, and WhatsApp FCA recordkeeping, along with other crucial communication channels. You can secure your business-related messages in an archiving vendor of choice with powerful encryption and access controls. The solution is further capable of auto-flagging conversations that contain problematic phrases or words pertaining to market abuse or misconduct. Crucially, the messages come with an audit trail for compliance teams to ensure that the communication is not tampered with and is present in full context. The records can be maintained for as long as required per the retention period set by the industry regulator.

Owing to the comprehensive FCA-compliant recordkeeping enabled by the solution, compliance teams can better safeguard the company from penalties, suspensions, and reputational damage.

Contact us for a demo of the TeleMessage archiving solution.

About TeleMessage

TeleMessage captures and retains mobile content, including mobile SMS messages, voice calls WhatsApp, and WeChat conversations from corporate or BYOD mobile phones to ensure compliance with various data protection regulations. The messages are securely and reliably retained within TeleMessage servers or forwarded to your choice of archiving data storage vendor.

Our mobile archiving products securely record content from mobile carriers and mobile devices for various ownership models (BYOD, CYOD, and employer-issued). With our multiple archiving solutions, you can always find the right tools or blend for your requirements:

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