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Julian Korek, Duff & Phelps

Financial Regulators targeting individuals not companies


Financial regulators across the globe are cracking down heavily on cases of individual misconduct, according to the 5th annual Global Enforcement Review published by the Compliance and Regulatory Consulting Practice of Duff & Phelps.

Regulators in the UK, USA and Hong Kong brought a total of 1,761 cases against individuals in 2016, equivalent to almost seven cases for every working day of the year, as enforcement actions against individuals outnumbered those against firms four to one.
Of the six global regulators assessed across three continents (the UK’s FCA and PRA, the US’ FINRA, CFTC and SEC and Hong Kong’s SFC) only one, the FCA, did not see a rise in the number of cases involving individuals. That said, even though the total number of enforcement actions brought against individuals by the FCA decreased, the percentage of cases brought against individuals compared with those brought against firms increased dramatically. 64 per cent of cases brought by the FCA were against individuals in 2016, up from just 37 per cent in 2014, highlighting its renewed focus on individuals. 
The increasing emphasis on personal liability provides insight into the effectiveness of the FCA’s flagship Senior Manager’s Regime, which was fully implemented in March 2016. As the regime is expanded to incorporate all sectors of the financial services industry, this concentration on personal liability is very likely to increase further – as outlined in the FCA’s recent annual report. In fact, on July 14 the FCA fined a compliance oversight officer £75,000 over mishandled pension scheme advice, demonstrating this new intent further.
Similarly, in Hong Kong, where 72 per cent of fines from SFC were levelled against individuals last year (up from 63 per cent the year before), the new Managers-In-Charge (MIC) regime announced in December 2016 will also likely provide further impetus for intensified scrutiny of individuals. Only last month, for example, the SFC brought charges against a number of senior executives and a former chairman of a technology company for providing false and misleading market information.
The report also highlights that the US still leads the way when it comes to convictions of individuals. All three US regulatory bodies, FINRA, SEC and CFTC, saw increases in prosecutions against financial employees. In fact, cases brought against individuals by the CFTC increased by 80 per cent in 2016, from 50 in 2015 to 90 last year. FINRA alone accounted for over 70 per cent of all penalties across all six regulators globally, with a total of 1,244 prosecutions made against individuals, up 58 since 2014.
These high levels of convictions can in part be explained by the US’s commitment to whistle blower regimes that reward individuals who report possible securities law violations. These programs continue to have strong support from the regulators: CFTC grew its program in 2016, making its largest award to date and similarly, the SEC awarded over $57 million to 13 whistle blowers, more than in all previous years combined.
Julian Korek (pictured), Global Head of Regulatory and Compliance Consulting at Duff & Phelps, says: “We are in an era of greater individual accountability. The Duff & Phelps Global Enforcement Review is now in its fifth year, and never before has the regulatory magnifying glass been so emphatically focused on the actions of senior executives. In the past, firms were slightly less worried about the size of fines imposed by regulators. But now with individuals being targeted, management may be keener to push back against enforcement actions at every stage.
“The recent spate in proceedings against individuals shows too that the regulators are willing to bare their teeth in the face of ongoing financial crime. It is now widely accepted that new regulations will likely lead to even more enforcement actions against individuals in future years. The chasm that now exists between fines against individuals compared with those against firms will therefore widen significantly. As this level of scrutiny continues to grow, it will become increasingly important for financial institutions across the globe to focus on cultivating a more transparent and responsible corporate culture.”

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