Only five senior bankers in the UK have been sacked on “disciplinary grounds” in the five years since rules designed to make bank bosses more accountable, as Private Equity News’ sister title Financial News may reveal, despite fines for wrongdoing overall just under £ 1 billion over the same period.
The UK’s Financial Conduct Authority received notices of the dismissal of senior bank executives for non-compliance with behavioral expectations under the 2016 Senior Managers and Certification Regime, according to data obtained through a request from the FN under the Freedom of Information Act.
The Bank of England’s Prudential Regulation Authority received no notice of such layoffs from major UK banks during the same period, as shown in a separate FOI request from FN.
“These are clearly very, very low numbers,” says Mark Turner, Managing Director in the Financial Services Compliance and Regulation Practice of the Kroll consulting group.
The SMCR, which replaced the FCA’s previous licensing regime for employees in the regulated financial services sector, was introduced after several banking scandals, including benchmark rigging, to reduce consumer damage and the integrity of financial markets.
The regulations should lead to more personal responsibility for the bankers for their actions and to more clarity about the responsibilities. They also blamed the regulated corporations for failing to adequately monitor their own villains, taking pressure off the British watchdogs to sort out the city’s bad apples.
“If there were really only five layoffs during that time, there wouldn’t be enough work for us labor lawyers,” said Adrian Crawford, partner in labor law at Kingsley Napley. He said the number of layoffs “seems pretty low considering how many people get into trouble one way or another”.
At the time of their introduction, the rules applied to 811 banks, building societies and credit unions. The rules were then extended to 546 insurers from 2018 and then again in 2019 to all parts of the city or around 48,000 other financial companies. By mid-2020, City headhunters estimated there were around 650 high-profile bankers in London.
Under the regulations, City Firms are required to notify UK regulators if they have had to fire or demote a senior manager for violating the SMCR’s Code of Conduct, which includes an obligation to act with integrity and due due regard to the interests of clients and treat them fair.
The FCA was briefed once in 2016 about a City chief fired for “gross misconduct” and twice in 2019 – by a senior banker fired from his position “on charges of inappropriate conduct” and about another executive who “came from the [their] Role “but not fired according to FOI information. In 2020, the FCA received two further redundancies from senior executives. Both were terminated “due to poor performance or performance concerns.”
The PRA said it has not received “no disciplinary dismissals” from the UK’s largest banks since the SMCR was launched in January 2021, according to its FOI response to FN.
City firms were previously able to avoid having to notify their regulators that they had fired a senior manager if their firing was due to “sex, drugs, or rock and roll” or non-financial misconduct, Crawford said.
In recent months, however, the FCA has committed to tackling non-financial misconduct in the financial services industry. In the five months to April 2021, according to the FCA website, she took enforcement action against four city employees for non-financial misconduct. All four cases focused on the impact of individuals’ behavior outside of the workplace on their integrity and reputation, and their suitability and appropriateness to work in the financial services industry.
“Things that historically weren’t considered a code of conduct are important [under the SMCR] now, ”Crawford said, adding that he expects the discharge notifications to the British guard dogs to increase accordingly.
Corporations are also required to notify UK financial regulators if a senior manager leaves his position “on charges of misconduct” other than formal dismissal, such as resignation, according to a person familiar with the matter. Such notifications were not covered by FN’s FOI requests. “The fact that a person leaves a company but isn’t officially fired doesn’t stop there [regulators] from taking enforcement action against them, ”the person added.
Nonetheless, the low number of layoffs raises questions about the effectiveness of management policies. However, this is exactly what the city’s regulatory specialists have been asking for years.
In the years since SMCR was launched in 2016 through September 2020, the FCA has opened only 34 investigations and carried out one successful enforcement action, according to a FOI request from financial services consultancy Bovill.
“Bovill points out that despite the best efforts of the FCA, the effectiveness of the flagship regulation continues to be called into question,” the company said in an October statement on its FOI inquiry.
The PRA said it had 12 ongoing investigations against eight financial services companies and 16 individuals, as well as one matter in court, according to the regulator’s annual report for the year up
March 2021. On February 28, the PRA announced that it had 11 ongoing investigations against eight companies and 13 individuals, as well as the matter in court. PRA investigations against individuals are likely to be SMCR-related, said a person familiar with the matter.
Even so, Crawford said it was possible that low levels of enforcement and dismissal notifications were actually “an indication that the system is working”.
“The executives make this happen because it’ll just haunt them,” he said.
This was repeated by Turner. “I’m not going to pretend it fixed everything overnight,” he said. “But we have conversations in which companies said: ‘You know what? The senior manager regime has helped us a lot. ‘ It has removed some of the confusion about who is responsible for what, especially in very large companies. “
FN’s FOI request to the FCA focused on the retirement of executives and employees in a position that could potentially harm a client or the market – known as certified individuals as defined by the SMCR – with investment banks in the UK. The FN’s FOI request to the PRA focused on the same pool of senior executives from the 34 largest banks in the UK.