The Training Checkpoints you Need After Enforcements Keep on Coming


The well-known saying that there are only two certainties in life – death and taxes, could be extended for the financial services industry to include an additional certainty – enforcement actions.

The FCA (and now the PRA) are showing no signs of letting up in terms of the enforcement actions they’re bringing against firms. The recent public censure that was given to a major banking group shows that there is still a pipeline of enforcement cases that is being worked through, as this particular issue relates to the period from July 2009 to December 2013.

In fact, the circumstances of this case mean that much of what was written on the subject of enforcement back in 2014 is still relevant today. This is because we are unlikely ever to reach a stage where firms are not held to account in this way by the regulators. However, there is much that can be gleaned from enforcement actions, and in this particular case, there are two points that I want to expand upon.

Keeping the regulator informed  

One of the accusations levelled against this firm was that it had failed to keep the regulators adequately informed about key changes in its business; most notably, changes in senior management.

The regulators quite rightly pointed to their Principle 11, in particular the requirement for open and honest co-operation with the regulators.

So again, going back to my blog post of last year, I can only repeat the points that I made then – that if senior management and the compliance functions don’t fully understand the importance of keeping the regulators informed about significant developments, then maybe it’s time to look at whether a programme of training would be beneficial.

A question of capital

This particular action was interesting as it hits to the heart of an issue which the regulators feel particularly strongly about at the moment – capital adequacy.

For many years now, the UK regulators have been extremely keen to see that banking and insurance groups have adequate capital levels in place to ensure that they can withstand shocks and unexpected events. The Individual Capital Assessment regime operated since 2005 by the FSA demonstrated the strength of this commitment, and for insurers, the Solvency II regime is going to increase the regulatory focus quite substantially.

What’s especially interesting here is the express concern from the regulators about the strength of this particular group’s capital. The basis of the concerns appeared to arise from declarations made in the financial statements about the degree of capital adequacy. The regulators found that there was no reasonable basis for making the statements about capital in the financial reporting.

What this means is that the regulators are giving close scrutiny to the capital figures being reported by banks and insurers alike. And with the changes to be introduced by both Basel III (in due course) and by Solvency II (with effect from January 2016), this scrutiny is set to become ever closer and more detailed.

Where does training come in?   

So, apart from understanding the importance of talking to regulators on a regular basis, where does training play its part in making sure other firms don’t fall foul of the regulators in the same way?

Firstly, there is the overall understanding of what is required under the new capital requirements. This has to start with the board and work its way downwards.  This is particularly important if board members are asked to provide a realistic assessment to the regulators of progress towards implementation. If help is needed here, perhaps a board briefing session or even a bespoke training programme might fit the bill.

Secondly, an understanding of the detail of the reporting requirements is required. For Solvency II in particular, these requirements are quite extensive, and for the periodic reporting during the year, the times between the end of the reporting periods and the reports needing to be made are quite short.

This means that data must be accurate, and those producing the reports need to fully understand the fine detail of the requirements, particular when it comes to the quantitative reporting. If there is any doubt about whether the training needs for the relevant people have been fully met, a number of detailed courses on this particular subject are available between now and the end of the year.

Lastly, do compliance teams have adequate extent of oversight and the right degree of experience to provide the appropriate challenge to statements made about capital adequacy? If there is a need for increased knowledge and understanding of prudential matters, then there may be a need for more detailed training around the mechanics of Solvency II, and the assessment of capital in general. This could also apply to internal audit teams who are in the process of devising their programmes for 2016.

The writing on the wall  

Whilst this particular case didn’t result in a fine, the public expression of dissatisfaction and concern from the regulators shows that the effects of being placed in enforcement aren’t always felt financially. But it’s still important to be aware that the spectre of enforcement is always going to be present, and that it’s wise to take the right steps towards ensuring staff are adequately trained – and if this can be done as efficiently as possible then all the better.  

Martyn Oughton    

By Martyn Oughton a Professional Member of the International Compliance Association (ICA).  Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.

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