Thursday, December 11, 2014

FOREX Fine Will Go for Health Care as U.K. FCA Rebuilds Financial Services Culture

In light of the FOREX and Libor manipulations, the U.K. Financial Conduct Authority is rebuilding a culture within financial services firms that is more centered on consumer needs, with a regulator in place that has the right tools and approach, to uphold and encourage the standards the public has the right to expect. In remarks at the FCA’s Enforcement Conference, Director of Enforcement Tracey McDermott noted that enforcement is not an end in itself. It is one of the tools the FCA has at its disposal to encourage better behavior. It is a blunt tool, perhaps, but a vital one in making plain to all the regulated firms the consequences for those who fail to meet FCA standards. Disappointingly, as illustrated by FOREX, this is not yet second nature. The review of lessons is still, at times, too narrow and too literal.

At the same time, U.K. Treasury said that the government will use the £1 billion of fines collected from banks that broke the foreign exchange (FOREX) rules to create a fund for advanced heath care and community healthcare facilities, In a statement, Chancellor of the Exchequer George Osborne also noted that the government has committed a further £50 million of LIBOR fines over the next 6 years to support military charities and other good causes.

Director McDermott rejects the view that the fines levied by the FCA are too large and unfairly penalize shareholders. In some instances, she noted, financial firms need to be held to account because the failings are corporate as well as individual. The FCA has heard from firms that fines and the focus on conduct has helped them maintain momentum in strengthening their conduct risk frameworks they have in place. The FCA concludes that the publicity that enforcement actions bring focuses minds, particularly at the top of firms.

While it is true that individuals are responsible for actions, she reasoned, they do not operate in a vacuum, Rather, they operate in the culture and the values of the firms that employ them. The firms set the controls that identify the risks in their business and how to manage these risks. Firms also have to ensure that their controls are adequate. Until the rhetoric matches the reality, said the Director, relying on people just doing the right thing won’t get us there.

But individual accountability is important, continued the Director, and it is not just the responsibility of regulators to enforce it. Firms need to think about where risks might arise and how to control them, as well as the need to understand the culture of the subsets of their organization, how they differ and what that means. They also need to think about cross-industry tribal loyalties and how to manage the risks those pose. And where they fall short, particularly where they fail to learn lessons from other action, they should pay the price.

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