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FCA investigations – The new world

Risk & Analytics|Global Benefits Management|Financial, Executive and Professional Risks (FINEX)

February 24, 2018

Perhaps it’s no surprise that with a title like that, we had no shortage of delegates (200 plus) for an interesting interactive seminar which we ran in our London auditorium on February 1, together with two law firms (Brown Rudnick LLP and Mishcon de Reya) who have particular expertise in regulatory investigations, and in association with the Chartered Institute for Securities & Investment (CISI).

Aerial view of city at night

The seminar looked at the challenges arising from the Financial Conduct Authority’s (FCA) new enforcement policy and its focus on individual accountability.  Adam Epstein & Guy Wilkes Mishcon de Reya described what we aimed to achieve thus:

“The underlying law and rules are laid out in black and white. By contrast, what we were particularly keen to get across in the discussion were the critical strategic and tactical issues that people may not have thought through or, in many cases, not even have been aware of. Those caught up in potential difficulties need to take the right decisions at the outset.”


The seminar was based on a realistic set of circumstances invented by our panel and staged on the podium by five actors.

Setting the scene

The story concerned Financial Engineering Solutions (FES), a relatively successful, middle-ranking and privately owned asset manager with a predominantly retail client base. Its new CEO wanted to outsource as many functions as possible to free up resource in order to expand the client base by offering ’new and exciting’ investment opportunities. He suggested to his COO that she should take this project forward and consider using an outsource company he had heard good things about. She then assembled an executive team comprising the head of compliance, the general counsel and the IT and operations manager, to run the outsourcing project which results in the appointment of the CEO’s choice as outsource company.

Several months later, after the new arrangements have been up and running for some time, the FES risk committee (comprised of the same executive team) become aware of an IT related glitch and of some customer complaints which appear to relate to delays in administration. These are perhaps linked to the IT problems, but there is also the suggestion of some more serious issues relating to the investment products themselves. Recriminations between the executive team begin to break out.

The audience opinion

Over 200 delegates drawn from financial services organisations were given the opportunity to express their opinions through instant voting technology on a range of subjects related to this scenario as the panel debated the issues in more detail. There were some evident differences in opinion/emphasis between the audience and the panel, of which the following were particularly interesting:

  • 70% of the audience felt the CEO should be more concerned than any other employee as to the possible consequences of what had gone wrong at FES
    • The panel, while not discounting the dangers for the CEO, were able to identify areas of concern for the whole of the team engaged in the project
  • 62% of the audience thought that FES should be notifying the possibility of regulatory breaches to the FCA straightaway
    • The panel felt that it would be wiser to seek to scope the problem first and go to the regulator with a plan of action
  • 66% of the audience thought that directors and other employees had the right to receive legal advice or representation at the company’s expense
    • The panel highlighted there was no such right

These differences of opinion/ emphasis, however, did nothing to diminish the audience’s enthusiasm for the event. As our chairman on the day George Littlejohn (senior adviser to CISI) put it: “This event had some of the best responses we have ever had from our members – “practical,” “relevant,” “hit the nail on the head.” Bravo to the teams from Brown Rudnick, Mishcon de Reya, and Willis Towers Watson.”

Key issues

Other topics the panel grappled with, under the expert chairmanship of Mr. Littlejohn, were:

  • Whether legal advice and/or the product of any internal investigation conducted by FES was protected from disclosure by privilege
  • What some of the strategic and tactical considerations of dealing with the regulators and the potential customer complaints might be
  • Some of the practical steps that should be taken and errors which should be avoided by FES in dealing with the issues
  • The potential conflicts of interest between FES and its employees
  • Who should pay and whether and to what extent a Directors & Officers liability policy could be relied on

The follow-up

Towards the end of the 90 minute seminar, we invited the audience to choose, by way of follow-up, among seven workshop topics they were most interested in. The top three were:

  • A guide to the FCA investigation process
  • How to run an internal investigation; and
  • Notification of issues to regulators: what, why and when

What is clear is that there is no shortage of interest in this subject. Given the steep rise in the number of investigations opened by the FCA in 2016/17 perhaps this is no surprise.

This article was originally authored by Francis Kean.


Executive Director
Coverage Specialist, FINEX

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