Compliance and Regulatory Consulting
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Financial Regulators Brought Four Times As Many Cases Against Individuals Than Companies Last Year, New Report Shows
Financial regulators across the globe are heavily cracking down on cases of individual misconduct, according to the 5 th annual Global Enforcement Review published by the Compliance and Regulatory Consulting Practice of Duff & Phelps, the premier valuation and corporate finance advisor. Financial regulators in the UK, USA and Hong Kong brought a total of 1,761 cases against individuals in 2016, equivalent to almost 7 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% of cases brought by the FCA were against individuals in 2016, up from just 37% 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% of fines from SFC were levelled against individuals last year (up from 63% 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 U.S. still leads the way when it comes to convictions of individuals. All three U.S. 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% in 2016, from 50 in 2015 to 90 last year. FINRA alone accounted for over 70% 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 U.S.’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, Global Head of Regulatory and Compliance Consulting at Duff & Phelps, commented on the findings: “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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Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, real estate, M&A, restructuring, dispute and legal management consulting and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. The compliance and regulatory consulting practice of Duff & Phelps supports regulated firms globally in the design , development, implementation, and management of their regulatory and control framework, compliance culture and infrastructure. For more information, visit www.duffandphelps.com.
M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising services in Canada are provided by Duff & Phelps Securities Canada Ltd., a registered Exempt Market Dealer. M&A advisory, capital raising and secondary market advisory services in the United Kingdom and across Europe are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. In Germany M&A advisory and capital raising services are also provided by Duff & Phelps GmbH, which is a Tied Agent of DPSL. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.
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April 28 - May 1, 2019 Cayman Islands