Enforcement actions by the UK financial watchdog slumped during the last financial year ended March 31, 2023. The number of cases opened against firms and individuals fell 67% and 33% to 26 and 74, respectively. Similarly, the number of closed cases against firms dropped 10% and against individuals decreased 44%.

Is Insider Trading the Biggest Threat?

Overall, the UK Financial Conduct Authority (FCA) handled a total of 100 new cases during the period and closed 107, compared to 190 and 159, respectively, in the prior year. The figures are based on data gathered over three years by the global law firm, Reed Smith through Freedom of Information (FOI) requests to the FCA.

However, the data, confirmed by the FCA to Finance Magnates, shows that despite a decline in enforcement activities, cases of insider trading form the largest number of actions taken by the regulator in the past three years. The financial watchdog opened 61 such cases during the period and closed 52.

“Insider trading is always a major focus for the FCA and, due to improvements in technology, it is easier for the FCA to monitor for suspicious activity,” said Laura-May Scott, the Legal Counsel at Reed Smith. “It is no great surprise to see that opportunistic insider trading accounted for the majority of investigations opened and closed against individuals.”

On the other hand, most of the investigations (13 in total) that the FCA initiated against UK firms during the three-year period were unauthorized collective investment schemes. Comparatively, the regulator closed 27 cases on money laundering controls, which is the highest number of investigations closed against organizations. This is followed by 15 closed cases on pensions advice.

“There was a notable spike in enforcement activity in February 2022, with the number of cases opened against firms 155% higher than the monthly average over the last three years, and cases opened against individuals 121% more than the average,” a representative at Reed Smith explained.

Is the FCA Adopting ‘A Lighter Regulatory Touch’?

In a recent summary of its regulatory actions in 2022, the FCA said it had increased the number of its enforcement actions and employed 1,000 new officers to better protect consumers from financial harm. It also revoked the licenses of 201 firms that failed to meet regulatory standards during the period.

However, what does the sharp drop in enforcement actions or cases during the recent financial year mean? Does it translate to a reduction in cases of misconduct or infer that the FCA is softening its approach?

Romin Dabir, a Partner at Reed Smith, believes that the drop in enforcement actions could be related to a backlog from the COVID-19 period. Dabir noted that the FCA could be possibly busy with closing cases it had previously opened.

“The relative decline in enforcement activity may also reflect the government’s current objective to increase the competitiveness of the City of London,” Dabir added. “It is possible that the FCA may be adopting a lighter regulatory touch on certain issues than in previous years.”

However, the FCA told Finance Magnates that its approach towards enforcing against serious misconduct remains ‘unchanged’. The regulator said it had generated over £200 million in fines in 2022 through its actions against those that cause the most harm in the country’s financial services industry.

“The number of enforcement cases we open naturally varies from year to year. Enforcement investigations are one tool we use to protect consumers and market integrity,” the FCA explained. “We have also increasingly used earlier assertive interventions – for example shutting down firms when they’re not meeting standards.”

Earlier this year, the FCA launched its business plan for 2023-2024, noting that it would focus on four primary areas: concentrating on consumers' needs, preparing financial services for the future, strengthening the position of the UK in the global wholesale markets and reducing and preventing financial crime.

CNMV's new warning; recurring payments by Praxis; read today's news nuggets.