UK: Themes For The New Year - The FCA's December 2014 Enforcement Conference

Last Updated: 4 February 2015
Article by Felicity Ewing, Alexandra Doucas and Katharine Harle

The coming year sees a number of regulatory changes on the horizon, from the implementation of the new Senior Managers Regime to the FCA's review of its policy on penalties. In order to understand what will change from a regulatory perspective, it is perhaps necessary to understand why. One of the best guides to that is the text of the speeches made by Martin Wheatley and Tracey McDermott at the FCA's enforcement conference at the end of 2014. Both speakers used the opportunity to highlight the conference's key themes of culture and governance. In doing so, they touched on many of the issues which are at the heart of the public debate in relation to banks and their regulation, and which will continue to be topical into the forthcoming year.

In this update we consider some of the messages to be taken from what two of the FCA's most senior members have to say about cultural change within regulated firms.

Time needed for cultural change to take effect

Both Martin Wheatley and Tracey McDermott referred to positive signs of change at the tops of regulated firms, noting the increased role of compliance staff in product design and intervention in the running of the business. However, a notable point in both speeches was the disappointment felt that well-publicised scandals and fines of the past (LIBOR was mentioned by both) had not prevented the equally well-publicised scandals and fines of the present (foreign exchange at the forefront of the list). The impression conveyed was that the seeds of change appeared to have been sown, but the crop was still looking rather thin.

This is attributed by both to a failure to date to make cultural change felt within organisations below the top level. Martin Wheatley noted that firms had probably prioritised systemic changes over cultural ones in the wake of the financial crisis. While there was a clear message that the time for change had come (arguably some time ago), the discussion in relation to the difficulties of instituting it was somewhat more nuanced and without definite answers. The risk posed by poor culture is not, as Martin Wheatley noted, capable of measurement by formulae and metrics.

The distinction between obeying the rules for fear of getting caught, and obeying them because you believe it to be wrong not to, was brought out by Tracey McDermott in an analogy with the change in generational attitudes to drink driving. She noted that while her parents' generation was only deterred from drink driving because they were afraid of the consequences of being caught, her own generation had come to view it as socially unacceptable. While the analogy is interesting in a number of contexts, it may be a gloomy one to Martin Wheatley, whose speech stated that he did not intend change to take a generation to effect.

Individual accountability

Another point of superficial (one suspects not actual) difference between the two, was that while Martin Wheatley referred positively to the recruitment of thousands of new compliance staff by firms, Tracey McDermott noted that it did not matter how many compliance officers were recruited, if the "front line" did not accept change. Both were consistent in saying that cultural change, and good governance, needed to come from the top of the business, and be part of its model, rather than being the sole preserve of compliance.

A key aspect of this, of course, is individual accountability for maintaining good standards of professional behaviour, although Tracey McDermott was dismissive of the suggestion that past misdemeanours could be blamed on a few "rotten apples". In that, she appeared to endorse the recent comment by Mark Carney that the problem was not with the apples, but with the barrel in which they were stored. In her terms, miscreants had not operated in a vacuum. Instead, they had believed (at best) that poor behaviour would be excused by good results, in a Machiavellian world of ends and means, and (at worst) that poor behaviour would be rewarded.

She pointed to the FCA's new senior management regime and certification regimes as a means of ensuring that cultural change took place, and that those at a senior level were responsible for implementing it. It therefore seems (unsurprisingly) that while the FCA recognises the difficulties of getting cultural improvement to percolate down the ranks, it will still hold senior management accountable for getting precisely that job done.

The role of the regulator

Both Martin Wheatley and Tracey McDermott referred to the role of the regulator in being forward looking, assisting to ensure future compliance as well as punishing the mistakes of the past.

However, Tracey McDermott defended the role of punishment as well, denying suggestions from the industry that the FCA enforcement division had a "Soviet tractor factory" mentality towards fines, of fulfilling ever-larger quotas. Reverting back to the analogy of drink driving, the FCA clearly views fear of the penalty as a necessary step to ensure compliance, and Martin Wheatley also noted the need for fines to "bite harder" the longer change took to effect. The FCA will review the current penalty regime during 2015 and as part of that review will consider whether the current regime is effective in encouraging changes in behaviour.

There was also, however, a rebuttal to those who have said that there is simply not enough regulation of the banking industry. Tracey McDermott argued against a proliferation of rules, and a culture which promotes strict obedience to detailed rules, and disregard to their underlying ethics. She pointed to the volume of guidance issued by the FSA between 2005 and 2008, and its lack of efficacy in preventing poor standards of behaviour. The FCA obviously seeks to promote a culture where poor behaviour becomes unacceptable and shaming at all levels, and governance which can deliver such a culture, and detect those instances where it fails.

The role of competition

Both speakers were keen to point out to firms the commercial imperatives for change. Tracey McDermott referred to the threat to London's pre-eminence as a financial centre, and said there could be little doubt that misconduct was one of the reasons. Given that the best publicised recent fines have followed international investigations, and that the same failings seem to have tainted more than one of the leading financial centres, this proposition might be challenged by some. It is also interesting in the context of the criticism usually made that excessive regulation will drive business away. Tracey McDermott's answer to that would presumably be that the key benefit of a positive culture is that it reduces the need for prescriptive regulation rather than requiring it.

Martin Wheatley focused instead on the threat to banks from domestic competition. He referred to findings by PWC that many customers stay with a bank more out of apathy than loyalty, and that if a market participant were able to produce a sufficiently different offering, it would be likely to entice a large number of customers. Referring to moves by the PRA and FCA to remove barriers to customers switching banks, Martin Wheatley's message was obviously that just as a positive offering could attract customers, so negative reports of poor behaviour would send them into the arms of competitors. There may be some arguments against this proposition. First, while Martin Wheatley was positive about the number of new entrants to the market, many have observed that there is still some way to go in that regard. Second, as both speakers appeared to acknowledge, much of the public believes that all banks are tarred with the same brush, and it may be that they would expect more of the same from any bank in relation to conduct issues.


These two key speeches at the FCA's enforcement conference could perhaps be criticised for one thing: they were proficient at identifying the problem, and much less informative about the solution. Indeed, feedback from the industry was that the FCA does not do enough to explain "what good looks like" (the industry might want to think carefully before asking for additional guidance).  It is always easier to criticise than to construct, and it is not the FCA's job to run the country's banks. Responsibility for doing what needs to be done in order to effect change must lie at the door of those who manage the businesses concerned.

However, the FCA is not in the position of a disinterested observer. Tracey McDermott must be correct that the pressure is on both regulator and regulated to regain public confidence in the financial services industry. It appears to be the case from these speeches that the FCA will seek to discharge its duties in relation to securing cultural change by wielding both carrot and stick.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
28 Sep 2017, Seminar, London, UK

On 26 July the FCA published its long-expected consultation paper on the extension of the SMCR to all FCA-authorised firms. The so-called "core regime" introduces the key concepts of regulator-approved senior managers, firm-approved certification staff and conduct rules applicable to virtually all staff.

3 Oct 2017, Conference, Zurich, Switzerland

As the founding Partner of the Europe-Iran Forum, Dentons Europe will once again support this year’s event. This compelling event which explores all Iran-related topics will take place in Zürich on 3rd and 4th October.

4 Oct 2017, Workshop, London, UK

We are hosting an interactive workshop where we will run a mock High Court trial of an employee competition case – where the members of the audience are the judges. The session, aimed at in-house counsel and HR professionals, will offer an insight as to how disputes involving employees moving to a competitor play out in practice.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.