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The Senior Managers Regime and the numbers which show the shift

Updated: Oct 24, 2022

As a consultant helping firms better utilise data, I had been unaware of the finer details of the FCA’s Senior Managers Regime (SMR) and its chronology. Sure, I had heard about ongoing projects and known of initiatives to implement the SMR, but nothing that required me to play with some data to realise insights and trends. So why am I writing about it now? I was looking at fines handed out by the FCA since 2013 (to YE 2016) and wanted to see if there was anything the regulator had given away, if we just looked at the data a little differently. As well as the expected outcome (i.e. big bank, big risk, big fines) a more interesting trend started to emerge which seems to align with the regulator’s shift towards making senior managers more accountable.

Below I will go through some of that analysis including the vanilla, i.e. what the numbers tell us and we can see, but also the more interesting stuff.

To kick off, some background on the FCA and their recent climb down from a fine happy culture.

From what now seems like a very modest figure of £5.3m of fines in 2007, this number rocketed to circa £1.5bn in 2014. The FCA (back then known as the FSA) seemed to be a regulator on a mission and the sizes of the fines were sending a clear signal of intent.

This however left banks on the back foot who, fearing this reign of extreme fines, campaigned for less aggressive regulation. A change at the top in July 2016 saw the new Chief Executive defend the high fines but also suggest that those levels would not be maintained – i.e. we’re not going to have LIBOR and FX remediation type clean ups every year.

So how does this play out in numbers? The FCA have on their website details all fines from the start of 2013. The first set of bar charts below show fines by year arranged in increasing size.

All fines for 2013

All fines for 2014

All fines for 2015

All fines for 2016

Some initial observations: the volume of fines in 2013 was not matched in any of the following years; 2013 – 15, the big banks were hit hardest; 2013 – 15, we don’t see individuals appearing mid table and beyond (i.e. in the higher fine regions).

Aggregate fine by year

When we look at the sum of fines per year, as expected we see a peak in 2014, a downward trend to £905m in 2015 and with increasing negative gradient to £35m by the end of 2016. The campaign by banks for a less aggressive regulation seems to have worked and notably the big banks do not feature in the 2016 fines (further) above.

Looking at the fines on a month by month basis, it seems the regulator seems to follow the school holiday calendar with announcing fines, i.e. if you’ve been up to no good and know a fine is coming, at least it won’t be announced while you’re on a beach with your family.

Fines by month 2013 - 2016

So not too many surprises there. If you’ve been keeping an eye on the news, all the above should be common knowledge. However, the 2016 chart (further) above gives away some clues for interrogation. Interestingly in 2016 more individuals were fined than companies and if we break the data down to recipients of fines (companies versus individuals) we start to see a trend emerging

count of fine by type of recipient and year

Where 'c' is company and 'i' is individual, the regulator seemed to be going after companies from 2013 through to 2014, however we see a reversal in 2015. A trend which continued into 2016.

At the same time (and as observed from the trend across the charts above) we see an overall downward trend in the number of fines being handed out year on year.

This shift to individuals being fined more in number than companies seems rather coincidentally timed with the evolution and implementation of the SMR. The genesis of the regime can be traced back to 2008 financial crisis when the behaviour and culture within banks came under greater scrutiny. Following a Parliamentary Commission on Banking Standards (June 2012), the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) published a consultation paper in July 2014 which marked a fundamental change in the regulators’ ability to hold individuals to account, and by mapping responsibility, the PRA and FCA set out to improve professional standards in the UK banking industry. 2014 saw two further consultation papers with the year ending with proposals for the application and notification forms necessary for implementing the Senior Managers and Certification regimes. 2015 saw another consultation paper, a policy statement and final rules on regulatory references. The new regime commenced in March 2016 and full implementation wasn't until March 2017. The regime will expand it's scope to cover all financial services firms by 2018. Dodgy one man bands beware.

It is interesting to see how during the crucial consultation period (2014 - 15) we could already see the FCA making a shift in how it penalised regulatory transgressions. This is made all the more obvious when we split the data to sum of fines by individuals and companies over the period 2013 - 2016.

Sum fined to companies 2013 - 2016

Sum fined to individuals 2013 - 2016

Even if we were to strip some of the exceptionally high fines of 2014 and 2015 for companies, it still does not take away the clear upward trend for fines aimed at individuals. The two charts immediately above paint quite a compelling picture. Even during their consultation period, 2014-15, the regulator began a shift in their outward actions and full implementation of the SMR now supports that action.

If the year on year trend from 2014 continues for both companies and individuals and the number of fines continues to fall we could expect to see a very targeted approach from the FCA aimed at senior level colleagues with balance sheets and bonus pools not bearing the brunt.

Key take away: For anyone who has been up to no good. There's no hiding behind process, systems or procedures. The numbers point to a clear trend and with the Senior Managers Regime now fully implemented for banks, the regulator has a mandate to name, shame and fine.

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