A spate of final notices issued by the FCA over the last month highlights the volume of breaches by firms failing to deal with the regulator in an “open and cooperative” manner.

Principle 11 of the FCA’s Principles for Businesses says that “a firm must deal with its regulators in an open and cooperative way, and must disclose to the appropriate regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice”.

In October of this year alone, 27 companies and/or individuals were issued with final notices by the FCA that involved a breach of Principle 11.

Large or small, breaches of Principle 11 can have significant consequences

The majority of the companies in breach of Principle 11 encountered seemingly minor lapses in administration. In particular, failure to submit regulatory reporting forms by consumer credit firms.

However, these ‘minor’ failures can lead to serious consequences, which can impact on the firm’s ability to carry out its business. One of most significant enforcement actions the FCA can take is the cancellation of a company’s permissions to carry out regulated financial activities. No matter the size of the company or how insignificant the FCA’s requirement may seem, it is vital for regulated firms to ensure compliance with the FCA’s Principles.

The high volume of smaller firm permission cancellations is in contrast to the much less frequent, but higher profile breaches of Principle 11 by large financial institutions. For these companies, it is likely that a final notice will describe a more serious breach than simply failing to file correct paperwork. This is reflected in the fact that over the last 12 months, only three final notices involving a breach of Principle 11 have included a multi-million pound fine.

Most recently, Tullet Prebon was in the FCA’s firing line to the tune of over £15 million, for breaches of its Principles, including Principle 11 (see our article on this here). In June, Bank of Scotland was fined £65 million and criticised for its failure to disclose information that would assist with the FCA’s investigation and failing to notify the FCA immediately after it became aware that an employee may have committed a significant fraud against it.

Practical considerations

Persistent small failures to submit the required documentation (even regarding what may seem like minor changes, such as a change of address) can lead to companies losing their permission to carry out financial services. This could also result in the firm failing to satisfy the FCA’s expectations of a fit and proper business/person. The message here is that firms of all sizes need to keep on top of their regulatory paperwork.

A number of more significant practical tips include:

• Discussing matters with the FCA at an early stage and certainly before making any internal or external communications;

• After any notification of a breach, ensure communication with the FCA is continued. The FCA expects clear and prompt communication;

• Always double-check the validity of information being passed on to the FCA; and

• Should a firm be subject to an FCA fine for breach of its Principles, it should be noted that the FCA can offer discounts of up to 30% for early settlement under the FCA’s settlement discount scheme.

The number of FCA final notices in October shows just how seriously it treats a breach of its Principles and serves as an important reminder to regulated firms of the significance of understanding and complying with Principle 11.