Bank of England Creates Independent Committee to Decide Contested Enforcement Cases
The Bank of England (BoE) is set to establish a new ‘Enforcement Decision Making Committee’ (EDMC) for its Prudential Regulation Authority (PRA). The Committee, which will be composed of independent members, will decide so-called ‘contested cases’ where no settlement agreement could be reached between the PRA and the firm or individual under investigation. Until now, such cases have been decided internally by the PRA’s own executives, who may have been involved in or close to the original investigation. The reform aligns the PRA’s procedure with that of its sister regulator, the Financial Conduct Authority (FCA).
Why does this matter?
According to the BoE, the reform strengthens the independence and robustness of the PRA’s decision making process. The reform comes ahead of an anticipated increase in contested cases involving individuals before both regulators. That increase is expected following the introduction in April 2016 of the 'Senior Managers & Certification Regime’. This new regime, which is enforced by the FCA and the PRA, applies to a broader set of firm employees and creates new and stricter standards.
As a result, firms that are subject to PRA and/or FCA investigations involving employee misconduct can increasingly expect parallel investigations into the employees themselves. If so, tensions may arise between the firm’s and the employee’s interests. While firms may wish to cooperate and reach a settlement with the regulator, individuals may be more inclined to contest the case given the potentially higher stakes for them – including disqualification and loss of livelihood. In contesting the case, one defence tactic of the individual might be to undermine the firm and the submissions made by it to the regulator in reaching a settlement.
What should you do?
This means that, where suspicions of employee misconduct arise, it is more important than ever that a firm’s internal investigation into those suspicions is beyond reproach, in terms of both its findings and respect for the employee’s fundamental rights.
In-house counsel must be alive to the possibility of divergent employee interests even in cases that start before authorities where the possibility of a contested individual case in parallel to the firm’s own settlement discussions does not arise, such as the European Commission or other antitrust authorities. In today’s regulatory climate, investigations can proliferate, so what might start as an antitrust case may quickly become a FCA or PRA case too.
A consultation on the announced EDMC is set to close next month, with responses being requested by 2 February 2018. Subject to that consultation, it is the BoE’s intention that the EDMC be operational and start hearing contested cases within the first quarter of 2018.
How can Cadwalader help?
Cadwalader’s antitrust team is one of only a few in Europe to focus on the financial services sector. We are specialists in offering ‘end-to-end’ advice on investigations and related litigation in this sector.
If you would like to discuss the issues arising in this alert, or how we can help you more generally, please contact Tom Bainbridge.