Senior manager conduct: what the FCA considers in enforcement
The FCA's enforcement approach to senior managers has evolved significantly since the introduction of SMCR. The duty of responsibility — the presumption under Section 66A FSMA that where a firm commits a breach, a senior manager responsible for the area in which the breach occurred is taken to have been knowingly concerned in it unless they can show they took reasonable steps to avoid the breach — places a substantive evidential burden on individuals. Understanding how the FCA applies this duty in practice, and what 'reasonable steps' means in different contexts, is essential for any person holding an SMF.
The FCA has been explicit in DEPP and its published enforcement cases that 'reasonable steps' is assessed against what was objectively reasonable, not what was convenient or commercially comfortable. Key factors the FCA considers include: whether the individual was aware of the risk; whether they had adequate information to assess it; whether they sought appropriate expert advice or escalated concerns; whether they provided adequate resource and oversight to their area of responsibility; whether they monitored implementation of relevant policies and controls; and whether they acted promptly when concerns came to their attention. An individual who was not aware of a problem that they should have known about may still have failed the reasonable steps test if adequate information systems and escalation routes were not in place.
The FCA's enforcement cases against individuals under SMCR have primarily involved failures to maintain adequate oversight of delegated functions, failures to escalate concerns to the board or regulator when the individual had sufficient information to recognise their significance, and failures to resource compliance and control functions adequately. The proposition that commercial pressures justified under-resourcing the compliance function has consistently been rejected. Senior managers who accepted resource constraints without formally documenting their concerns and seeking board or ownership-level resolution have been held to have acquiesced in an inadequate control environment.
Cooperation with FCA investigations is a significant factor in outcome. The FCA's DEPP guidance identifies full cooperation as a mitigating factor that can reduce the financial penalty and the severity of any prohibition order. Cooperation includes self-reporting issues proactively, providing complete and prompt responses to information requests, making witnesses available, and not obstructing or seeking to influence the investigation. Attempts to manage the investigation narrative — through selective disclosure, coordination of witness accounts, or attempting to use legal professional privilege to conceal relevant information — are treated seriously and can aggravate outcomes.
Documentation and contemporaneous records
The most reliable defence for a senior manager facing FCA scrutiny is a contemporaneous documentary record of their decision-making. This includes minutes of meetings where risks were discussed, emails escalating concerns, written records of decisions not to act and the reasons for them, and records of oversight activities. Senior managers who maintain adequate personal records of their decision-making are far better positioned to demonstrate reasonable steps than those who rely on reconstruction after the event. This should be a routine professional discipline, not an activity reserved for crisis situations.