The Prudential Regulatory Authority has brought its settlement discount scheme into line with that of the Financial Conduct Authority by scrapping its tapered discount scheme for the later settlement of disciplinary action.
When the FCA’s “new” penalties regime came into force in 2010, the FCA operated a tapered discount scheme, by which it was possible to obtain 30% off a proposed financial penalty if a settlement was reached with the regulator very early on in the enforcement process. Essentially, this meant before the Warning Notice was issued; with a sliding scale for settlement after that, of 20% (between the issue of the Warning Notice and the expiry of the time for making written representations to the Regulatory Decisions Committee) and, finally, 10% (between the expiry of the time for making written representations to the RDC and the issue of the Decision Notice).
When the PRA first published its statement of policy on bringing enforcement proceedings in 2013, it mirrored the FCA’s existing framework and provided for the same 30% / 20% / 10% sliding scale of available penalty discounts.
In 2017, the FCA changed its policy and scrapped the later 20% / 10% discounts for settlement, retaining only the 30% available settlement discount for full settlement before the issue of the Warning Notice. The PRA’s revised enforcement policy, published in October 2019, has now followed suit.
Unlike the FCA, however, the PRA has not yet brought into effect any ability to partially settle matters with it by entering into a “Focused Resolution Agreement”. Focused Resolution Agreements were introduced by the FCA in 2017 to provide a mechanism whereby the subject of an investigation could, for example, agree the facts but dispute the appropriate penalty to be imposed, or agree that certain, but not all, breaches had been committed.
The benefit of a Focused Resolution Agreement is it focuses the FCA’s and the subject’s resources on matters that are in contention. Another benefit for the subject is that they can get a partial settlement discount (between 0 and 30%, depending upon the extent of acceptance), for the facts/breaches they accept, while continuing to dispute the remainder.
Osborne Clarke comment
Although not necessarily a welcome development for the industry, it is easy to understand why the PRA has followed the FCA and is now only permitting a discount for early settlement if such a settlement is indeed very early on in the enforcement process. If the PRA’s concerns have some validity to them, then the subjects of investigation are more likely to accept some inaccuracies in the regulator’s understanding of events in order to obtain that settlement, rather than continuing to contest and attempt to correct any misunderstandings or inaccuracies while they still have a potential discount available. This is intended to help the PRA to achieve its desired outcomes and statutory objectives, while conserving as many resources as possible for other matters.
What is less clear is why the PRA did not also take the opportunity to bring in its equivalent of Focused Resolution Agreements in order to further encourage at least partial early settlement of enforcement matters. It may be that, with only one FCA Focused Resolution Agreement having thus far made its way to the Upper Tribunal, the PRA is waiting to see how this addition to the FCA’s regulatory armoury pans out further before making any further changes to its own policy.