Credible Deterrence: FCA's Enforcement Strategy and Governance Expectations
The FCA's credible deterrence framework demands robust challenge functions and accountability mechanisms. Recent enforcement actions emphasise the importance of effective challenge in preventing regulatory breaches and conduct failures.
Executive Summary
The Financial Conduct Authority's credible deterrence strategy increasingly targets governance failures and inadequate challenge mechanisms. Under the Senior Managers & Certification Regime (SM&CR), the FCA expects demonstrable evidence of effective challenge at senior levels, with enforcement actions reflecting supervisory intolerance for governance weaknesses that enable misconduct or regulatory breaches.
Why it matters now
The FCA's 2024-25 Business Plan prioritises credible deterrence through targeted enforcement, with particular focus on governance failures that enable consumer harm or market misconduct. Recent high-profile enforcement cases demonstrate the regulator's willingness to pursue individual accountability where challenge functions prove ineffective in preventing regulatory breaches.
Regulatory context
- Senior Managers & Certification Regime (SM&CR) - Individual accountability and effective challenge requirements
- Consumer Duty (PS22/9) - Governance arrangements for customer outcome delivery
- FCA Business Plan 2024-25 - Credible deterrence priorities and enforcement strategy
Implementation Requirements
- SM&CR accountability: Senior Managers demonstrate how challenge functions operate within their prescribed responsibilities
- Board composition: Independent non-executive directors provide effective challenge, supported by diverse skills and cognitive perspectives
- Committee effectiveness: Risk and audit committees evidence robust challenge through documented dissent