Tough on Crime or Tougher to Prosecute?

The MLR 2021 creates several criminal offences, the most significant which is that of breaching another requirement. The relevant requirements demand those operating inside the regulations undertake certain activities and avoid undertaking others unless the correct processes and procedures have established yourself. Regulation 86 makes it a legal to breach a relevant requirement, carrying the chance of a fine and/or as much as 2 yrs imprisonment.

However, a freedom of knowledge request produced by Eversheds Sutherland to the Home Office revealed that by October 2021 there was no prosecutions underneath the regulations. So what does that mean for that sanctions which were promised to higher regulate the financial services sector? Are we to assume that the very threat of the breach has resulted in a sea change within the sector; or perhaps is this just a case from the relevant authorities neglecting to investigate and/or prosecute those people who are in breach from the regulations?

The regulations themselves were only laid before Parliament one morning just before commencement; leaving very little time for those who would be affected to prepare for their implementation. It might perhaps 't be surprising therefore if regulators allowed a period of time to adapt to the new requirements. However, a time of some fifteen months had passed between your date of implementation and also the freedom of knowledge request.

In July 2021 Mark Stewart, Director of Enforcement and Market Oversight in the Financial Conduct Authority indicated that they started a small number of investigations into firms' systems and controls, to determine whether there's been any misconduct that may justify a criminal prosecution underneath the MLR 2021. Stewart made the next observations:

• That the MLR 2021 specifically makes provision for criminal prosecutions and also the FCA is simply giving effect to the purpose of the regulation
• That in most cases an investigation is going to be opened on the dual track, with both regulatory and criminal offences under consideration having a broad range of outcomes, including no further action
• That the truth that criminal proceedings may be brought does not meant that they'll be brought. He re-iterated than an investigation is really a fact-finding mission and the presumption of innocence applies throughout an investigation; and
• That in almost any potential justice the FCA must satisfy both the evidential and public interest test in order to bring criminal charges

Those assertions have been in line with the FCA mantra that tackling money laundering will be a priority. But how do they sit using the apparent insufficient such prosecution?

Powers to prosecute aren't new; having existed and been put into effect underneath the MLR 2007. But prosecution isn't the best way to cope with regulation breaches, as is shown by Stewart with what he sets out as a 'dual track' approach. You should bear in mind that criminal prosecution has a high evidential and public interest test; most famously because of the significant costs of bringing such proceedings. Stewart explained that prosecution would therefore be restricted to probably the most serious of cases.

Whilst there may at present be an eerie silence surrounding the MLR 2021, it might be reckless for firms not to follow the requirements from the regulations. Criminal investigations take time, specially when they involve vast swathes of financial data. Even though the FCA may be cautious to order its powers which are more serious of breaches, those who work in charge make it clear that they'll prosecute when the seriousness test is passed.

I suspect the eerie silence is representative of numerous factors; not least a period of adjustment but also the sectors initial reaction to the threat of stricter penalties and perhaps more likely, the truth that other changes bought in by directives such as MiFID II have ensured greater accountability for those who work in charge of the financial services sector.