Clifford Chance

Key takeaways from the Bank of England's Policy Statement (PS 1/24).

The Bank of England has taken on some of the feedback it received during its consultation in 2023 – CP9/23 – The Bank of England’s approach to enforcement: proposed changes and clarifications – and made some minor adjustments to its final Policy Statement.

For a general overview of the key changes it is making through the Policy Statement, see our earlier blog Changes to the Bank of England and Prudential Regulation Authority's enforcement approach: CP9/23.

On some of the key questions we raised in our earlier blog, the Bank's feedback has clarified that the full 50% settlement discount will likely only be available for subjects who admit regulatory breaches (in addition to meeting a number of other requirements). It also acknowledges that the changes in the method of penalty calculation may result in increased penalties for some firms. In relation to the potentially broad scope of the attestation requirement, the Policy Statement helpfully now more clearly focusses the requirement on the integrity of the process carried out in producing the Account.

However, a large number of points raised during the consultation remain unanswered and it will only be following the passage of time and its use, that it will become apparent whether the Early Account Scheme ("EAS") produces swifter and more efficient investigations.

We summarise below where the Policy Statement has landed on some of the key points.

1.The Early Account Scheme

i) The EAS may not be available to firms where the additional efficiencies created by the EAS are likely to be minimal, for example, where the PRA already has advanced knowledge of the potential misconduct at the time of opening a regulatory case as a result of a related investigation.

ii) A firm's existing investigation report (pre-dating the commencement of the regulatory investigation) may, in appropriate cases, be produced in support of the Account.

iii) Where there are multiple subjects under investigation, it is unlikely that they will be permitted to produce a joint Account. However, the PRA will consider on a case-by-case basis whether members of the same corporate group may produce information collectively. The PRA does not rule out allowing multiple subjects to each participate in the EAS, and to each produce their own Account.

iv) In investigations involving multiple regulators or law enforcement agencies, whether the EAS will be available will likely depend on whether the other regulators/agencies agree that its use is appropriate. Even so, it will not bind the other regulators/agencies.

v) The timeframe for reaching agreement with the PRA to enter the EAS remains 28 days from commencement of the investigation, and for the production of the Account, ordinarily six months. The PRA may in its discretion provide an extension to these timeframes in "exceptional circumstances". Failure to produce the Account on time may be taken into account when assessing the firm's co-operation in the context of determining the amount of any fine.

vi) Interviews conducted in support of the Account need to be recorded and transcribed, and the transcripts produced alongside the Account. When the PRA will decide it is appropriate to attend interviews supporting the Account is case dependant. When it does so, it will provide the finalised transcripts to the subject prior to the production of the Account.

vii) The PRA may wish to discuss the involvement of external parties (including law firms or other professional advisors) who are engaged to assist the firm producing the account. If the PRA considers claims to legal professional privilege ("LPP") may be preventing a fulsome disclosure of all relevant material, the PRA may seek further information in order to assess or challenge the validity of the claims to LPP. The PRA will be willing to discuss provision of privileged information on the basis of a limited waiver of privilege but cannot accept material on the basis of a purported restriction as to its use in the lawful exercise of its statutory functions.

viii) Once commenced, the PRA can terminate the EAS by rescinding any statutory requirements it has issued for the production of the Account, relevant materials and attestation. It will take into account a range of factors when deciding to do so, including a request by the subject to withdraw. However, this means the subject will not always be able to unilaterally withdraw from the EAS, for example if it unexpectedly finds itself unable to complete the Account within the required timeframe or at all. As noted above, this could impact the assessment of the firm's co-operation in the context of determining the amount of any fine.

2. The Enhanced Settlement Discount

The full 50% discount is likely to only be available when a subject:

i) provides a timely, detailed and accurate Account;

ii) makes admissions of facts;

iii) makes accurate and fulsome admissions of any relevant regulatory breaches arising out of those facts,
either at the point the Account is delivered, or within a specified timeframe thereafter.

3. The Senior Manager Attestation supporting the Account

The relevant Senior Manager will be responsible for challenge and oversight in the production of the Account. The focus of their attestation will be the robustness of the investigation and process leading to its production. The broadest part of the attestation is the requirement to confirm "there are no other related matters or relevant information which the senior manager is aware of which are relevant to the matters under investigation and which should be notified to the PRA". This is now qualified by a statement that the confirmation is given in relation to "the matters to be covered by the Account and based on the scope and methodology for the Account". This should help to alleviate the concern that this part of the attestation might have driven the need for additional investigation, beyond that which it has already been agreed is necessary to produce the Account.

4. New Approach to Penalty Calculation for Firms

i) Fines are likely to go up for some firms. While the Bank expresses the view that in aggregate there is unlikely to be a material uplift in penalties, it acknowledges that "in certain circumstances the application of the amended firm penalty policy may lead to the imposition of higher penalties".

ii) PRA Fundamental Rule 1 and PRA Fundamental Rule 7 breaches will now involve a "rebuttable presumption" that they fall within the Level 3 seriousness band (rather than automatically being within this band).

iii) Following adjustments to remove overlap and amend the description of the seriousness ranges, the revised Step 2 starting point matrix is: