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Financial Services Law Insights and Observations

UK Upper Tribunal Finds Bank Executive's Compliance Actions Reasonable, Overturns FSA Decision

Financial Services Authority Bank Compliance

Federal Issues

Recently, the United Kingdom’s Upper Tribunal overturned a decision of the Financial Services Authority (FSA) that held a top bank executive liable for failure to take reasonable steps to adequately address certain regulatory compliance problems. Specifically, the FSA charged that the executive failed to take reasonable steps to identify and remediate serious flaws in the design and operational effectiveness of the firm’s governance and risk management frameworks and was too slow to initiate a comprehensive review of systems and controls across the business, which should have been conducted when he was appointed to lead the firm. The executive challenged the FSA penalty, arguing that his actions to investigate every specific compliance issue that arose and remedy problems in accordance with a defined plan were sufficient and reasonable and that he had undertaken efforts to strengthen his company’s compliance monitoring team. The Upper Tribunal agreed, holding that the FSA’s expectation that the executive institute a broad overhaul at an earlier date was beyond the bounds of reasonableness. The Upper Tribunal also noted that the majority of the compliance failures originated in one division, that the firm was addressing those issues, and that no one within that or other departments of the firm, nor anyone from the FSA, had ever suggested to the executive a need for a more comprehensive review. The Upper Tribunal directed the FSA to take no action against the executive.

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