UK Finance has responded to Bank of England and Prudential Regulation Authority’s (PRA) consultation paper 9/23 on proposed changes and clarifications to its approach to enforcement.

The consultation makes proposals that will provide a framework for proactive investigation and if adopted, speed up the information gathering process and conclusion of a PRA investigation.

Central to this is an Early Account Scheme (EAS). If the firm, or individual, under investigation chooses to enter the EAS they would be required to supply  a detailed factual account of the relevant facts  along with other relevant materials at the initial stage of an investigation. The EAS not an assessment of whether a regulatory breach has occurred so in many ways is like a firm’s own investigation, which are routinely shared with regulators if an issue has arisen.

Once the PRA has received and reviewed the Account it could decide to discontinue the investigation or alternatively invite the subject of the investigation to enter into settlement discussions as the Account is sufficient for the PRA to make findings.

An inducement for firms entering into the EAS  process is that they will receive an increased discount of up to 50% where a subject participates in the EAS. This compares to the current 30% reduction in fines if agreement is reached within 4 weeks.  This increased discount reflects the benefits of enhanced cooperation between the subject under investigation and the PRA as well as early admission, which avoid a lengthy and potentially adversarial enforcement investigation process.

There are, however, potential complexities:

1. The six-month indicative timeframe for competing the EAS is extremely tight meaning that the subject could be subject to sanctions for non-compliance. So the practical impact is that the EAS will not be attractive in complex cases, notwithstanding that these are the types of cases where the PRA has the most to gain from an early account.
2. The requirement for a Senior Manager to attest that the information provide in the EAS is compete and that there are no other related matters the PRA should be aware of is broad and burdensome. The  personal risks for an individual holding a senior management function makes it unlikely that firms would volunteer to participate in the EAS as proposed.
3. That the 20% extra discount is discretionary may not provide enough of an incentive for participation particularly as there is likely to be  loss of legal privilege in the investigation due to PRA participation, and the requirement for early admissions. 

So whilst well-meaning some of the practical implications of entering into the EAS process may mean that its uptake is limited.