Exploring The FCA Handbook: DEPP

The Financial Conduct Authority (FCA) Handbook contains a wide range of rules, guidance, and procedures that firms and individuals must follow to ensure that they operate in a compliant and responsible manner. One important section of the Handbook is DEPP, which stands for "Decision Procedure and Penalties Manual." In this article, we will explain the purpose of DEPP, its key features, and how it is used by the FCA and the support that consultancy services can provide.

Purpose of DEPP

The main purpose of DEPP is to provide guidance to FCA staff on how to make enforcement decisions and impose penalties. It sets out the procedures that the FCA must follow when exercising its regulatory powers and outlines the factors that the FCA should consider when determining whether to take enforcement action.

DEPP is relevant to all regulated firms and individuals who are subject to the FCA's oversight, including banks, insurance companies, asset managers, and other financial institutions. The Handbook provides detailed guidance on how the FCA should approach a wide range of regulatory issues, including market abuse, fraud, misconduct, and breaches of regulatory requirements.

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Key features of DEPP

DEPP is divided into several sections, each covering a different aspect of the FCA's enforcement procedures. The key features of DEPP include the following:

1. Decision-making procedures: This section sets out the steps that the FCA must follow when making enforcement decisions. It includes guidance on how the FCA should conduct investigations, gather evidence, and consider mitigating factors.

2. Penalties: This section provides guidance on the types of penalties that the FCA can impose on regulated firms and individuals, including fines, public censures, and suspensions or bans from the financial services industry.

3. Settlement procedures: This section outlines the procedures that the FCA must follow when negotiating settlements with firms or individuals who have committed regulatory breaches.

4. Appeals: This section explains the appeals process that is available to firms and individuals who wish to challenge FCA decisions.

5. Procedural issues: This section covers a range of procedural issues, including the disclosure of information, the use of expert witnesses, and the conduct of oral hearings.

How DEPP is used by the FCA

DEPP is a key tool that the FCA uses to ensure that regulated firms and individuals operate in a compliant and responsible manner. When the FCA identifies a potential breach of regulatory requirements, it will typically use DEPP to guide its decision-making process.

For example, if the FCA suspects that a regulated firm has engaged in market abuse, it will use DEPP to guide its investigation and enforcement decision. The FCA will gather evidence, consider mitigating factors, and determine the appropriate penalty based on the severity of the breach.

Similarly, if an individual is found to have breached the FCA's Conduct Rules, the FCA will use DEPP to guide its decision-making process. The FCA will consider the individual's conduct, any mitigating factors, and the appropriate penalty based on the severity of the breach.

Senior Managers

An important element of DEPP is 6.2.9 which sets out the regulator’s expectations of senior managers, specifically the behaviours which may lead to enforcement action being taken. Importantly they set out a number of expectations of senior managers, such as:

• Keeping up to date with regulatory concerns and developments, particularly those that will impact their role and responsibilities.

• Understanding the impact of all relevant statutory, common law and other legal obligations that are relevant to their role and responsibilities.

• Ensuring that any delegation of their responsibilities are made to an appropriate person with the necessary capacity, competence, knowledge, seniority and skill, and that steps are undertaken to oversee any delegated responsibility.

• Ensuring that the reporting lines in relation to the firm’s activities for which they are responsible are made clear to staff and operate effectively.

• Implementing appropriate policies and procedures to review the competence, knowledge, skills and performance of staff members to assess their suitability to fulfil their duties.

• Understanding and informing themselves about the firm’s activities for which they are responsible, including:

  • seeking an adequate explanation of issues within a business area, if they are not an expert in that area;

  • maintaining an appropriate level of understanding about an issue or a responsibility that they have delegated to another individual(s);

  • obtaining independent, expert opinion where appropriate;

  • only permitting the expansion or restructuring of the business after having reasonably assessed the potential risks;

Reasonable Steps

A key element here is ‘reasonable steps’. If a senior manager can maintain evidence to demonstrate they have taken reasonable steps to control their area of the business effectively they will likely be protected from action. Reasonable steps can include evidence you have delegated to a person with relevant skills, knowledge and expertise to undertake that activity and they have capacity to do so. Senior managers should think about the evidence they could produce to the regulator to prove this, should they need to.

Equally oversight of performance is an important step, again managers should be aware of the evidence they could provide, whether this is MI reports [with demonstratable action following the review of the MI], board reports, or minutes but also competency assessments, CVs and other documentation.

This is where consultancy support can assist you, providing you with a fresh pair of eyes to review the evidence you have in place and where weaknesses might be.