SFA consults on changes to enforcement and disciplinary procedures

In Board Notices 466 and 467, the SFA has set out a number of proposed changes in the light of a general review of its Rulebook. These apply to the procedures relating to disciplinary action, SFA's penalty policy and SFA's enforcement rules.

Disciplinary action

SFA has laid down the criteria which lead to it being likely that it will take disciplinary action:

• when it discovers issues itself, particularly if the firm was aware of the problem but had not disclosed it;
• when the issue affects the fitness and proprietary of individuals or firms;
• when the issue reveals systemic weakness in the firm;
• when the issue is compounded by a failure to co-operate with SFA;
• when the issue is a "repeat breach"; and
• when the issue includes a failure to compensate where compensation is due.

However, SFA has made it clear that it will give credit to firms which disclose issues to it. Specifically, "if a firm with adequate controls discovers an issue in a timely way and promptly informs SFA, giving the full facts together with the proposed course of remedial action, disciplinary action will be very much less likely". Any action which may be taken would be likely to receive a significantly discounted penalty for being open with SFA about the problem.

Revised penalty policy

The SFA has revised their previously issued penalty policy relating to firms with a number of minor amendments. For the first time SFA has also issued a similar list of offences in relation to those who are individually registered. This makes it clear that the following will generally result in expulsion from SFA's register:

• misconduct involving lack of integrity or fair dealing;
• misconduct involving a refusal to co-operate with SFA;
• misconduct involving a deliberate misleading of SFA;
• a conviction in respect of dishonesty;
• a finding of fraud, misfeasance or other misconduct by a civil court;
• expulsion by any other regulatory or professional body;
• an order of disqualification either as a director or from acting in the management or conduct of the affairs of a company;
• gross incompetence/reckless conduct.

Precedents

Both the SFA and regulated firms have always paid great attention to the precedents which arise as a result of previous disciplinary actions. These are all published in Board Notices.
SFA has now announced that it intends to increase these penalties by a factor of 4 in relation to firms and a factor of 2 in relation to registered persons. This is a very clear indication of SFA's intentions for the remainder of its existence.

Enforcement rules

SFA has also announced its intention to make a number of minor changes to its enforcement rules.