The EAS was introduced as a new option for firms and individuals for early cooperation. The subject of the investigation is now able to request to participate in the EAS within 28 days from receipt of the Notice of Appointment of Investigators. If the PRA accepts the request, the subject will have 6 months to produce a detailed factual account (“Account”), together with relevant evidence, of the matters under investigation. The PRA will compel production of the Account and related materials using its statutory powers. For firms participating in the scheme, the Account needs to be supported by a Senior Manager attestation.
Is the EAS really open to individuals in practice?
At a high level, the EAS operates in broadly the same way for both firms and individuals. The subject of an investigation applies to participate in the EAS and, if the PRA accepts the request, the subject is then compelled to provide a detailed factual Account of the matters under investigation. In addition, for firms, the Account needs to be supported by a Senior Manager attestation, on which see further below.
In its statement of policy, the PRA confirms that appropriate allowances will be made to individuals, acknowledging that their access to all relevant materials and documents may be restricted beyond those to which the firm as a whole would be expected to have access. This reflects the core informational asymmetry between the firm and the individual, which has several implications for whether participation in the EAS is in fact a viable option for individuals – before even considering whether participation is attractive.
This reflects the core informational asymmetry between the firm and the individual, which has several implications for whether participation in the EAS is in fact a viable option for individuals – before even considering whether participation is attractive.
On this, we make three key observations:
- Even where the PRA makes concessions to individuals on account of lacking access to documentary material, it will only extend to the question of their cooperation. The PRA is unlikely to accept an individual’s factual Account without undertaking evidential lines of inquiry to confirm their position. It would be ill-advised for any individual to engage in the EAS knowing that unseen material, which may subsequently be gathered by the Regulator, may be inconsistent with their recollection or understanding of events. The risk of having your Account subsequently undermined, losing the cooperation credit and, worse still, being accused of misleading the Regulator, is unlikely to be counterbalanced by the lure of a potential reduction in financial penalty of additional 20%[1].
- Even where an individual is inclined to participate in the EAS, in reality it may be difficult for them to gather evidence effectively through the firm. The interests of the firm and the individual may not be (fully) aligned, and the nature of internal requests for material may reveal the position the individual intends to take before the PRA. Whilst the PRA policy notes that it would consider the steps the subject of an investigation has taken to obtain relevant information, it is unclear how the PRA would assess the adequacy of such steps. Will the PRA be sensitive to the dynamic presented between the employee investigation subject and their firm?
- It would be a rare case for an individual to make admissions so early in the process, as required under the EAS process, without properly understanding the potential case against them. The likelihood of an individual opting to do so is even more remote given the short timeframe (i.e. 28 days of receiving the notice of appointment of investigators) in which they have to make that decision, which can only be properly informed by establishing (even if only in broad terms) the potential case against them.
Does firm’s incentivisation under the EAS risk individuals being unduly disadvantaged by the process?
There is a clear benefit to a firm in participating in the EAS. The EAS allows for greater control over the investigative process, and therefore a quicker resolution, as well as potentially a cheaper one if benefitting from the maximum discount of 50%. However, the EAS risks inherent conflict between the interest of the firm and those of any individuals who are or may be investigation subjects, which could be difficult to manage.
However, the EAS risks inherent conflict between the interest of the firm and those of any individuals who are or may be investigation subjects, which could be difficult to manage.
Having decided to opt into the EAS, a firm will be in a fully cooperative posture, holding the reins of the investigative process. Particularly, where the trigger for the PRA’s investigation interest is some accepted crystalised harm, or poor outcome, it seems very likely that a firm will be encouraged to make some admissions to avoid losing the cooperation credit that had acted as the incentive to enter the EAS in the first place. The conduct of the investigation may, therefore, be skewed towards reaching a set of conclusions that will be acceptable to the Regulator.
In preparing its Account, which it must do within 6 months, a firm will inevitably have to consider, at some level, personal responsibility and culpability. Their investigation may naturally touch upon the knowledge of any senior management function holders who are (or were at the relevant time) responsible for the area(s) of business to which the alleged failings relate. The PRA will expect the Account to cover such matters. As such, the firm’s own Account could well be the basis on which investigations into individuals are commenced. Given that the Regulator is unlikely to test the Account with the same rigour that it would conduct its own investigation, outsourcing the use of the EAS could set in train individuals unfairly facing protracted and harmful processes.
The firm’s own Account could well be the basis on which investigations into individuals are commenced.
The Upper Tribunal decision in Seiler, Whitestone and Raitze v FCA [2023] UKUT 00133 (TCC) illustrates the difficulties that may arise from relying on the firm’s Account to bring action against individuals. The Tribunal noted that the Regulator (the FCA in that case) should have considered the appropriateness of conducting contested proceedings against individuals based on its acceptance of a version of events put forward by the employer of those individuals, who was keen to settle the separate proceedings taken against that firm without conducting its own rigorous investigation into the individuals concerned. One imagines that the risk would be more acute where settlement arose from the EAS, rather than following a full Regulator-led investigation.
The other key risk to individuals, arising from the EAS, concerns the process and safeguards by which they might be interviewed by the firm (or its lawyers) during an investigation under the EAS. Assuming that any at-risk individual is still a current employee, they will feel duty bound – or indeed may be bound under their employment contract – to cooperate fully and, as such, not benefit from the safeguards that they would otherwise enjoy if interviewed by the Regulator as a subject (e.g. pre-interview disclosure, independent legal representation and the opportunity to comment on the transcript of interview). The interview by the firm may be the basis on which the PRA may launch a subsequent investigation into them personally and evidence relied upon in any resulting enforcement action. The PRA noted in the statement of policy that it “may consider it necessary to (…) conduct interviews if, for example, the subject is an individual”. There is little guidance on the circumstances in which this power may be exercised (in fact this point is made by way of a footnote). However, it may not be feasible for the firm and / or PRA to identify those individuals at personal risk at the outset of the firm’s investigation.
The other key risk to individuals, arising from the EAS, concerns the process and safeguards by which they might be interviewed by the firm (or its lawyers) during an investigation under the EAS.
Risks around attestations required from an appropriate Senior Manager
As mentioned at the outset, firms that are accepted into EAS will be invited to nominate the appropriate Senior Manager to provide the attestation in relation to the Account. Critically, the PRA will have discretion whether to accept the nomination considering the Senior Manager’s areas of responsibility and their objectivity and competence in relation to the matters under investigation. The PRA has confirmed that detailed knowledge of the area under investigation is not required, but a sufficient understanding of the facts, issues, systems and controls, and governance structures is expected. The collaborative nature of the nomination process should ensure that there are no concerns about the integrity of the attestor or their involvement in the misconduct.
Nevertheless, the PRA has confirmed that it may consider sanctions against the attesting Senior Manager if the PRA identifies that the individual has knowingly misrepresented the position in the Account submitted to the PRA or has otherwise fallen short of the applicable obligations in overseeing the production of the Account. Whether there is a real risk that EAS attestations may lead to enforcement action against the Senior Manager remains to be seen given that no enforcement action
