The then regulator the Financial Services Authority (FSA) called for the power back in January, during an evidence session on the Banking Reform Bill.
Tracey McDermott, then head of enforcement at the FSA, and now in the same role at the Financial Conduct Authority (FCA), told MPs on the committee on banking standards that most enforcement cases take over a year to conclude, and in that time those individuals being investigated are free to carry on working in the financial services industry.
She asked for the power to impose an interim prohibition order on individuals with a controlled function to ban them from practising while the regulator investigates them.
However the Parliamentary Commission into Banking Standards rejected the idea.
In its final report the Commission said “an interim prohibition could cause serious harm if used unfairly or arbitrarily”.
“In the case of very small financial firms in particular, having a key individual prohibited for even a short period might cause irreparable damage to their reputation and see clients leave never to return, even though the case might be dropped or not upheld.
“Given that the FSA has only rarely taken public enforcement action against senior individuals in large banks, it may be that the cases through which they have identified the need for a suspension power involve smaller firms or non-bank financial institutions.
“Based on our consideration of issues relating to banking standards, the Commission has concluded that the case has not been made for providing the regulators with a general power to impose interim prohibitions on individuals carrying out controlled functions in the financial services sector.”
The FCA has the power to withdraw authorisation from individuals if it finds evidence that they are not “fit and proper”, however it can only do this at the end of investigations.
