Foreword
The Enforcement Decision Making Committee (EDMC) is a committee of the Bank of England (‘the Bank’) that was established in August 2018 to decide contested enforcement cases. It was set up in response to recommendations from HM Treasury in its ‘Review of enforcement decision-making at the financial services regulators: final report’, as developed in the consultation process subsequently carried out by the Bank. The EDMC functions across all regulatory areas where the Bank has enforcement powers; that is, prudential regulation, financial market infrastructure, resolution, and in relation to Scottish and Northern Ireland banknotes.
The model is primarily based on an adapted version of the Financial Conduct Authority’s (FCA’s) Regulatory Decisions Committee. It is intended to strengthen the Bank’s enforcement processes by ensuring a functional separation between the Bank’s investigation teams and executive as a whole, and the Bank’s decision makers in contested enforcement cases. The essence of the system is that decisions are taken by the EDMC independently, the EDMC being independent from the Bank’s investigation teams and executive as a whole.
The procedures of the EDMC are as published in 2018. The process is intended to operate fairly and transparently, providing for disclosure of relevant material to the subject, and allowing for written and oral representations by both the subject and the enforcement division. It is in effect the final stage of the administrative decision making by the Bank in contested enforcement cases. The subject also has the right to refer the matter to the Upper Tribunal (which is part of the Court system).
The procedures describe how the decision making process operates. This report gives details of the cases dealt with by the EDMC so far; the Decision/Final Notices in these cases are public documents available on the internet. The subjects were in each case legally represented, in Case 2 on a pro bono basis. In Case 1, which was a joint investigation by the FCA and the Prudential Regulation Authority (PRA), steps were taken in consultation with the subject’s legal advisers to eliminate any unnecessary duplication in the process.
An essential part of the EDMC’s functioning is the administrative support given by its secretariat, and the legal support given by the legal adviser appointed from within the Bank’s Legal Directorate and who is independent of any matter which the EDMC is dealing with.
The EDMC’s remit was expanded in October 2019 to include reviewing the PRA’s process for settled enforcement cases. The EDMC is currently considering options for delivering this review. The review will assess the fairness and effectiveness of the PRA’s settlement processes. It will not be a mechanism to re-open settled cases. It will take place at appropriate intervals, once there are a sufficient number of cases to enable representative thematic conclusions to be drawn and to enable the anonymisation of those providing comments.
The procedures specify that the EDMC will submit a statement to the Court of the Bank of England at least once a year, which will subsequently be published. This is the first such report and comes at the end of the first full year of the EDMC’s operation (that is, the Bank’s reporting year from Friday 1 March 2019 to 29 February 2020). It covers the period from the establishment of the EDMC in August 2018 to the end of February 2020.
Sir William Blair
Chair, Enforcement Decision Making Committee
1 Overview
1.1 The Enforcement Decision Making Committee (EDMC) is a committee of the Bank of England (‘the Bank’). It was established by the Bank’s Court of Directors in August 2018 to help the Bank discharge its responsibilities and strengthen its enforcement processes by ensuring a functional separation between the Bank’s investigation teams and the Bank’s decision makers in contested enforcement cases.[1]
1.2 The EDMC acts within the statutory regimes operated by the Bank for (i) prudential regulation; (ii) financial market infrastructure (FMI); and (iii) resolution. The EDMC will also act in Scottish and Northern Ireland (S&NI) Banknote Regime enforcement cases, pursuant to the relevant policy.
1.3 The EDMC’s published procedures require it to submit an annual statement to the Bank’s Court of Directors (‘Court’), with a copy also provided to the Prudential Regulation Committee, which will subsequently be published, to report on at least the following:
- how often the EDMC has met and which members have sat in which matters;
- resourcing, recruitment, and profile;
- costs incurred;
- number of matters brought to it from the Prudential Regulation Authority (PRA), FMI and Resolution, and in respect of the S&NI banknote regime, respectively;
- number of statutory notices respectively dealt with;
- whether EDMC decisions have been subject to subsequent successful challenge;
- situations where a member was unable to hear a matter because of an actual or perceived conflict;
- any other matters which Court considers relevant to the operation of the and of which it informs the EDMC Chair; and
- any other matters on which the Committee feels it needs to bring to Court's attention.
1.4 This document sets out the EDMC’s report for the period from its establishment in August 2018 until the end of the first full year of operation being end-February 2020. The Annex sets out a specific report against each item listed in paragraph 1.3. In addition, this report includes more general information on the EDMC, including its membership and summaries of its cases.
2 Membership
2.1 EDMC members are appointed for renewable, fixed three year periods. Six members have been appointed to the EDMC. There have been no changes to membership since it was established. In line with the EDMC’s procedures, two legally qualified members of the EDMC have been appointed as Chair and Deputy Chair.
2.2 The EDMC has the following members:
- Sir William Blair (Chair)
- Dr Philip Marsden (Deputy Chair)
- Kishwer Falkner, Baroness Falkner of Margravine
- Anne Heal
- Mark Hoban
- Edward Sparrow
3 Cases
3.1 The EDMC Chair convenes panels of at least three members to hear cases. Panels are supported by a secretariat function to provide administrative support and an independent legal adviser appointed by the Bank’s Legal Directorate.
3.2 The EDMC has acted in respect of two cases in the period covered by this report. The cases are summarised below.
Case 1: Stuart Malcolm Forsyth
3.3 Acting jointly with the Financial Conduct Authority’s (FCA) Regulatory Decisions Committee (RDC), the EDMC found that Mr Forsyth transferred amounts of his remuneration to his wife to reduce his tax liability and took steps to conceal that arrangement, including creating false minutes. The EDMC and RDC decided to impose financial penalties of £76,180 and £78,318 respectively, and to prohibit Mr Forsyth in relation to regulated activities in the financial services industry.
3.4 Mr Forsyth has referred the Decision Notices to the Upper Tribunal, where the parties will present their respective cases. The EDMC and RDC’s findings are therefore provisional and will have no effect until a determination is made by the Upper Tribunal.
Case 2: Michael Graeme Grimsdale
3.5 Mr Grimsdale was involved in the failure of Enterprise the Business Credit Union Ltd (EBCU) in 2015, which had 1,900 members and £7 million in savings. The EDMC found that Mr Grimsdale’s conduct demonstrated a lack of integrity and, in some respects, dishonesty. As director of EBCU’s outsourced service provider, he paid out approximately £650,000 of loans, which was in contravention of a PRA requirement that had been imposed as a result of the credit union’s deteriorating capital position, and concealed his actions from EBCU. He also exploited his involvement with EBCU to invoice and improperly pay fees to the outsourced third-party provider on materially higher terms than those agreed by the EBCU Board.
3.6 The EDMC decided to prohibit Mr Grimsdale in relation to regulated activities in the financial services industry, on the grounds of lack of integrity and dishonesty. Mr Grimsdale decided not to refer the matter to the Upper Tribunal, and therefore the PRA issued a Final Notice in February 2020.
4 General matters
4.1 In addition to its work on specific cases, the EDMC has met as a committee on three occasions to discuss matters of broader interest. These include discussions on relevant regulatory frameworks, engagement with the Bank’s Legal Directorate, and administrative matters. Further such meetings are scheduled during 2020.
4.2 In October 2019, the EDMC was given responsibility for undertaking periodic reviews of the PRA’s processes for settled cases.[2] The aim of the review is to assess the fairness and effectiveness of the PRA’s settlement processes. As part of this review, the EDMC will seek comments from subjects, or a sample of subjects, who have settled PRA enforcement cases; relevant enforcement staff; and relevant PRA decision makers involved in settlement. The EDMC is currently considering the appropriate approach to conducting this review.
4.3 Members are to declare actual and/or potential conflicts of interest prior to appointment and as they arise, if they arise subsequent to appointment. These are declared to the EDMC Chair and/or the Bank’s Conflicts Officer, who then take any appropriate action necessary to manage actual and/or potential conflicts of interest. During the period covered by this report, there has not been a situation where a member has been unable to hear a matter because of a conflict.
Annex: Report summary
The EDMC’s procedures document lists points on which the EDMC must report. The EDMC’s report against each item is set out in the table below.
Matters on which the EDMC must report | EDMC report |
|---|---|
How often the Committee has met and which members have sat in which matters | The EDMC has met on 23 occasions between its establishment in August 2018 and February 2020 (inclusive). This includes three general meetings of the whole committee, and 20 meetings of EDMC panels with respect to specific cases. Case meetings are detailed below. The panel for Case 1 comprised Sir William Blair (panel lead), Dr Philip Marsden, and Kishwer Falkner. This was a joint matter with the FCA. The panel met on 13 occasions (including meetings by telephone). The panel for Case 2 comprised Sir William Blair (panel lead), Anne Heal, and Edward Sparrow. The panel met on seven occasions (including meetings by telephone). |
Resourcing, recruitment, and profile | There are six EDMC members. These were appointed when the EDMC was established and there have been no subsequent changes in the EDMC’s membership. The EDMC members are: Sir William Blair (Chair), Dr Philip Marsden (Deputy Chair), Kishwer Falkner, Anne Heal, Mark Hoban, and Edward Sparrow. The EDMC is supported by a secretariat and by an independent legal adviser appointed by the Legal Directorate. |
Costs incurred | Over the period covered by this report, EDMC members have incurred total costs of £136,762.50. These costs are met by the Bank of England. These costs can be broken down by cases as follows:
The Bank has also provided a legal adviser and secretarial support. |
Number of matters brought to it from the PRA, FMI and Resolution, and in respect of the S&NI banknote regime, respectively | Two matters have been brought to the EDMC from the PRA. There have been no other matters brought to the EDMC. |
Number of statutory notices respectively dealt with | Five statutory notices have been issued in respect of the two cases. For Case 1, the EDMC issued a Warning and Decision Notice. For Case 2, the EDMC issued a Warning and Decision Notice, and a Final Notice was subsequently issued by the PRA. |
Whether EDMC decisions have been subject to subsequent successful challenge | The EDMC’s Decision Notice for Case 1 has been referred to the Upper Tribunal, along with the Decision Notice of the RDC of the FCA. This has not yet been heard. |
Situations where a member was unable to hear a matter because of an actual or perceived conflict | No such situations. |
Any other matters which Court considers relevant to the operation of the committee and of which it informs the EDMC Chair | No other matters. |
Any other matters on which the Committee feels it needs to bring to Court's attention | General information on the operation and membership of the EDMC has been included in this report. |
For further information, please see ‘Procedures - The Enforcement Decision Making Committee’ (August 2018).
For further information, please see ‘The Prudential Regulation Authority’s approach to enforcement: statutory statements of policy and procedure’ (October 2019).