The UK Prudential Regulation Authority (PRA) has fined a former non-executive director of Wyelands Bank GBP72,000 for failing to act with due skill, care and diligence in connection with regulatory failings previously identified by the PRA in its enforcement action against Wyelands Bank.
PRA enforcement action against Wyelands Bank
In December 2019, the PRA commenced enforcement action against Wyelands Bank (Wyelands), which resulted in a final notice in 2023 censuring the bank (the Wyelands Final Notice).
In its final notice, amongst other things, the PRA found that four structured transactions entered into by Wyelands between May 2017 and December 2018 (the Structured Transactions) significantly exceeded and breached Wyelands' regulatory limits on large exposures and that Wyelands had not identified or reported this fact to the PRA. In addition, the PRA identified certain capital injections, which had been indirectly funded by Wyelands, had been inaccurately reported to the PRA as Common Equity Tier 1 (CET1) capital. The PRA also identified failings in respect of an engagement policy (the Engagement Policy) in place to manage potential risks of conflicts of interest between Wyelands and its shareholder (the Shareholder) which owned a global group of businesses (the Group).
Following the enforcement action against Wyelands, the PRA subsequently took enforcement action against the former CEO of Wyelands, Mr Hunter, fining him GBP118,808 in 2024 for various regulatory breaches, including that he failed to take reasonable steps to ensure the business for which he was responsible was controlled effectively and complied with the relevant requirements of the regulatory system.
In this latest decision notice, the PRA has taken action against Mr Hambro, a former non-executive director (NED) of Wyelands.
Mr Hambro's role at Wyelands
Mr Hambro joined Wyelands' Board in December 2016. Throughout the Relevant Period of the PRA's investigation (3 July 2017 – 19 February 2020), Mr Hambro was a NED who was not approved by the PRA or FCA to perform a controlled function at Wyelands (also referred to by the PRA as a Notified NED and in the case of the FCA, a Standard NED). Notified NEDs became subject to the PRA's Individual Conduct Rules (and Senior Manager Conduct Rule 4, which requires the disclosure of any information of which the FCA or PRA would reasonably expect notice) for the first time on 3 July 2017, following a change to the PRA rulebook.
By way of further context, during the Relevant Period, Mr Hambro also held a number of roles within the Group and joined Wyelands' Board in order to represent the Shareholder's interests and to support the introduction of business from the Group and to facilitate the management of the relationship between Wyelands and the Shareholder.
PRA findings against Mr Hambro
The PRA found that Mr Hambro had breached Individual Conduct Rule 2 (ICR 2) because he failed to act with due skill, care and diligence in performing his role at Wyelands in connection with three specific matters.
- Failure to identify a mistake in the recording of capital and failure to make inquiry as to the appropriateness of funding. Wyelands had incorrectly recognised and reported to the PRA GBP10 million of capital injected into the firm via a particular series of transactions. The PRA found that Mr Hambro was informed of the transactions and, although he told the PRA he was not, he should have been aware that the capital received by the firm could not be recognised as CET1 capital under the Capital Requirement Regulations. The PRA found that Mr Hambro should have made inquiry as to the appropriateness of the funding.
- Failure to make sufficient enquiries. The PRA also found that Mr Hambro did not make sufficient inquiries into the date of the resignation of an executive director. This information was relevant to the Structured Transactions and crucially to Wyelands' and the PRA's assessment as to whether the firm was in breach of regulatory limits on large exposures. On this issue, Mr Hambro said that he had taken comfort in the involvement of the Group legal team but he accepted that he had not received formal legal advice.
- Failure to ensure the board complied with the firm's Engagement Policy. The PRA found that, through his membership of Wyelands' Board, Mr Hambro should have appreciated that the Engagement Policy was not being complied with and that he failed to take steps to ensure that it was complied with.
Assessing NED conduct: subjective and objective considerations
In assessing Mr Hambro's conduct as a notified NED, the PRA considered whether he performed this function to the standard to be expected of a person in his position and with his responsibilities and knowledge. Mr Hambro's own particular skills and experience, including that he was an experienced company director, having held a number of executive and non-executive board positions, and also had a number of years of investment banking experience were, therefore, relevant and were taken into account when the PRA assessed the seriousness of his breach.
PRA penalty
As a result of the above, the PRA imposed a fine of GBP72,000 on Mr Hambro which included a 300% increase as an adjustment for deterrence at Step 3 of the PRA's penalty calculation framework. No settlement discount at Step 4 was applied as although the PRA and Mr Hambro reached an agreement to settle, this agreement was not reached during the relevant discount stage. It should be noted that this fine was not calculated under the PRA's updated penalty calculation framework (published in 2024), as it was required to apply the penalty policy that was in place at the time of the breach.
Failure to use governance measures effectively
This final notice emphasises the importance of ensuring that governance measures are utilised appropriately and effectively. Our most recent analysis of UK FCA and PRA enforcement themes and trends identified that in enforcement action taken against firms by the Financial Conduct Authority and the PRA since 2023, inadequate governance arrangements were identified as a failing in 65% of cases and ineffective boards and committees were identified as a failing in 53%.
Reliance on third party comfort
Previous PRA final notices against senior individuals have cautioned senior managers against unreasonably relying on statements and comfort provided by third parties without first considering the appropriateness of doing so and without further investigation or challenge.
Mr Hambro appears to have taken comfort from the involvement of the Group legal department in seeking to resolve an issue arising in relation to the resignation of an executive director, without turning his mind to whether he was in fact receiving legal advice on which he could rely. When relying on legal advice it is important for senior managers to consider the scope of the advice and to whom it is directed.
FCA and PRA enforcement actions against NEDs
The FCA and PRA have only ever taken action against four NEDs and this is the first time that enforcement action has been taken against a NED for breach of the Individual Conduct Rules. However, this final notice serves as a timely reminder of the UK regulators' expectations regarding the role of NEDs and their powers to take action against individuals where they fall short.
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