What happens when compliance is absent, ignored at your firm, and in the boardroom? In short, regulatory blind spots multiply and the risks, both to customers and the firm, escalate. A board that treats itself as the expert on everything, overlooking its gaps, and that marginalises the compliance function may initially think it is freeing up focus for growth and “commercial” priorities, but experience often shows the opposite: sidelining compliance undermines the business’ long-term resilience.
Governance and Culture remain high on the FCA list of priorities. The FCA has stated that misconduct problems are often rooted in the choices made by the individual leaders of firms, not just failures in systems and controls – meaning that a lack of a defined culture, ethical leadership and appropriate challenge at the top can lead to things going wrong.
Several key risks emerge if a strong compliance voice is not present and heard at board level:
- Regulatory Blind Spots: Without appropriate compliance guidance and advice, firms can miss early warning signs of misconduct or rule breaches. Important management information about complaints, claims issues, poor customer outcomes or emerging regulatory changes might never reach the board in a meaningful way. Firms can be left wanting where the board fails to hold regular, documented meetings, or receive adequate compliance MI to show how its decisions are taken; this creates a weakness in risk management as well as in the resourcing and oversight of its compliance function. Such governance failures can lead to senior leadership effectively flying blind to compliance risks – a potential recipe for disaster.
- Poor Decision-Making & Culture Drift: A board without a compliance perspective can more easily ‘go with the flow’ and succumb to groupthink or an excessive short-term sales focus. If no one in the room is empowered to ask, “Have we considered the regulatory implications?” or to challenge a potentially misaligned incentive, a firm may pursue strategies that generate profit at the expense of customer fairness or integrity. Over time, this tone from the top can erode a firm’s culture and if employees sense that their leaders don’t value compliance, a culture of bending the rules or turning a blind eye can ensue. As the FCA’s Ms. Shepperd warned, “poor culture spreads just as quickly” as good culture, and a silence in the face of wrongdoing can infect whole teams.
In contrast, strong cultures where people feel safe to speak up and challenge not only prevent scandals but also outperform, as diverse perspectives lead to better outcomes; culture is contagious.
- Accountability and Personal Liability: Under SM&CR, senior managers bear personal accountability; if an area of the business for which they are responsible breaches FCA Principles, Rules or requirements, and they didn’t take reasonable steps to prevent it, then the FCA can use its wide range of enforcement powers.
If compliance issues are not raised and addressed at board level, senior managers may find themselves in the FCA’s crosshairs later. The regulator has shown willingness to take action against senior individuals for governance failures – including banning directors and imposing heavy fines where it concludes a firm’s oversight was inadequate. In short, a board that marginalises compliance is putting its own members at risk under the “duty of responsibility” enshrined in law.
The FCA’s enforcement track record offers stark lessons about the cost of weak board oversight of compliance. Recent cases in the insurance sector underscore how things can go badly wrong when the compliance voice is absent or ignored at the top:
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Case (Firm & Year)
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Issue
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What Happened
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Relevance of Board/Compliance Oversight
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JLT Specialty Ltd (2022)
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Bribery and corruption control failings in an insurance broker’s overseas business.
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JLT Specialty (a large insurance broker) paid millions in suspicious commissions that ultimately funded bribes to government officials. These illicit payments went undetected for years, breaching FCA Principle 3 on management and control.
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The FCA found that JLT’s controls were ineffective because of a lack of proper oversight – JLT relied on group companies to do due diligence and failed to ensure its own KYC and compliance checks caught the issues. In essence, the board and senior management did not embed effective compliance oversight, allowing improper payments to slip through.
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Inspire Insurance (2024)
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Misuse of client/insurer funds by a director; lack of any independent oversight.
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Leigh Mackey, director of a small insurance broker, was banned and fined £1.1m after it emerged he had sole control of the firm and had siphoned off insurer monies over 2011–2019 to prop up his business and personal expenses. He also provided false information to the FCA about client money audits. The firm went into liquidation owing insurers a significant sum.
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This case shows the extreme danger of having no checks and balances at board level. Mackey was the only controlled function holder at the firm – effectively a one-man band with unchecked power. With no compliance officer or other directors to challenge him, he was able to abuse his position until the FCA intervened. A stronger governance structure with a compliance monitor might have prevented or detected his misconduct far sooner.
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Multiple Principal Firms (2023)
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Poor governance and oversight of Appointed Representatives (ARs) by insurance brokers.
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The FCA’s ongoing review of the AR regime found widespread failings: ARs (who sell or service insurance under a principal’s regulatory umbrella) were generating far more complaints and supervisory cases than other firms. In 2023 the FCA took action – restricting 10 firms (including 4 insurance brokers) from onboarding new ARs or other activities, due to governance failings, and even ordering one firm to pay £400k in compensation to customers for AR-related misconduct.
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The Boards of these principal broker firms had not paid sufficient attention to their regulatory responsibilities for overseeing ARs. The FCA’s intervention makes clear that having ARs is not “business as usual” – it requires rigorous compliance oversight from the top. These firms lacked effective controls and monitoring of their ARs, a governance failure that led to customer harm. The episode highlights that board-level focus on compliance is critical when a firm extends its reach via third parties.
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Table: Recent FCA cases illustrating consequences of weak board oversight of compliance.
The FCA is open about the sorts of failings that can lead to enforcement action, primarily to drive accountability and public awareness. It publishes the various notices connected to its enforcement work on the FCA website; here.
Each of these examples, differing in specifics, carries a common theme: when the boardroom neglects compliance and oversight, the fallout can be severe. From large brokers to small firms, the absence of a strong compliance voice allowed risky practices to go unchecked – resulting in customer detriment, regulatory penalties, reputational damage, and even individual bans. This can be seen to send a strong message to leaders of firms about the importance of ensuring compliance has its voice.
Further Reading
This is part 2 of a 3 part series of articles written by the UKGI consultancy team entitled, 'A Seat at the Table for Compliance'.
Read part 1 here: Why Every FCA Regulated Board Needs a Compliance Voice
Read part 3 here: A Compliance Voice Is a Strategic Asset – Not a Constraint
Conclusion: A Seat at the Table for Compliance
The evidence is overwhelming that a compliance voice at board level is not just “nice to have” – it is critical for good governance. The FCA’s own expectations make it clear that boards are on the hook for ensuring good outcomes and managing risks. As we’ve seen, when boards fall short in this duty – whether through neglecting compliance information, lacking relevant expertise, or fostering a poor culture – the consequences can range from consumer harm to multi-million pound fines and individual bans. On the other hand, boards that proactively integrate compliance into their decision-making reap the benefits of foresight, stronger culture, and credibility with regulators and clients alike.
For insurance brokers, this is a pivotal governance issue. The sector has faced mis-selling scandals, conflicts of interest challenges, and now the implementation of Consumer Duty – all areas where board leadership and oversight determine success or failure. It is no exaggeration to say that the survival and prosperity of a brokerage may depend on getting this right. As one FCA letter put it, boards should not treat compliance as a mere “exercise” but rather take “concrete, proactive action” to drive good outcomes. That starts with having the right people and voices in the boardroom.
The question every insurance intermediary board should ask itself is: Do we have a strong, independent compliance voice at the table – and are we truly listening to it? If the answer is anything less than an unqualified yes, now is the time to change that. The cost of marginalising compliance is simply too high, and the rewards for elevating it are too great to ignore. In a regulated industry built on trust, empowering compliance is empowering your business.
Join Our Compliance With Confidence Spring 2025 Seminar
To further explore how to embed compliance into board governance and hear practical tips on strengthening your firm’s culture, join us for an interactive seminar I’ll be delivering alongside former GI Supervision Manager at the FCA, John King, on this very topic.
We will dive into real-world scenarios, discuss strategies to meet FCA expectations, and provide guidance on turning regulatory compliance into a strategic advantage for your firm.
Don’t miss this opportunity to learn and engage with peers – sign up for the seminar and take the next step in developing your boardroom with a culture of good governance and ethical leadership.
Together, let’s ensure that the compliance voice is heard loud and clear at the board table, driving our industry forward with integrity and confidence.
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