March 19, 2024


by: kiran


Tags: "Regulation"

FCA proposes hardline approach to investigation transparency

Firstly, what’s the reasoning behind these proposals from the FCA?

They want to be more open about their enforcement activities as soon as possible to reassure the public that they are taking appropriate and prompt action and so that best practices and concerns can be disseminated faster. This they believe will increase deterrence and drive positive behavioural change (and encourage witnesses and whistleblowers to come forward).

Even when their investigations lead to no public regulatory or other outcomes, the FCA believe that firms would benefit from a greater understanding of the types of suspected misconduct and other failings they consider should be investigated (which will help to deter future breaches of FCA rules or other requirements).

How will the FCA implement these enforcement changes?

The main headline coming from this is that the FCA is planning to publicly name the companies it is investigating in a bid to deter firms from breaking the rules and strengthen its enforcement action. Under the plans, the FCA will publish updates on investigations and be open about when cases have been closed with no enforcement outcome.

The FCA will decide what to publish on a case-by-case basis which will be informed by whether there is a public interest in such announcements. However, they have stated that they want to proactively publish more information when an enforcement investigation is opened and on an ongoing basis, this includes:

  • Confirming the opening of an enforcement investigation
  • The identity of the subject of the investigation
  • The industry sector and regulatory or legal provisions the investigation relates to
  • A summary of the suspected breach, failing or misconduct
  • The progress of the investigation
  • The closure of the investigation when it has not led to regulatory or other action.

The FCA’s co-chief of enforcement, Therese Chambers stated: “By being more transparent when we open and close cases we can enhance public confidence by showing that we are on the case.” This links closely with the FCA’s keenness to intervene earlier where they have concerns.

Interestingly, some 65 per cent of the FCA’s investigations currently close without action. This means that there is potential for a lot more firms to be named (and in effect shamed) even if it is found that there is no wrongdoing.

The FCA has recognised that there are specific legal considerations when publishing information about individuals and so their approach here will be different – they will not usually announce that they are investigating a named individual.

When might these changes come into effect?

The consultation on the plans is now open until 16th April. The FCA will consider responses and will then publish a Policy Statement with the final text of their Policy. They will start to apply their new approach from the date the new policy comes into force (no date has been given yet) and this will include new and ongoing investigations.

What Firms need to consider:

This is a very significant shift in approach by the FCA. They are now proposing more frequently to make their investigations public before any conclusions or determinations have been reached.

It used to be that the regulator was overly cautious in the confidentiality of regulatory investigations – mainly because the perception is there is no smoke without fire and even if investigations result in no action by the FCA, the fact that a firm has been named in an investigation could have a longstanding impact on its reputation and on its value.

It would be even more important should this approach materialise for firms to ensure that their systems and controls are airtight so that the regulator does not get a sniff that something may be amiss or to indicate any suspicions that there may be weaknesses in the firm’s approach to compliance.

As we have seen from other recent blogs, the FCA are intervening in matters much more quickly (think GAP and Multi-Occupancy insurance). Topped with this suggested new approach to enforcement shows the FCA is determined not to be known as the toothless tiger which it has so often been labelled in the past.

Firms should therefore take this as a warning to make sure there is nothing in their approach to compliance that the FCA could get their teeth into. Should you need any help in ensuring your approach to compliance is sound, as usual, please get in contact with Padda Consulting.

As mentioned above, the consultation closes on 16th April and firms should read the CP in full and consider responding to any aspects as appropriate.

If you wish to discuss any responses that you’re proposing to send to the FCA, then please feel free to get in contact.