FCA softens enforcement transparency proposals and seeks further consultation

In response to widespread criticism of its proposals to publicise ongoing enforcement investigations, the FCA has amended its proposals and published the second phase of its consultation.

In its initial consultation, published in February 2024, the FCA revealed plans to publicly disclose information surrounding enforcement investigations, release information at an earlier stage, increase the pace of cases, and announce that cases had been closed without action sooner.

By changing its approach, the FCA sought to increase transparency, disseminate best practice, and encourage whistle-blowers and witnesses to come forward, whilst boosting trust and public assurance that the regulator was acting to protect market integrity. The FCA also hoped the plans would increase the pace and impact of cases, with enforcement cases lasting an average of 4 years.

Originally, the FCA proposed to refer to an arguably customer-centred public interest framework when deciding whether it would be appropriate to publicise enforcement investigations.

However, the initial proposals were met with widespread and unprecedented criticism from the financial services sector and MPs, including then Chancellor Jeremy Hunt. Many expressed concern that naming firms subject to investigation could lead to undue and irreversible reputational damage and potentially destabilise markets.

In response to the feedback, the FCA has made significant changes to proposals:

• When considering whether to publicise an investigation as part of the public interest test, the FCA propose to explicitly consider the potential negative impact on a firm.
• The potential for an announcement to seriously disrupt public confidence in the financial system or the market has also been included as a factor in the public interest test.
• The FCA has clarified that it will not announce investigations that began prior to any changes to policy being implemented. (Although, it may reactively confirm investigations already in the public domain, where it is in the public interest to do so).
• The regulator proposes that firms would be given ten business days’ notice to make representations ahead of any announcement being made, rather than the one day initially consulted on. Should the FCA decide to announce, firms would have an additional 48 hours’ notice before publication.

The regulator is now seeking views on how the public interest test could work in practice, based on more detailed criteria, data and case studies. This should give firms greater clarity on how the FCA would decide whether to announce an investigation.

The FCA will continue to meet with firms, trade associations, consumer groups and the legal community before deciding whether to implement its proposals.

The deadline for providing feedback on the new consultation is February 17^th, 2025. The FCA expects to decide on whether to move forward changes to its disclosure policy in the first quarter of 2025.