FCA Publishes Resources and Consultation as it Proposes New Approach to Publicising Enforcement Investigations

The FCA is set to alter its approach to publicising enforcement investigations, proposing to publish the identity of subjects under investigation, publish an increased amount of information and updates regarding cases at an earlier stage, and increase the pace of cases and release of announcements that cases have closed without action.  

By changing its approach, the FCA aims to increase the transparency of enforcement work, its deterrent effect and to disseminate best practice, whilst streamlining the impact and pace of investigations in line with its strategic objectives. The proposed enforcement approach was discussed in a recent speech and newly published press release and Consultation.  

Firms that want to provide feedback on the Consultation can do so by 16th April 2024, either by using the online response form, writing to Enforcement Law and Policy at the FCA’s London address, or by email: cp24-2@fca.org.uk 

Changes to Enforcement Publicity 

The FCA’s proposed changes mark a significant change in its approach as, previously, the regulator rarely published information surrounding investigations, unless resolved through fines or criminal charges. Now, the FCA plan to release the subject and details of an investigation more frequently, and at an earlier stage.  

According to the regulator, the decision to publicise an enforcement investigation, or issue an update regarding an existing one, would depend on whether it is in the “public interest” to do so. To determine this, the FCA would refer to a public interest framework which suggests publicization is necessary if:  

• It would protect the interests of customers, consumers or investors  
• Encourage whistleblowers or witnesses to come forward and or aid an FCA investigation  
• Address public concern or speculation, including clarifying or correcting information already public  
• Offer assurance that the FCA is taking appropriate and timely action  
• Act as a deterrent to future non-compliance with FCA rules or regulations; 
• or, advance the FCA’s statutory objectives, including protecting and enhancing the integrity of the UK financial system and markets.  

Although, as outlined in the consultation paper, any details released would likely pertain to firms as opposed to individuals due to legal privacy constraints. 

 Furthermore, the FCA acknowledged it would not publicise investigatory openings or updates where it would result in an “adverse impact” on; investigations conducted by the FCA, or other regulatory/law enforcement bodies, the interests of consumers, the stability of the UK financial system, or FCA’s ability to fulfil its statutory functions.  

Perhaps most notable about the FCA’s proposed approach, is the customer-centred nature of the framework the regulator will refer to when deciding whether enforcement publication is appropriate.  

The FCA acknowledges in its Consultation that its “approach may raise concerns about potential impact on our investigation subjects” but clarifies it has omitted “such impact as a specified factor in our proposed framework […] because we consider that assessing if publication of an announcement or update is in the public interest should […] focu[s] on promoting our statutory objectives”.  

This demonstrates that the FCA will exercise its discretion without considering the potentially negative impact on subjects, or procedural fairness.  

Enforcement Guidance Re-Draft 

Following a review, the FCA also plans to redraft its Enforcement Guidance to reduce duplication, improve the accessibility of information regarding enforcement processes, and ensure that guidance on enforcement activities relate explicitly to its strategic outcomes.  

Purpose of the Changes 

Therese Chambers, joint executive director of enforcement and market oversight, emphasised in a recent speech that the FCA’s “evolving enforcement approach will make sure that [UK] markets can continue to flourish and grow on […] fair play, cleanliness, integrity and operational effectiveness”. Chambers noted that the FCA is focused on ensuring enforcement work “deter[s] harm” and “aligns with [the FCA’s] objective to protect consumers and markets”.  

Chambers also noted that regulator aims to “tackle the delay between misconduct occurring and penalty being imposed […] to boost confidence in our markets” suggesting that the new approach would seek to increase the pace of enforcement and its deterrent and educational effect on the market.   

The FCA’s reasoning for transforming its enforcement approach is broadened in its recent press release and Consultation paper:  

• to increase the deterrent effect of investigations within the market, clarify types of misconduct that the FCA think warrants an investigation, therefore;  
• disseminating best practice, allowing firms to change their approach proactively before redress is required and decreasing likelihood of harm to consumers and markets  
• To streamline its case portfolio in alignment with strategic priorities, ensuring enforcement activities deliver the greatest impact, efficiently, thwarting criminals and sending a signal to markets and consumers. 
• to increase the transparency of the FCAs investigations to highlight its accountability and the action that they are taking to protect consumers and the integrity of the market. 
• To encourage whistleblowers and witnesses to come forward, to aid in FCA investigations. 

The proposals follow a period of reduced enforcement action from the regulator, which it attributes to the Covid-19 pandemic and subsequent court backlog.  

The FCA issued just eight fines in 2023- the lowest number since the creation of the agency a decade ago and Steve Smart, co-head of Enforcement, recently told the FT that around 65% of FCA investigations are currently closed without action.  

The regulators new approach could signify an attempt to increase the prominence of any future enforcement action taken and elevate apprehension in the financial industry, with a view to encouraging firms to comply with regulation and emphasising its transformation into a “more innovative, adaptive, assertive and proactive regulator”.  

Response 

Many have criticised the FCA’s proposed measures on the basis that they may unjustly damage the reputation of firms before an investigation eliminates guilt. 

Simon Morris, a financial service Partner with CMS noted that publicising an investigation before evidence has been gathered could “wipe millions off a company’s value, or even destroy its business, which a later announcement of ‘no case to answer’ will hardly repair.”  

James Alleyne, Legal Director in the Financial Services Regulatory team at Kingsley Napley LLP agrees: “Once “named and shamed” many firms will never recover. A case may be quietly dropped and the FCA may move on but the damage to the firm, its employees and customers could be profound.  

Alleyne also questioned the link between “naming firms and more streamlined or quicker enforcement”, citing “internal bureaucracy, prioritisation and decision making” as causes of the recent reduction in FCA enforcement activity.  

Alexandra Roberts, PIMFA head of regulatory policy and compliance, echoes Alleyne’s doubt that naming subjects under investigation will bolster FCA supervision and enforcement, warning that it could render smaller firms “hollow shells” of their former state and larger firms “subject to significant shareholder volatility”.  

However, Andy Agathangelou, founder of consumer campaign group Transparency Task Force, received the proposal positively, noting “if this new consultation is an authentic attempt get the FCA to be fit for purpose on investigations and enforcement, then it’s to be very warmly welcomed.”.