Policy | Feb 28, 2024

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FCA Consultation on Strategic Shift in Enforcement Case Transparency

The FCA plans to be more open about its enforcement investigations. This includes publishing updates on ongoing investigations and disclosing when cases are closed without enforcement action.  The decision to announce an investigation will be made on a case-by-case basis, considering factors such as the potential impact on the UK financial system’s integrity, public reassurance, and the assistance in any investigations.  Previously, such announcements were made under very limited circumstances.  Read the consultation paper.

Increased transparency is expected to enhance public confidence and demonstrate the FCA’s proactive enforcement stance. It also aims to deter potential misconduct by making firms aware of the serious failings that could lead to an investigation, encouraging quicker behavioral adjustments.  This new approach is anticipated to drive greater accountability for the FCA as an enforcement agency and enable the use of intervention powers to prevent harm in real-time.

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Therese Chambers, Joint ED Enforcement at the FCA (related announcement):

“By being more transparent when we open and close cases we can enhance public confidence by showing that we are on the case.  At the same time, we will amplify the deterrent impact of our work by enabling firms to understand the types of serious failings that can lead to an investigation, helping them to change their own behaviour more quickly. Greater transparency will also drive greater accountability for us as an enforcement agency.”

Reaction and Concerns

The proposed changes have led to a mix of anticipation and concern within the financial services sector:

• Some industry participants worry that publicly naming firms under investigation could cause market harm and reputational damage, especially if firms are later found not to have committed any wrongdoing.
• While the FCA aims to deter misconduct by increasing transparency, there’s a debate on whether the potential reputational damage to firms is a justified or effective deterrent.

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• The FCA’s approach attempts to balance the need for public transparency with the rights and reputations of the firms under investigation, reflecting the complexity of regulatory enforcement.

Alexandra Roberts, Head of Regulatory Policy and Compliance at PIMFA:

“It is not immediately clear to us how public announcements of potential enforcement action will support the FCA’s approach to supervision and enforcement – it seems unlikely to us that being ‘named and shamed’ publicly would be the primary deterrent for a firm committed to introducing harm into the market.  More broadly, very real consideration needs to be given to what the potential impact will be on firms that are publicly subject to enforcement action. These announcements will lead to significant outflows for small firms in particular, rendering their businesses hollow shells of what they were previously, whilst larger listed firms will almost certainly be subject to significant shareholder volatility.”

Consultation (Deadline April 16, 2024)

The FCA has opened a consultation to gather feedback on these proposed changes, indicating its openness to industry and public input.  Stakeholders are encouraged to provide their feedback by April 16, allowing the FCA to consider various perspectives before finalizing the changes.

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• Source: https://ncfacanada.org/fcas-shift-to-more-transparent-investigations/