FCA Enforcement proposition to publicise investigations causes furore in the financial sector and political world

The FCA’s recent move to propose that they will publicise Enforcement investigations before they conclude has caused furore in the financial world.

In their Consultation Paper, the FCA lead with a defensive stance on the proposition in the very first paragraph of the paper, explaining that the greatest effect of enforcement is by acting as a deterrence.

Ultimately, the FCA hope that regulatory transparency around investigations – making an example of those firms that have “fallen short” – will serve to “reassure, educate, and drive our own accountability”.

Outing potentially innocent firms before an investigation has concluded

While there is a public interest framework under which the FCA will decide whether investigations will be made public, what happens when a firm is incorrectly under investigation?

Posting on LinkedIn, Tim Dolan, Financial Services Regulatory Partner at Greenberg Traurig, summed the situation up nicely: “As FCA investigations are able to be opened simply when there are ‘circumstances suggesting’ there may have been a breach of a rule or a requirement and with approximately two thirds of Enforcement investigations ultimately […] resulting in no action, it is wholly unfair to subject firms and individuals to negative publicity for no reason.”

And Mr Dolan isn’t alone.

Industry groups and senior politicians have also voiced concerns

Alongside with the “excellent letter from the House of Lords’ Financial Services Regulation Committee”, industry groups (such as UK Finance, and TheCityUK) have also raised questions about whether the FCA’s proposals will achieve the intended goal – to act as a deterrent.

In fact, as commentators have said, the proposition could not only harm innocent firms, but also negatively affect UK economic growth and, potentially, undermine market integrity.

With senior politicians – including Jeremy Hunt, Kami Badenoch, and Bim Afolami – also questioning the merits of the Enforcement proposal, we can only hope that the FCA reconsider and go back to the drawing board.

As is usual, the FCA welcomed comments on their Enforcement proposition – even extending the original deadline by a further two weeks.

We took the opportunity to share our thoughts.

Jencap Partners invite the FCA to reconsider their intentions

“FCA Enforcement investigations do not automatically lead to findings of breaches and so it is neither proportionate nor reasonable to identify firms, especially smaller ones, until the proper process has been concluded.

“To name firms under investigation would merely prejudice them and the easily identifiable individuals in those businesses, subjecting them to negative publicity.

“Such adverse exposure can serve no purpose other than to create bias against a firm without the completion of due process and seriously damage trading prospects, staff retention, and recruitment.

“Against the reality of often purely speculative complaints brought by claims management companies, naming those firms under investigation will effectively put a target on them for vexatious actions. This, in turn, will create issues for the firm in maintaining effective Professional Indemnity insurance going forward.

“Merely asserting that the FCA will state that the investigation is ongoing and not yet concluded with a finding of fault does not provide the necessary balance to ensure a firm is protected from the potentially terminal, if not severely damaging, impact of the public disclosure.

“The reality for compliant and viable small- to medium-sized firms, is that the consequence of being named and shamed may very well lead to their failure.

“There is no perceivable benefit for the proposed shift to naming firms under investigation and we invite the FCA to reconsider their intentions.”

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