The Financial Conduct Authority (FCA) has published consultation paper CP24/2 setting out its new streamlined and simplified Enforcement Guide.

The FCA is adopting a new approach whereby it is likely to publicise the opening of enforcement investigations, including the identity of the subject of the investigation, the industry sector and regulatory or legal provisions to which the investigation relates, and a summary of the suspected breach, failing or other misconduct being investigated. The FCA may also publicise updates on its enforcement investigations as they develop where it considers it is in the public interest to do so. All publication decisions will be taken on a case-by-case basis, using a new public interest framework and in light of the facts and circumstances of the case in hand.

The changes will apply to formal FCA enforcement investigations in respect of firms commenced by way of statutory appointment of investigators. However, the FCA has indicated, that in view of data protection concerns, the changes may not apply to enforcement investigations in relation to individuals, including due to statutory data protection concerns (albeit, the FCA notes there may be some cases where it is in the public interest such that the FCA may be able to publish lawfully information about an investigation in relation to an individual).

The FCA also proposes simplifying its Enforcement Guide into a more focussed document, moving key information to its website, and is generally seeking to make information more easily accessible to firms and individuals.

A link to the consultation paper is here. The FCA has requested feedback on its proposals by 30 April 2024. The timeline for the changes will be made clear once the FCA has considered the consultation responses and formulated a policy statement and final text. The FCA intends to apply its new approach to enforcement investigations as soon as the new policy comes into force, both to new investigations and to those already in progress (if it is in the public interest to do so).

Comment and discussion

Under the current enforcement regime, the FCA normally only updates on investigations where there is a public outcome (e.g. where a sanction is imposed, or remediation is ordered). It would only be in exceptional circumstances that the FCA would announce that an investigation has been launched (let alone publishing anything about it) prior to such steps and FCA investigations which conclude with a decision to take no formal action therefore tend not to enter the public domain at all. The FCA’s new approach therefore represent a significant change.

The FCA’s policy rationale for these changes is clear. Deterrence, accountability, and transparency appear to be the FCA’s touchstones in this context. In the Foreword to CP24/2, Therese Chambers and Steve Smart, the FCA’s Joint Executive Directors of Enforcement and Market Oversight state that: “enforcement action is not simply about individual instances of punishment. Its greatest impact is as deterrence, and in educating the whole market on what we expect, and where others have fallen short” and that “Transparency about what we are investigating further helps to reassure, educate and drive our own accountability. That is why we’re proposing to communicate more about our investigations.

The FCA anticipates three significant benefits of the proposed new approach:

  • It will build public trust in the system by making it more transparent,
  • Firms and the market will benefit by having more visibility on the kind of conduct and suspected failings the FCA considers merits a formal investigation (in other words the new regime will better support the policy objective of deterrence), and
  • The FCA’s own accountability will be improved as the efficiency and pace of its investigations will be clear.

It is perhaps also worth noting that the FCA expects that announcing investigations early on will encourage witnesses and whistleblowers to come forward.

As investigations will be publicly announced at their outset, it may give some comfort to firms that where an investigation is concluded without enforcement action being taken, the FCA intends to make a public closure announcement to that effect. That said, enforcement investigations can be protracted, and the mere fact of an investigation could impact a firm’s reputation and bring unwelcome (and unwarranted) scrutiny, and potential press speculation, which could have lasting effects even where the investigation ultimately concludes favourably. Reputational issues affecting firms may also impact investor confidence and may precipitate complaints, DSARS and other unwelcome claimant interest and activity. In other words, third parties may infer the FCA has drawn conclusions about misconduct or potential rule breaches given the apparent “need” to launch and investigate. The content of the FCA’s investigations announcements is therefore likely to be scrutinised (by third parties once they are issued and within the FCA when they are being drafted).

Further, while the FCA’s moves towards transparency will enable it to more easily demonstrate its proactivity, the need to appear efficient and decisive in its conduct of investigations may increase the pressure on the FCA to draw investigations towards a close more quickly than it otherwise would have, which may well be counterproductive to efficiency and ultimately risk undermining outcomes.

Watch this space

Firms that fall within the FCA’s regulatory oversight will wish to take note of these proposals and many of our clients will be preparing consultation responses.

As always, the devil will be in the detail and the practical application of the proposed changes (particularly given that a case-by-case approach is being adopted). TLT’s contentious regulatory specialists are examining these issues more closely and we anticipate publishing further perspectives and deeper dives into the new enforcement regime, as the consultation progresses and the FCA’s policy in this area crystalises.

Please do not hesitate to reach out to the authors of this article or your usual TLT contacts should you wish to discuss the FCA’s new approach further.

Written by James Matthews and Amy Earlam

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

08 March 2024

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