In February 2024, the FCA published CP24/2: Our Enforcement Guide and publicising enforcement investigations – a new approach. The FCA intends to use transparency as a regulatory tool and disclose more information about its enforcement activities at an earlier stage in the process. The Enforcement Guide (EG) is found in the Regulatory/Registry Guides block of the FCA Handbook.
In the Foreword to the CP, the FCA states “Reducing and preventing serious harm is one pillar of the FCA’s 3-year strategy and enforcement plays a vital role in delivering this aim effectively. Fines, bans, and prosecutions are often what the public notices most about our enforcement work, and they are vital tools in holding to account those who don’t meet our standards. But 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.”
To date, the only time we know about the FCA’s enforcement work is once it has been completed and the investigation has resulted in public censure, a banning order, or a fine. One of the FCA’s enforcement tools is to request a Skilled Person’s Review under section 166 of FSMA 2000 (otherwise known as a Section 166 report). These are not publicised formally by the FCA, but some are reported if their existence is ‘leaked’ meaning that some of the detail may be inaccurate and reliant on the industry ‘grapevine’.
The intention is that this should encourage the rest of the market to review their own compliance and implement preventative measures
The FCA proposes publicly announcing that it has opened an enforcement investigation, including the identity of the subject of the investigation, and publishing updates on the investigation if it considers that it is in the public interest to do so. Identifying the firm at an early stage in the enforcement process is the most contentious element of the CP.
The key proposals are:
- revising EG to set out the FCA’s key enforcement policies relevant to its investigation process;
- directing stakeholders to information about the FCA’s strategic approach and general enforcement priorities;
- moving information currently in EG but relevant to the FCA’s wider work to its website to make it easier to find; and
- deleting content that is repetitive or duplicates that found in the FSMA 2000, the FCA’s Decision Procedure and Penalties Manual (DEPP) and other legislative provisions.
Through this approach, the FCA intends to promote increased transparency of enforcement proceedings, allowing the financial services sector to be more readily aware of areas of serious misconduct. The intention is that this should encourage the rest of the market to review their own compliance and implement preventative measures, which could deter regulatory intervention in the future.
This has proved a contentious CP with the House of Lords Financial Services Regulation Committee (FSRC) having highlighted its concerns about the FCA’s proposal. This is the committee’s first intervention since its creation earlier this year.
The Law firm Womble Bond Dickenson published a useful summary of the written exchanges between the FSRC and the FCA. The essence of the exchanges was that the FSRC contended that the FCA had not thought through the implications that early publication implies a firm is guilty until proven innocent and that anonymising the reason for the investigation might be preferable given that some investigations can be lengthy. Publicising some enforcement investigations and not others may create a two-tier system.
The FCA explained that it would list the circumstances when early publication would be in the public interest. It would also explain why certain investigations took longer than others and that a good deal of supervisory work would have been undertaken in advance of enforcement and consequent publication.
In its response, PIMFA told the FCA that, while it supports the principle of an empowered, assertive and proactive regulator, it shares the concerns expressed across the financial services industry about the likely negative impacts the proposal to publicise the name of firms at the start of an investigation will have on the named firms and on the functioning of markets.
PIMFA stated “We believe that the FCA’s objectives can be achieved by publishing the same details about enforcement investigations on an anonymised basis, referencing the firm’s sector and type of business. Publishing the rule breaches being investigated and details of the misconduct would achieve the required deterrent and educational aim and equally show that the FCA ‘is on the case’ and proceeding with enforcement actions without the detrimental effect on firms and the market.”
An article in Insurance Post confirms that 16 financial services trade bodies have challenged the proposals in the Consultation Paper. The article confirms that The Association of British Insurers and other trade bodies, including the International Underwriting Association, the London and International Insurance Brokers’ Association, the Lloyd’s Market Association, and UK Finance, all wrote a joint letter to the Chancellor asking him to step in and assist them after pushback to a consultation the FCA is currently undertaking on investigation transparency.
The consultation closed on 30th April. On 8th May, the FCA wrote to the Treasury Select Committee confirming that it would consider the feedback and would take several months before publishing its decisions.
Regular reviews of your firm’s systems and controls to ensure they are current and follow industry best practice can allay the risk of enforcement action by the regulator. Compliance Matters UK Limited would be happy to work with you to ensure that your firm’s processes and procedures meet industry standards.
