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The UK’s Financial Conduct Authority (FCA) has said that its enforcement strategy will evolve to deliver maximum impact, as the regulator commits to naming companies that it is investigating.
“By being more transparent when we open and close cases we can enhance public confidence by showing that we are on the case,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA.
The FCA has begun a consultation on plans to be more transparent when an enforcement investigation is opened.
In the paper, the FCA points out that it rarely publishes any information about the investigations that it has opened and their progress, “unless and until they result in actual or proposed outcomes such as censures or penalties”.
By that time, the FCA suggests that reassurance, educational value and effectiveness of that information, which benefits consumers and the industry, is “often significantly reduced”.
Further, it is given too late to encourage witnesses and whistleblowers to inform relevant enforcement and supervisory work by the regulator.
Firms have until April 16 to provide input.
Under the plans, the FCA has said that it will publish updates on investigations as appropriate and be open about when cases have been closed with no enforcement outcome.
Chambers added that the FCA will also amplify the deterrent impact of its 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,” she said.
Welcome news for firms?
"I think many organisations under scrutiny from the FCA will be very happy to hear that enforcement cases will be faster in future," said Kathryn Westmore, senior research fellow at the Centre for Financial Crime and Security Studies.
Westmore explained that, at the moment, it is a long drawn out process that can often last years.
"That often means that fines or other enforcement action happen many years after the original offences were committed," she said, adding that more transparency about enforcement activity is welcome too.
"So much of what the FCA does from a supervisory perspective happens behind closed doors, inviting rumours and gossip to flourish."
However, according to James Borley, managing director at Cosegic: "The legal principle of ‘innocent until proven guilty’ might be seen to be subverted by such an approach", considering that details of an ongoing investigation are published prior to any conclusion.
"I suspect the FCA will need to carefully consider the circumstances in which it does so, given the likely ‘reputational impact’ on firms being named and implicitly, at least, shamed," he said.
Borley pointed out that where details of an investigation are publicised and then the investigation is closed without action, as 65 percent currently are, what would happen then?
"The genie would be out of the bottle and, potentially, the harm already done," he said. "I imagine the FCA would have protection against any financial claims for loss of business."
Although sympathetic to the FCA's reasoning for creating a deterrent, the former FCA official said that he "doesn't necessarily see that sharing of these actions needs to be on a named basis".
"Surely the message can be equally impactful by FCA saying ‘Firm A is under investigation for XYZ’ and then providing general details," he said. "Once the investigation is concluded and, assuming that subsequent action is taken, then these details can be shared as is currently the case."
A step change
The move is a fundamental shift away from the current process where investigations are only announced in very limited circumstances.
The FCA has clarified that any decision to announce an investigation would be taken on a case-by-case basis and depend on a variety of factors, which will indicate whether to do so is in the public interest.
These include whether the announcement will protect and enhance the integrity of the UK financial system, reassure the public the FCA is taking appropriate action, or assist in any investigations.
Announcing an investigation does not mean that the FCA has decided whether there has been misconduct or breaches of its requirements.
Investigations into individuals, meanwhile, will be treated differently and the FCA will not usually announce these types of investigations.
“Reducing and preventing serious harm is a cornerstone of our strategy,” said Steve Smart, joint executive director enforcement and market oversight at the FCA.
“By delivering faster, targeted and transparent enforcement, we will reduce harm and deter others. We will also make greater use of our intervention powers to stop harm in real time.”
