A House of Lords Committee has criticised the UK’s FCA for the way it handled consultations in regards to its name-and-shame proposals.

In a report, the committee has asked the FCA to abandon the plan if it is “unable to find an acceptable balance in these proposals between increasing transparency to help prevent consumer harm, and managing the potential risks to firms, individuals, and market stability.”

In early 2024, the FCA proposed changes to the criteria by which it publicised its enforcement investigations and names of firms which were being probed by the authority.

Generally referred to as the new name-and-shame approach, the plans would have allowed the UK regulator to disclose the identities of firms during the process of its investigation, and before a decision had been made.

According to existing guidelines, the FCA can only do this in exceptional circumstances. But the proposed changes would have allowed it to disclose identities if it thought doing so would be in the public interest.

Business criticism

But the plan drew criticism, both from the business industry as well as from the government, for not taking into a account the potential harm any disclosures could cause to businesses and system stability and integrity.

Over the past year, and as a result of the criticism it received, the FCA has signalled to water down its original plans, with senior managers openly accepting that there were flaws in it.

But the parliamentary committee’s latest report argues that the whole idea of shifting from ‘exceptional circumstances only’ to the ‘in the public interest’ criteria was miscalculated, and that the regulator did not provide a cost-benefit-analysis for why it wanted to change guidelines.

Justification required

The report notices that the FCA itself was surprised by the strong reaction from the industry to its proposals, and has suggested to the regulator that such proposals should be properly registered and announced on its Regulatory Initiatives Grid.

It has also recommended that the FCA should provide additional details “to justify this shift in approach has reassured stakeholders that this change is both proportionate and necessary.”

The committee also wants the FCA to reconsider the revised proposal of giving firms only 48 hours advance notice before the announcement of investigations. It believes such a short notice period does not give firms enough time to prepare their responses. This window was only 24 hours in the original plans.

Concerns are also expressed around the potential reputational damage to individuals as a result of the announcement of investigations. Although the proposals call for announcing details of firms only, and not individuals, the parliamentary committee believes individuals, especially senior managers, can readily be identified via other channels once a firm’s name has been announced.

The report asks the FCA to provide greater transparency around the criteria for whether or not naming and shaming a firm is in the public interest, and wants an assurance that there will be consistency in decision making and outcomes.

The report also highlights concerns that announcing investigations from the outset will have a negative impact on the UK’s international competitiveness and risk positioning.

Finally, the parliamentary committee has recommended that the FCA provides a cost-benefit analysis of its proposed changes, and that it engages with the Treasury on any future developments and updates on the matter.

Growing pressure

The UK regulator has come under increasing pressure and criticism in recent months for its approach to economic growth, as well as its handling of internal affairs. Last November, a separate but even more damning parliamentary report questioned the integrity of the FCA and called the regulator “dishonest and incompetent.”

That report, based on evidence and testimonies of 175 individuals, had a number of scathing findings about the reputation of the UK regulator. They included:

• The FCA is widely seen as incompetent.
• Its integrity is called into question.
• Its treatment of whistleblowers and their evidence is alarming.
• There is a defective organizational culture, driven from the top.
• Transparency and accountability is lacking.
• The Transformation Programme has not worked.
• There’s a high degree of consistency across the testimony.

But a month before the publication of that report, the FCA published its own survey about the nature and scope of its relationships with the firms it regulates in the country. The regulator at the time said those relationships are positive.

While last November’s parliamentary report was widely publicised, there has also been some scepticism about its conclusions. We published an opinion piece questioning whether the MPs who produced the report really understood the role of a regulator, and one industry figure with knowledge of how the FCA works described it recently as “the sort of response you’d get if you asked 10,000 Spurs fans ‘What do you think of Arsenal?’”

In recent months, the UK government has also been putting growing pressure on the FCA and other regulators to get rid of what it sees as needless regulatory bureaucracy in order to boost economic growth.

In response, the regulator has said there is a need for “Improving our understanding of how financial services regulation affects economic growth,” insisting that it was already prioritising growth as part of its secondary objective.