UK Chancellor Jeremy Hunt has made a rare government intervention to urge the FCA to rethink its decision to name and shame companies under investigation, while the independent regulator has published a lengthy explanation and defence of its move. It set out its thinking in a 29-page reply to Lord Forsyth of Drumlean, who chairs the Financial Services Regulation Committee.
Hunt told the FT in an interview that he hopes “the FCA re-look at their decision,” saying “it doesn’t feel consistent with that new secondary growth duty that they have.” He went on: “How you stimulate growth is different sector by sector so I think it’s completely reasonable to name and shame a failing water company which has outrageous amounts of leaks. But I think, in a financial services context, it’s different.”
We reported industry reaction to the FCA’s plans last week, after Lord Forsyth wrote to FCA chief executive Nikhil Rathi asking for a pause. The FCA has now replied with a lengthy explanation of its decision which includes setting out the relevant transparency and disclosure policies at other UK regulatory bodies.
Approach to transparency
The letter says the FCA’s current consultation focuses on one central question: “What is the appropriate approach to transparency?” And it says this is “part of our wider ambition to significantly improve the pace and focus of our investigations and together increase the deterrent impact of our enforcement work.”
It explains that “We are proposing to move away from a presumption against disclosure to a public interest framework for deciding whether the fact of an investigation should be announced” because “we no longer consider that our current approach of a presumption against disclosure adequately serves our primary statutory objectives or supports an appropriate degree of transparency and accountability, including to Parliament.” And it maintains “A degree of greater transparency will amplify the deterrent impact of our work.”
The letter goes into some detail over why the move is being floated, with this passage a particularly interesting one. “We have also concluded that there were instances in the past where earlier publication would have enhanced our response, and the market’s reaction. For example, if we had been able to more overtly communicate the failings we identified with some firms on anti-money laundering controls, years before the regulatory outcomes in 2021, 2022, and 2023, other firms could have acted more quickly to resolve similar issues before they worsened.”
“We estimate that we receive on average around 650 letters from Members of Parliament per year.”
FCA
It also references the pressure put on it by politicians to improve transparency, reminding Lord Forsyth that “the Chancellor asked us in an open letter in August last year to confirm what ongoing enforcement action we were taking in relation to the provision of banking services”, and pointing out: “We estimate that we receive on average around 650 letters from Members of Parliament per year, largely writing on behalf of their constituents. Over two-thirds of these relate to our supervisory and enforcement work and many relate to specific firms.”
Some industry contacts we have spoken to have privately expressed some sympathy for the FCA over this point. While they have reservations about the negative impact the name-and-shame approach could have, they understand the FCA is in a difficult position because of the pressure it is facing to demonstrate its approach and effectiveness.
The intervention by Hunt will further raise the temperature, and introduce questions of how far the government should be seen to be influencing an independent regulator. Last year the FCA and the Prudential Regulation Authority successfully resisted an attempt by the UK government to intervene more directly in their business.
