As trailed at a recent House of Lords Regulation Committee, the FCA has published the second phase of its consultation on proposals for, as the regulator’s press statement describes it, “a measured increase in transparency about its enforcement investigations.” So is this “name and shame 2.0” or more of the same with a few tweaks?

The FCA has been at pains to express that it has been listening to the industry and relevant stakeholders with plans for further engagement “only after significant concerns were raised in relation to the original consultation.”

The further consultation also aims to assist ongoing parliamentary scrutiny, including by the Commons’ Treasury and Lords’ Financial Services Regulation Committees. 

New data released by the regulator shows the pace of investigations accelerating, including a number of investigations which took 16 months or less to complete. By providing data and case studies, as well as further detail on the public interest test, the regulator is sharing greater clarity on how decisions on announcing investigations could be made, with the caveat – “if the changes go ahead.”

Four key changes

A quartet of significant changes have been made to the FCA’s proposals in response to feedback:

• The potential negative impact on a firm would be explicitly considered as part of a public interest test – previously it was not included as one of the factors.
• Firms would be given 10 days’ notice ahead of any announcement being made, rather than the one day originally consulted on. During this period, firms could make representations. If the FCA decides to announce, firms would then have an additional 48 hours’ notice before publication.
• The potential for an announcement to seriously disrupt public confidence in the financial system or the market has also been included as a new factor in the public interest test.
• The FCA has clarified it would not announce investigations which began before any changes to the policy come into effect. Although it may reactively confirm investigations which are already in the public domain, where this is in the public interest.

The FCA anticipates that if the proposals were to come into effect, they would only lead to additional proactive announcements of investigations into regulated firms in a very small number of cases.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “We have made good progress in increasing the focus and pace of our enforcement work – so that we can prioritize the investigations most likely to drive meaningful deterrence across industry and deliver more timely outcomes.

“We want to hear further views on whether some increased transparency could work in practice.”

Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said: “We have heard the strength of feedback to our original proposals, and we are making changes as a result. We hope the greater detail published today supports the further engagement we hope to have on the proposals, before we make any final decisions.”

Industry reaction

So, is the new consultation a good compromise or another example of the FCA not knowing when the battle is lost?

Nathan Willmott, partner at Ashurst specializing in regulatory investigations and enforcement told GRIP: “I am disappointed that the FCA Board hasn’t taken the opportunity to shelve these unnecessary and problematic proposals. The existing ‘exceptional circumstances’ test works well and so it does feel that the FCA is trying to solve a problem that doesn’t exist. 

“The stated rationale for this new approach is deeply flawed. Even after implementing these revised proposals the FCA will be tightly constrained in any additional information it can provide to MPs or the public and yet it will be bombarded with questions that it won’t be able to answer. 

“It will also face the prospect of judicial review challenges to its decision to publish on individual cases, particularly now that the detriment to the firm must be taken into account, and so even more its enforcement division’s limited resources will be taken up in dealing with this satellite litigation.

“The real reason for these proposals is to enable the FCA to obtain ‘public outcomes’ against firms at an early stage, before the facts have been investigated and in circumstances where the firm may well have done nothing wrong. That remains a deeply unfair approach.”

Rob Mason, Director, Regulatory Intelligence, Global Relay, offered a more conciliatory approach and said: “It is clearly a more watered-down approach but this seems a more pragmatic approach in managing relevant concerns.

“The FCA is demonstrating some resolve and is not prepared to back down so there is clearly a strong desire to improve enforcement messaging and expedite outcome delivery.

“Perhaps this is a good compromise?”

What next?

Feedback to the second consultation closes on February 17, 2025.

The FCA said it will continue to work with a wide range of stakeholders. It will meet with firms, trade associations, consumer groups, the legal community and others, seeking views on how the public interest test could work in practice, based on more detailed criteria and data.

The FCA Board aims to make a final decision in the first quarter of 2025.