The FCA’s recent consultation (CP24/2) on changes to its enforcement process has provoked what appears to be unanimous opposition from government and industry bodies. Of particular concern is the proposal in consultation paper (“the CP”) that the FCA will publish information about its enforcement investigations, including the identity of the subject of the investigation, where it assesses it to be in the public interest to do so. Due to legal considerations which apply to the publication of information relating to individuals, the FCA’s proposals extend only to firms. However, the potential harm caused not only to those firms, but also their customers, their employees, the market – and UK plc – may be profound.

No international precedent

There is a long-standing principle in criminal and regulatory investigations both in the UK and internationally that the identity of the subject of the process should remain confidential until a stage in the process equivalent to the criminal charging process. This is for good reason. The bar for opening any investigation and certainly an FCA investigation is very low. Yet once named, the subject of the investigation is likely to suffer severe reputational harm, whether or not proceedings are ultimately brought. The damage which could be caused to firms, particularly smaller firms, named in these circumstances is likely to be great, and could easily lead to their ultimate demise.

None of the FCA’s equivalent international partners publish details of their investigations the way the FCA is now proposing this way. It is in fact difficult to find any international precedent for the FCA’s proposals. The CP itself identifies only one jurisdiction, Singapore, in which the financial regulator has the power to publish details of an investigation in this way. Few would argue that Singapore represents an equivalent market in terms of size and sophistication to that of the UK. This alone should give pause for thought as to the wisdom of these proposals.

Low rate of enforcement action

The FCA’s proposals are particularly problematic in light of the low proportion of its investigations which actually result in enforcement action. According to the FCA’s own figures, during 2023/24, enforcement action was only taken in respect of 19% of the investigations closed during that period: for the remaining 81% of cases, the FCA did not take any enforcement action at all. Assuming a similar outcome rate applies to firms only, this means that over four out of every five firms under investigation and liable to be named under the new proposals will ultimately be found not to have committed any breaches.

Mis-aligned objectives

There is no evidence to support the FCA’s assertion that increasing the transparency of the its investigations will support its operational objectives, particularly with regard to consumer protection and enhancing the integrity of the UK financial system. Indeed, given the low rate of enforcement action, the system proposed could result in viable and generally compliant firms sustaining irreparable harm and ultimately being forced to exit the market. This outcome is wholly incompatible with the FCA’s third statutory objective of promoting effective competition.

Speed and transparency of investigations

The CP states that “the longer it takes for outcomes to be determined, the longer it takes for us to send important signals to the markets we oversee about what we consider serious misconduct to be. That is why we want to speed up investigations.”

There is no link between publicity and speed. Publicising information about an investigation will not make it progress any faster. If the FCA wishes to expedite investigations in order to send signals to the market sooner, it is entirely within its gift to do so. For example, it could increase or reallocate resources to its enforcement function; rebalance its portfolio of cases so that it takes on a smaller and more manageable number of cases which can be properly resourced; remove or streamline some of the governance / oversight processes which apply to enforcement cases; and focus on closing those investigations which remain dormant for months at a time. Any of these would significantly reduce the duration of the average investigation and would be easily achieved if the FCA were serious about expediting this process.

If the FCA were really interested in increasing the transparency of its enforcement function, there is nothing to stop it publishing detailed information as to key enforcement themes and illustrations of good and bad practice based on real life examples. It could easily do so without naming the firms involved. It could also look at improving its own handling of Freedom of Information Act requests in respect of which it has been widely criticised.

Conclusion

The consultation period has now closed and the FCA will be taking stock of the responses it has received. There are a number of compelling reasons why the proposals outlined in the CP should not be pursued in their current form. The strength of the market response has been overwhelming and almost unprecedented in its opposition to the CP, and this will doubtless be reflected in the formal responses submitted. If the FCA choose to proceed with its proposals in the face of overwhelming opposition, it raises the question of the fundamental purpose of consultation in these circumstances. 

Please contact Jill Lorimer and James Alleyne in our Financial Services group if you have questions about the topic raised in this blog. Our team of expert lawyers has an impressive track record of successfully defending both individuals and institutions facing regulatory misconduct, disciplinary breach and criminal investigations conducted by the Financial Conduct Authority (FCA). 

About the authors 

Jill Lorimer is a partner in Kingsley Napley’s Financial Services Group and has an extensive track record in advising firms and individuals facing regulatory and criminal investigations by the Financial Conduct Authority (FCA).

James Alleyne is Legal Director in the firm’s Financial Services Group. He advises clients on the full spectrum of financial services and FCA-related matters, including on authorisation applications, perimeter and supervisory issues, enforcement investigations and cases before the Regulatory Decisions Committee and Upper Tribunal.