In around 24 hours a Financial Conduct Authority consultation on publicising enforcement investigations was already met with criticism.
Published last week (February 27), the regulator proposed announcing that it has opened an investigation, including the identity of its subject.
But the consultation promptly drew concerns about the potential reputational harm from publishing a subject’s identity, especially if the investigation concluded without regulatory, civil or criminal action.
“The proposed new approach has the potential to do enormous reputational damage to firms that may have done nothing wrong,” says James Alleyne, legal director in the financial services regulatory team at Kingsley Napley. “Once ‘named and shamed’ many firms will never recover.”
The FCA says it will state clearly that announcing an investigation does not automatically mean it has decided there has been a breach or misconduct. But Alexandra Roberts, head of regulatory policy and compliance at trade body Pimfa, says the FCA’s caveat will not register with the market and wider public.
A new public interest framework
The FCA publishes information about enforcement investigations when they lead to outcomes such as a fine, but it generally does not publicise earlier that it is investigating.
FCA data show the regulator successfully imposed eight fines in 2023. “It looks pathetic when you think that the UK is one of the largest financial markets in the world,” says Simon Morris, a partner in the financial markets team at CMS.
“Now this isn't to say the FCA isn't doing a good job...but when it comes to enforcement action, unsurprisingly it is difficult to commence and it can be difficult to execute.
“And so the FCA wants to get more names out into the market to show us how hard it is working. So I think it’ll be a big temptation for it to announce big and recognisable names.”
The regulator plans to start publishing more information about open investigations, using a “flexible public interest framework” to decide whether and what to announce on a case-by-case basis.
“Some of the factors the FCA says it will consider, such as making an announcement to protect the interest of consumers, are not dissimilar to an exception in the current regime, and are less likely to be controversial,” says David Pygott, a partner in the global investigations team at Addleshaw Goddard.
“However others are new, and much broader and subjective. For example, the FCA ‘providing reassurance that it is taking appropriate action’. In practice, this seems likely to create differences in the FCA's approach to different firms.
“To some degree, its decisions would necessarily be influenced by the wider political and media environment affecting a particular firm, regardless of whether the firm has good defence arguments in the investigation itself.”
