What’s in a name? An update on financial services regulatory enforcement trends…

Earlier this week, the FCA announced the latest milestone in the development of its revised approach to the transparency of enforcement investigations. 

Update on the ‘name and shame’ proposals

In a letter to the Chair of the Treasury Select Committee, the FCA provided some clarity on this matter, which has been ‘the subject of considerable public debate’ since it was first announced roughly a year ago. This clarity will be welcome on a number of levels:

• it evidences constructive engagement with, and a willingness to listen to, the financial services industry by the FCA;
• it confirms that the FCA will not adopt a policy of publicising an enforcement investigation into a regulated firm on the basis of a new public interest test (instead the FCA will rely on its existing ‘exceptional circumstances test’);
• it confirms that the FCA may continue to reactively confirm investigations which have been officially announced by others (typically by other regulators or by firms themselves); 
• it confirms that a key focus for public notifications will continue to be on activities occurring outside of the regulatory perimeter where there exists significant potential for consumer harm; and
• it signals the potential for the publication of more information, on an anonymous basis, of regulatory issues under investigation.

There are some questions that remain, and the devil will to a large extent be in the detail that we still await. For one, it is not entirely clear what ‘exceptional circumstances’, such as would warrant publication around an enforcement investigation into a regulated firm, actually means. And, it is not entirely clear what reactive confirmations of investigations ‘officially announced by others’, will actually look like. A final policy statement is expected, together with a revised and updated version of the FCA's Enforcement Guide, by the end of June.

The current enforcement mantra: pace, focus and transparency

Having heard one of the FCA's Joint Executive Directors of Enforcement and Market Oversight speak at a recent seminar on the topic of enforcement trends, this seems like a good opportunity to share the message delivered. 

The key purpose of enforcement, which is deterrence, needs to be realised in a timely way if it is to be effective. The FCA is therefore now laser-focused on timely outcomes. The letter discussed above states that investigations are now ‘closing with a public outcome in less than 16 months, compared to an average length of 42 months in 2023/24’.  

In order to achieve these tighter timelines, the FCA is now deploying what it refers to as assertive supervisory action to identify issues more quickly and be better informed before investigations commence. The statistics support a conclusion that this approach is leading to a drop in the amount of active cases and a higher bar for opening and thus fewer, cases opening.

The FCA is now focused on a more end-to-end approach which includes being more robust at the authorisations gateway and more assertive in supervision. In terms of transparency, enforcement cannot be invisible if it is to act as an effective deterrent, and so key learnings will need to be delivered to and spread throughout the industry.

The key message the cleaner the hands the better the response still applies and there are likely to be significant advantages for individuals and firms who co-operate with the FCA in its investigative and enforcement-related work. In addition, firms who are able to return money to consumers who have lost out are also likely to attract regulatory leniency.

The top two current enforcement priorities are preventing regulated firms from being used as vehicles for fraud or for financial crime on the basis that:

• consumers and investors should be able to place trust in the markets;
• the markets should be trustworthy and have confidence placed in them; and
• dirty money, and that includes those who bank fraudsters, should be kept out of the financial markets.

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'We are speeding up our enforcement work. On our enforcement transparency proposals, we have always aimed to build a broad consensus. Considerable concerns remain about our proposal to change the way we publicise investigations into regulated firms, so we will stick to publicising in exceptional circumstances as we do today. We will implement changes which have commanded wider support and which we believe will help support our efforts to protect consumers from harm.'

https://www.fca.org.uk/news/statements/update-fca-enforcement-transparency-proposals