A new approach to publishing FCA enforcement investigations - key takeaways from the consultation

Current approach

The FCA currently publishes information about the outcomes of its enforcement investigations and at earlier stages when it issues statutory notices concerning proposals or decisions to impose sanctions, prohibitions and requirements, such as to pay redress. However, at present it does not currently make public at an earlier stage the fact that it is investigating, other than in exceptional circumstances. In the FCA’s view, by the time publication occurs, the educational value and effectiveness of that information, which it considers benefits the consumer and wider industry, is often significantly reduced. In addition, the FCA feels that it is given too late to encourage witnesses and whistleblowers to inform its relevant enforcement and supervisory work.

Key changes

In the Paper, as noted above, the FCA proposes proactively publishing more information about its enforcement investigations. This includes publishing:

(i) an announcement that it has opened an enforcement investigation, including the identity of the firm which is the subject of the investigation, if the FCA assesses that it is in the public interest to do so and if there are no compelling legal or other reasons not to; and

(ii) updates on its investigations and announcing that it has closed cases where its investigations have not led to regulatory or other action.

Each announcement may contain, as well as the identity of the subject of the investigation, the industry sector and regulatory or legal provisions the investigation relates to; and a summary of the suspected breach, failing or other misconduct being investigated. 

The FCA’s announcements will usually state that the opening of an investigation should not be taken to imply that it has reached any conclusion that there has been a breach or other misconduct. All announcements and updates will also comply with the restriction on disclosure of confidential information in section 348 of the Financial Services and Markets Act 2000 and will have regard to the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001.

The FCA has said that it will start to apply its new approach to publicity to all its enforcement investigations from the date the new policy comes into force – of note, this will cover ongoing as well as new investigations.

The public interest framework

The FCA will decide whether and what to publish on a case-by-case basis, using a new “public interest framework” to inform its decision-making. The framework proposes a number of factors which the FCA considers indicate that an announcement or update will be in the public interest, specifically the likelihood that the announcement will:

1. enable the interests of potentially affected customers, or consumers or investors more generally, to be protected; 
2. help the FCA’s investigation, for example by encouraging potential witnesses or whistleblowers to come forward;
3. address public concern or speculation, including by correcting information already in the public domain; 
4. provide reassurance that the FCA is taking appropriate action; 
5. deter future breaches of the FCA’s rules or other requirements or prohibitions that it is responsible for enforcing; or
6. otherwise advance one or more of the FCA’s statutory objectives, including protecting and enhancing the integrity of the UK financial system.

The FCA also proposes a set of factors which it considers indicate that an announcement or update may not be in the public interest, specifically if it is likely to have an adverse impact on the: 

1. conduct of the FCA’s investigation or an investigation by another regulatory body or law enforcement agency;
2. interests of consumers; or 
3. stability of the UK financial system or the FCA’s ability to otherwise carry out its statutory functions.

These factors are non-exhaustive and the FCA states that it will also take into account all relevant circumstances in deciding whether to publish an announcement of or update on an investigation, and whether to include in the announcement or update the name of the subject of the investigation.

In the Paper, the FCA recognises that this more transparent approach may raise concerns about the potential impact on investigation subjects. It has, however, not included such impact as a specified factor in its proposed framework. It explains that this is because it considers that the publication assessment should primarily be focused on promoting the FCA’s statutory objectives. It should also support the relevant investigation and increase the FCA’s accountability by providing public reassurance that it is acting in the interests of consumers and investors.

Individuals

The FCA’s proposals recognise that there are specific legal considerations where it publishes information about individuals. In light of this, the FCA will not usually announce that it is investigating a named individual – this approach takes into account legal restrictions such as the UK General Data Protection Regulation. This being said, the Paper notes that examples of where publication may be necessary and lawful include encouraging witnesses to come forward to assist the relevant FCA investigation or the FCA fulfilling its accountability to Parliament. Even where individuals are not named, there may also be speculation about the extent to which individuals are to blame and/ or are under investigation alongside the firm, in circumstances where information regarding the identity of members of the senior management team is available – for example, on the FCA register or on the relevant company’s website.

Notice to investigation subjects

The Paper proposes that where the FCA decides to announce an investigation, or publish an update on such investigation, which names the subject it will normally give the subject no more than one business day’s notice. However, in some circumstances it may give no notice if it considers that it needs to announce or update on an investigation urgently. It will usually publish the announcements and updates on its website and it may also issue a press release. 

If an announcement or update is potentially market sensitive, the FCA will generally inform the subject of the announcement or update after markets have closed. If the subject is a listed company in another jurisdiction, and the announcement or update is potentially market sensitive, the FCA will, where possible, try to avoid publication during stock exchange hours in that jurisdiction. 

What is the FCA hoping to achieve with these changes?

The FCA considers that publishing updates on the progress of investigations, and announcing the closure of investigations which do not lead to further action, will increase the effectiveness and accountability of its enforcement activities. It also believes that an increase in transparency will make the FCA’s pace more visible. It is of the view that early publicity, via its educational and deterrent effects, will decrease the likelihood that harm to consumers and markets will occur in the first place, and increase public confidence that the FCA is effectively addressing risks to consumers and thereby increase market confidence.

Alongside the changes, the FCA has committed to carrying out enforcement cases more quickly to increase the deterrent impact of its enforcement actions. It has said that it will also make greater use of its intervention powers to stop harm in real time – such as business restrictions and its use it or lose it powers for those holding unused regulatory permissions. Going forward it has said that it will focus on a streamlined portfolio of cases, aligned to its strategic priorities of putting consumers’ needs first, delivering assertive action on market abuse and reducing and preventing financial crime. The FCA has said that it will also close those cases where no outcome is achievable more quickly.

Our thoughts and next steps

This proposal is the latest in a general trend towards greater disclosure by the FCA in relation to enforcement investigations.  From the original position that information would only be made public with the issuance of a Final Notice at the conclusion of any investigation, the time of disclosure has moved forward gradually to include a Decision Notice pending a reference to the Upper Tribunal and then to a Warning Notice Statement signalling the FCA’s intention to pursue the imposition of a penalty.   

There may be some benefits to firms of greater transparency around the process. Announcements may assist in putting some pressure on the regulator to progress or discontinue investigations more expeditiously than has sometimes been the case in the past. In addition, the stigma of being under investigation may be lessened as the number of investigation announcements increases and if many investigations are shown to be discontinued without further enforcement action. It may also be of value to firms to obtain information at an earlier stage of the sorts of issues under investigation as this may afford a better opportunity for those engaged in similar practices to investigate internally and consider whether any steps should be taken to address the regulator’s concerns.  

However, particularly for smaller firms, the approach clearly has the potential to cause immediate reputational damage. 

The Paper states that the FCA will start to apply its new approach to investigation publicity to all its enforcement investigations from the date the new policy comes into force and that this will cover ongoing investigations as well as new investigations. The application to ongoing investigations seems likely to be particularly contentious for firms, in circumstances where decisions on approach may have been influenced by the position at the time on confidentiality. Greater visibility on the number of investigations discontinued may also deter the FCA from discontinuing an investigation once it has been announced, for fear of adverse publicity around doing so. In addition, although individuals under investigation may not be named, there may be damaging speculation around those who were involved in the relevant conduct and who may personally be under investigation.

In terms of practical points from the Paper, one business day’s notice to firms does not give them much time to prepare themselves for the inevitable uptick in client queries and other requests that they will receive in light of an announcement or update. Such notice also gives firms little time to draw to the FCA’s attention factors which may weigh against publication under the public interest framework, such as an impact on consumers particular to the relevant business which the FCA may not have considered.

In terms of the benefits the FCA is seeking to secure, naming a firm may be unnecessary to achieve the deterrent and educational effects desired by the FCA given firms would likely take pay attention to any announcement that the FCA is investigating a particular issue in relation to a particular type of firm even where no names are disclosed. The FCA also has its existing tools of, amongst other things, Market Watch publications and Dear CEO letters which could be increased in frequency as needed. 

Alongside the proposal in relation to publishing enforcement investigations, the FCA is proposing some changes to its Enforcement Guide (EG), having carried out a comprehensive review of EG. The FCA is asking for feedback on all of its proposals by 30 April 2024. We are actively discussing the proposals in the Paper with industry groups and clients – please reach out to any of the authors of this briefing if you would like to discuss the implications for your firm, we would be interested to hear your thoughts and share ours in further detail.