Revised proposals: What has changed?
The FCA remains committed to its intention to name firms under enforcement investigation, but it signposted four important changes to its original proposals in its press release:
- Extended notice period: The FCA now plans to give firms 10 business days’ notice that it is proposing to announce an investigation, followed by an additional two days’ notice if the FCA decides to announce. This marks a material increase to the originally proposed one-day notice, affording firms more time to prepare representations about why the FCA should not announce its investigation and to decide whether to pre-emptively disclose the investigation themselves.
- Consideration of impact on a firm: In the first of two changes to the FCA’s proposed public interest test that it will apply to decide if publicising the fact of an investigation would be in the public interest, the FCA will now consider the impact of publicising an investigation into a firm.
- Public confidence: In the second change to the FCA’s proposed public interest test, the FCA will now assess whether its announcement could seriously disrupt public confidence in the financial system or the market.
- No retrospective effect: Initially, the FCA indicated that it would publicise investigations that are ongoing when the proposals come into effect. However, it has now clarified that it will not proactively announce these cases. Nevertheless, the FCA has left the door open on this point, noting that it “may reactively confirm ongoing investigations that are already in the public domain, where this confirmation is in the public interest”.
To help clarify its proposed revised policy, the FCA has presented four worked case studies, showing how its proposed revised policy would apply to the facts of four concluded enforcement investigations. These case studies suggest the FCA would publish limited information about investigations, focusing more on the facts that gave rise to an investigation (e.g. a market event) as opposed to the substantive regulatory issues or breaches that are being investigated. However, even publishing the facts that gave rise to an investigation may still give rise to the risk of significant harm to a firm.
Unanswered questions?
The FCA’s revised proposals address some of the important points that were raised in response to its original consultation. Notably, the FCA has taken steps to clarify how publicising investigations might impact a firm’s reputation and has considered specific issues for listed firms.
However, the latest consultation paper leaves several significant issues unaddressed:
- Legal authority: The FCA (and its predecessor, the Financial Services Authority (the FSA)) have publicly stated on several occasions that they lack the legal authority to publicise enforcement investigations. This point was highlighted by many respondents to the original consultation, yet the FCA has not addressed these previous statements, or reconciled them with its current proposals. Instead, the FCA only commented that its revised proposals “would be in line with our statutory requirement to exercise our functions transparently and… in a way which is consistent with all our statutory objectives” and that the FCA is “not seeking to do something new” given it already publicises enforcement investigations in exceptional circumstances.
- Statutory duty of confidentiality: The FSA previously accepted that its statutory duty of confidentiality prevented it from publicising ongoing enforcement investigations. The FCA has not addressed why, in the absence of relevant legislative changes, it now considers that it has the legal authority to publicise enforcement investigation or how its revised proposals interact with its statutory duty of confidentiality.
- Collateral impact on individuals: Concerns were raised in response to the FCA’s original consultation about the potential for identifying firms under investigation to inadvertently reveal or spark rumours about the identities of individuals who may be involved or under investigation themselves. The FCA's latest proposals do not address this issue, merely reiterating its initial, albeit welcome, statement that it is unlikely to announce investigations into individuals.
It is unclear whether further detail about the FCA’s proposals, including responses to the points noted above, will following in the coming weeks and before 17 February 2025, the deadline for providing comments on the FCA’s latest consultation. The FCA’s Board plans to decide on the proposals during Q1 2025.
The FCA’s broader approach to enforcement investigations
Alongside its revised proposals, the FCA provided several insights into its refreshed approach to enforcement investigations under its new Co-Directors of Enforcement and Market Oversight.
The FCA confirmed a material drop in its number of open enforcement investigations. Between April and November 2024, the FCA’s total number of enforcement ‘operations’ decreased by 33%. Between April and September 2024, the FCA opened only 14 new enforcement investigations.
While the FCA has not formally changed its enforcement referral criteria, the FCA noted that it has “raised the bar” for opening an enforcement investigation and strengthened its pre-investigation triage process, considering whether: (i) an investigation is most likely to drive impactful deterrence across the industry, and (ii) it can use other tools (such as supervisory tools) to stop and reduce harm, rather than opening a formal investigation.
The FCA also provided some examples of how it has completed recent investigations in a much shorter timeframe, noting that it had concluded enforcement investigations into and taken action against three firms in 2024 within 13 to 16 months which is far more quickly than has historically been the case.
The FCA made these comments to address concerns that its proposals to publicise investigations could result in significant numbers of investigations being announced that are discontinued with no action taken, with the FCA keen to provide reassurance that this will not be the case, at least under the current leadership's approach to opening enforcement investigations. The FCA had previously stated that opening an enforcement investigation should not be taken as a guarantee that enforcement action will follow – this still stands, although the FCA’s latest comments strongly suggest that enforcement action will be more likely if a decision is made to open an investigations and that fewer investigations will be discontinued with no action taken.
