In this post, we tackle the most common questions clients have been asking us since the FCA announced its proposals on 27 February 2024.
The FCA’s proposals are not finalised – they are subject to consultation, and we will need to wait until later this year for the FCA to publish their final position. Comments on the FCA’s proposals are due by 16 April 2024. We will be submitting a response to the FCA’s consultation. If any clients would like to get in touch to discuss their views on the FCA’s proposals, or would like to discuss our response to the FCA, please contact the authors or your usual A&O contact.
What is the FCA consulting on?
The FCA is consulting on changes to its approach to publicising enforcement investigations and its Enforcement Guide.
The Enforcement Guide forms part of the FCA Handbook and sets out the FCA’s approach to taking enforcement action against firms and individuals. It is not binding law or regulation but sets out the FCA’s policy.
What is the FCA proposing about publicising enforcement investigations?
The FCA is planning to publicly announce the opening of new enforcement investigations into firms.
Such announcements are expected to include: the name of the firm; the sector in which it operates; a summary of the suspected breach, failing or other misconduct under investigation; and a statement that the opening of the investigation does not mean that the FCA has reached a conclusion on whether any misconduct has actually occurred. However, the FCA reserves an absolute right to determine what the announcement contains, based on the facts and circumstances of each investigation.
The FCA is also proposing to publish periodic updates on progress throughout enforcement investigations.
How much of a change does this proposal about publicity represent?
It represents a significant shift in comparison to the FCA’s current approach to publicity.
Save in exceptional cases, the FCA does not currently publicly disclose the opening of enforcement investigations, either proactively or in response to enquiries.
The fact of an enforcement investigation is usually only made public if disclosed by the subject (eg for listed companies, if details need to be included in firm’s annual report and accounts, or need to be announced separately) or at the end of the enforcement investigation if the FCA decides to take action. Enforcement investigations that are closed with no action taken are not usually publicised.
Will the FCA always publicise an enforcement investigation?
The consultation suggests that the FCA will announce a new enforcement investigation into a firm in most cases.
The FCA will only make an announcement if it considers it is in the public interest to do so and in making this determination it will refer to a new “public interest framework” (see below). The framework is very consumer focused, affords the FCA very wide discretion and does not consider potential impact on the subject or procedural fairness.
The FCA acknowledges that an announcement may not be appropriate in certain circumstances, including where an announcement might compromise the stability of the UK financial system.
The FCA is proposing that its approach to publicising new enforcement investigations will apply only to enforcement investigations conducted using the FCA’s powers in sections 167, 168 and 170 Financial Services and Markets Act 2000. It will not generally apply to investigations the FCA opens to assist an overseas regulator.
What is this “public interest framework” that the FCA will use to assess whether it publicises a new enforcement investigation?
The FCA has proposed that a public announcement about a new enforcement investigation, or a public update about an existing one, will “usually be in the public interest” when it is likely to:
- facilitate the protection of the interests of potentially affected customers, or consumers or investors more generally;
- assist the FCA’s investigation, for example by encouraging potential witnesses or whistleblowers to come forward;
- address public concern or speculation, including by correcting information already in the public domain;
- provide reassurance that the FCA is taking appropriate action;
- deter future non-compliance with the FCA’s rules or other requirements or prohibitions that the FCA is responsible for enforcing; or
- otherwise advance one or more of the FCA’s statutory objectives, including protecting and enhancing the integrity of the UK financial system.
The FCA has said that such an announcement or update may not be in the public interest when it is likely to have an “adverse impact” on:
- the conduct of the FCA’s investigation or an investigation by another regulatory body or law enforcement agency;
- the interests of consumers; or
- the stability of the UK financial system or the ability of the FCA to otherwise carry out its statutory functions.
The FCA has stated that these factors are not exhaustive, and that they would take into account “all relevant facts and circumstances in deciding whether to publish an announcement or update on an investigation”.
How much notice will the subject of an investigation get if the FCA decides to publicise an enforcement investigation?
One business day or less.
The FCA reserves its right to give no notice if it considers it needs to announce the opening of an investigation or provide an investigation update urgently.
The FCA has acknowledged that care will need to be taken about the timing of any announcements for firms that are listed, either in the UK or elsewhere.
Is there an opportunity to object to publication or influence the content or timing of the announcement?
There is no express reference in the FCA consultation or draft Enforcement Guide to a process whereby the subject of the investigation might be able to make representations against publication and it seems unlikely that there would be much opportunity to do so within the timeframe of one business day (or less).
However, there may be opportunity to discuss publicity in communications with the FCA before it formally commences an enforcement investigation, ie when the possibility of a referral to enforcement is in prospect.
Will individuals be named?
No. For investigations into individuals, the individual is unlikely to be named unless there are very strong public policy reasons to name them.
However, if the FCA publicises an enforcement investigation into a firm this may well give rise to rumour and speculation about the identities of any individuals who may also be under investigation for the same underlying issues (eg the Senior Managers responsible for the relevant business area or function).
When will this come into force?
The FCA consultation is open until 16 April 2024. The FCA will then consider the responses it receives before publishing a policy statement and the final Enforcement Guide text. It may be at least two or three months after 16 April 2024 until this happens.
The policy changes are expected to come into force on the date the final text is published.
Will these proposals apply to only new enforcement investigations, or existing enforcement investigations too?
The proposals regarding publicity will apply to new and existing enforcement investigations. It is expected that the FCA will announce the fact of and details about most enforcement investigations it is already working on if it decides to press ahead with its proposals, once they are finalised.
Why is the FCA doing this?
The FCA says that it wants to increase public transparency. This initiative is part of its wider transformation into a more innovative, adaptive, assertive and proactive regulator.
What are the proposals in the revised Enforcement Guide relating to conduct of compelled interviews?
The FCA proposes adding text to the Enforcement Guide to clarify circumstances in which it may reasonably refuse the attendance of a legal adviser because it considers their attendance may be assessed as potentially prejudicing the FCA’s investigation. This includes where the legal adviser has a conflict of interest or owes a duty of disclosure to another person (including the interviewee’s employer).
The FCA has always had the discretion to refuse the attendance of legal advisers in such circumstances but the fact that it feels the need to add this clarification to, what will be a significantly streamlined version of, the Enforcement Guide suggests it could adopt a more restrictive approach to the attendance of lawyers who act for a firm when the FCA is interviewing employees and or former employees of the firm.
What is being “clarified” in the revised Enforcement Guide on the use of firm commissioned reports?
The FCA’s position on sharing firm commissioned reports with the regulator doesn’t appear to be changing. The FCA has always acknowledged that legally privileged investigations reports can be shared subject to a limited waiver of privilege and that such reports are of greatest utility if the underlying materials (including interview notes and transcripts) are also shared with the FCA.
However, some subtle deletions in the new Enforcement Guide text suggest the FCA may be adopting a less sympathetic approach to claims that reports or underlying materials are legally privileged and is reserving its position to push back strongly on claims it considers may be wrongly asserted. This change in approach has also been reflected in speeches given by the new co-Directors of Enforcement and Market Oversight at the FCA.
Is the FCA proposing any changes to its use of early intervention powers?
Not clear.
The FCA plans to move the section of the Enforcement Guide that currently deals with the exercise of these powers (eg voluntary or own-initiative requirements and business restrictions) to the supervision section of the FCA Handbook (SUP). It is not entirely clear why it is doing this as these powers are increasingly used by dedicated teams sitting within the FCA’s Enforcement and Market Oversight division. No draft text for SUP has been published.
Is the FCA changing the way it calculates penalties?
No.
The UK Prudential Regulation Authority (PRA) recently amended its approach to enforcement by introducing an early account scheme (early admissions in return for a potentially higher settlement discount) and amending the way it calculates financial penalties for firms. The FCA does not appear to be considering similar changes at this time.
