UK - FCA’s Proposals to Publicise Investigations into Misconduct

The FCA recently published a consultation announcing the proposal to publicise its enforcement investigations and publicly disclose the names of firms under investigation including information about the industry sector, a summary of the suspected breach or misconduct, and, crucially, a statement advising that its investigation will not necessarily conclude that a breach or misconduct will be found.

FCA Proposals

The FCA also proposed to publish updates throughout the progress of enforcement investigations. This controversial decision has been met with a groundswell of objection from lawyers and financial services firms alike in respect of the adverse impact on reputations and business that such announcements are likely to have.
The notifications would concern both new and existing investigations, and the decision to make an announcement, which could be given at no more than one business day’s notice, would be made on a case-by-case basis, which implies that such announcements will relate to what the FCA sees as the most impactful cases or cases that need to be made known to the public and industry. 

Whilst the FCA did not expressly make reference to a formal process for subjects to challenge a publication, these changes are not intended to apply to investigations to assist an overseas regulator, nor to individuals, due to legal constraints around privacy.  The FCA’s current approach to publicity is to publicise the existence of an investigation when a formal finding leads to a statutory notice, or where disclosure is necessary to maintain public confidence.

Statistics

Currently, around 65% of FCA investigations are without action which means more than half of the announcements may potentially be unwarranted and unnecessarily punitive to firms that have not breached the FCA rules. Furthermore, the average duration of an investigation carried out between 2015 and 2022 was 33 months, and the current number of open cases stands at over 600. As such the potential for firms to be unjustly identified by the FCA, and for the corresponding investigation to remain unresolved for a long period of time, is not insignificant.

The FCA seeks to suggest that not only would firms better understand the breaches that can trigger an investigation and adapt their behaviour accordingly, but the proposals would also increase the FCA’s accountability as an enforcement agency. The lack of enforcement action and progression of cases in recent years, is blamed on a covid-related backlog, and forms part of the FCA’s broader initiative to become a more innovative and proactive regulator. The FCA imposed just eight fines in 2023 – the lowest number in a decade. 

Consultation

The proposals, published on 27 February 2024, will be open for consultation until 16 April. Following this, the FCA will need to consider responses before issuing a policy statement and the final Enforcement Guide text, which may only occur several months after the consultation period ends. 

Comment

Firms have been quick to express their disapproval, citing the risk of reputational damage from the early publication of a subject’s identity. Even with the proviso that disclosing an investigation does not necessarily confirm any misconduct, the impact on public perception of any named firms could be profound, leading to “significant shareholder volatility” for listed firms and “significant outflows of assets” for smaller firms. 

The potential for deterrence has been called into question considering the FCA’s existing ability to name subjects in “exceptional circumstances”. Broadening the scope of such powers would require the FCA to establish an objective approach to decision-making, particularly with the inherent risk of bias of a case-by-case outlook. Indeed, the FCA may threaten its own reputation or risk bias when deciding to withdraw an unsuccessful investigation. 

Notwithstanding the risk of inconsistency, the proposals indicate that firms willing to assist an investigation and with robust capabilities for redress and remediation are more likely to see investigations closed with no financial consequences. Firms must prepare to engage with the FCA over the content and timing of announcements and should consider adopting media strategies to maintain control over the narrative presented to investors and the market.