Failings in FCA proposals to publish enforcement investigations highlighted by Committee report

• Report: Naming and shaming: how not to regulate (HTML)
• Report: Naming and shaming: how not to regulate (PDF)
• Inquiry: FCA enforcement guidance consultation
• Financial Services Regulation Committee

Overview

The Committee found that the FCA had not made a convincing case for the proposed shift away from its current policy of publicly announcing enforcement investigations into firms before they have concluded only in ‘exceptional circumstances’. The report highlights that the FCA’s proposal to make such public announcements more frequently by means of a more flexible public interest framework affords the FCA considerable discretion and may expose firms to significant reputational damage before the facts of the case have been established.

The Committee also identifies that the proposals risk positioning the UK as an international outlier in a manner that appears misaligned with the FCA’s secondary competitiveness and growth objective.

Although the report recognises the work that the FCA has done to listen to stakeholders’ concerns in the aftermath of the initial consultation in April 2024, including through issuing revised proposals in November 2024, the Committee concludes that the FCA could have avoided much unnecessary controversy by engaging with stakeholders in the development stage of the proposals.

Key recommendations

The Committee calls on the FCA to:

• Demonstrate that stakeholders’ concerns have been adequately addressed after the closure of the second consultation on 17 February 2024 and amend its proposals if necessary before making any final decision on implementation.
• Withdraw the proposals if it has not found an acceptable balance between realising the potential benefits for consumer protection and managing the potential risks to firms, individuals, and market stability.
• Change its policy of producing a cost benefit analysis only for rules and guidance on rules to allow such analysis to inform the policy-making process for significant changes such as this.
• Publish further guidance on how the factors contained in the proposed public interest framework will work in practice to demonstrate that decisions on whether to publish enforcement investigations will be made according to a robust, fair and proportionate process.
• Consider increasing transparency by focusing its efforts on current measures which are helping to expedite its investigative processes before making substantial changes to the wider enforcement framework.
• Ensure that future consultations are properly signposted on the Regulatory Initiatives Grid in advance and review its internal processes regarding earlier engagement with stakeholders when appropriate.
• Publish a ‘lessons learnt’ document reviewing the appropriacy of its internal processes and communication strategies for consulting on a change of this scale and setting out measures to prevent similar mistakes in future.
• Engage with HM Treasury over any future developments relating to its enforcement investigation proposals to ensure that they are aligned with the Government’s view of the secondary international competitiveness and growth objective.

Chairman’s comments

Lord Forsyth of Drumlean, Chairman of the House of Lords Financial Services Regulation Committee, said:

“It was incumbent on the FCA to make a strong and unequivocal case for why such a fundamental change was needed and it has failed to do that. Its consultation on the changes has been an abject failure and even the FCA Chairman acknowledged this has not been the FCA’s ‘finest hour’.

“Less than 18 months ago the FCA stated that it recognised that the disclosure of an enforcement investigation could inappropriately damage a firm’s reputation if the investigation did not substantiate the FCA’s concerns. We simply could not understand the FCA’s about-turn in such a short period of time.

“The FCA told us that the average duration of investigations is around three to four years and in 56 per cent of cases no further action was taken. If it presses ahead with its proposals on past performance it could mean that half of the firms it investigates, and the people involved in them, will have their reputations unnecessarily and unfairly damaged. This is not acceptable.”

Further information

• About Parliament: Select committees
• Visiting Parliament: Watch committees

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