Lloyd's of London – Written evidence (EGC0025)

Lloyd’s is submitting this letter in response to the Financial Services and Regulation Committee’s call for written evidence on the proposals contained within the FCA’s consultation paper ‘CP24/2: Our Enforcement Guide and publicising enforcement investigations—a new approach’.

Lloyd’s is a (re)insurance market based in London. All insurance at Lloyd’s is written by Lloyd’s members, organised into 77 syndicates, managed by 52 managing agents. In 2023, the Lloyd’s market’s gross written premiums totalled £52.1bn. The business written in the Lloyd’s market is primarily non-life (re)insurance.

We are pleased to engage with the Committee on the proposed changes to the FCA’s Enforcement Guide and publicising enforcement investigations. As outlined in our response to the FCA’s proposals in April 2024, we opposed plans to publish details about enforcement proceedings at an early stage. While we understand the regulator’s desire to enhance the level of transparency seen within enforcement investigations, on broader analysis, we believe the risks and costs associated with early publication outweigh the benefits in terms of increasing transparency.

We further noted recent comments from the FCA’s Joint Executive Director of Enforcement and Market Oversight Theresa Chambers, who indicated that the FCA would conduct its enforcement investigations on a ‘case-by-case approach’ following assessment that included consideration of potential impact on the firm in question and wider market. We look forward to further details from the FCA on their proposals in the weeks and months ahead and stand ready to engage with relevant stakeholders whenever it is required.

We have provided our core and overarching views of the original proposals in the succeeding pages, and we hope they are helpful to the Committee. We would be happy to elaborate on any of these points in a meeting with the Committee or clerk should that be necessary.

• The early publication of information about enforcement proceedings risks causing unreasonable harm to individuals and firms. Therese Chambers has previously commented that 65% of FCA enforcement cases result in no action being taken[1] However, the reputation of firms or individuals could be harmed immediately, sometimes severely, upon publication of news that they are being investigated. Those who learn about enforcement proceedings may assume that there is “no smoke without fire;” trial by media is likely to ensue. Firms would often suffer financial as well as reputational harm: listed firms’ share price might be affected by the publication, as could all firms’ relationships with their clients and customers. And yet firms would lack any recourse against such harm, with cases often dropped years later with no comparable public attention to that of the initial investigation.

• We are concerned that the UK will become a global outlier if the FCA proceeds with its proposals; the regulator may furthermore inadvertently contravene its new growth and competitiveness mandate. The FCA should give thought to how its proposed approach to publicising enforcement proceedings compares to that adopted in other jurisdictions. The proposals will require regulators to carry out a sensitive balancing act as they weigh public interest arguments against other considerations like not harming the reputation of innocent parties. It is right that regulators reflect on how other countries with similar legal, political, and media cultures to the UK have sought to manage these difficult issues. As far as we are aware, the Monetary Authority of Singapore (MAS) is the only other financial regulator that has adopted an approach comparable to the FCA’s proposed approach. We urge the FCA to take this into account when considering whether its new proposed approach is proportionate.

• If the FCA does decide to proceed with publicising enforcement proceedings at an earlier stage, it is important to ensure the right balances and controls are in place to mitigate unreasonable harm to firms caused by early publication of news about enforcement proceedings against them. This is also important to protect the FCA as a public body against potential judicial review proceedings.

• If the FCA intends to publish firms’ (or even individuals’) names at the outset of its investigations, then it should also commit to having appropriate controls in place when deciding to launch an investigation and to expedite its enforcement proceedings. A good example of an innovative approach adopted by a regulator to expedite enforcement proceedings while ensuring a fair process can be found with the PRA’s Early Account

• Scheme (EAS). We would encourage the FCA to consider adopting similar mechanisms to the PRA as it reviews its enforcement processes. Moreover, we understand that the FCA expects that the public interest test will lead to early publication of enforcement proceedings in most cases. This is even though, as noted above, 65% of enforcement cases result in no action being taken. We would therefore strongly recommend the inclusion of a revised “public interest” test which ensures that is deployed in a proportionate way.

• The proposal only to give firms one day's notice before publishing their name in relation to an enforcement investigation is disproportionate, bearing in mind the potential harm that could be caused by such an announcement and no reasoned justification has been advanced to support this short period. Such a truncated notice period does not give firms an opportunity to respond adequately to the FCA and prepare for a potentially serious and unjustified negative impact on their reputation. In our view, a week’s notice is the minimum period that a firm needs to respond adequately to information of this kind from the regulator.

11 October 2024