The most radical changes to the FCA's approach, to be reflected in section 4 of the proposed new EG, concern publicity over FCA investigations.
The current position
In summary, the FCA's current approach is as follows (see current EG 6):
- the FCA generally does not announce publicly that it is investigating a firm or an individual;
- EG 6.1.1 provides that the FCA will not normally make public the fact that it is or is not investigating a particular matter, or any of the findings or conclusions of an investigation;
- there is, however, an 'exceptional circumstances' exception (see EG 6.1.3), which allows the FCA to make a public announcement where it considers this to be needed, for example to maintain public confidence or to protect consumers or investors;
- where the FCA starts an investigation and then discontinues it without taking enforcement action, generally that remains confidential as between the FCA and the firm;
- where the FCA concludes an investigation and decides to take forward enforcement action based on its findings, there is publicity, but, importantly, this generally only comes at the end of the enforcement process - after regulatory decision making processes (containing material safeguards for defendants) have been followed;
- currently the FCA makes the outcomes of enforcement action public when it has:
- issued a Decision Notice which the recipient has referred to the Upper Tribunal for rehearing; or
- issued a Final Notice, which happens in circumstances where the subject of the investigation has either reached a settlement with the FCA, or has challenged the FCA before the FCA's Regulatory Decisions Committee (RDC), and the RDC has issued a final decision that the recipient has not then challenged;
- in some cases, the FCA may also publish information about a Warning Notice (an earlier stage in the procedure), but typically relatively little information is published at this point.
The key proposed reforms
The FCA is proposing a new approach in which it will publicise its investigations far more than it does at present. Under the proposals, the FCA would, where it considers that it is in the public interest to do so:
- announce that it has opened an enforcement investigation;
- provide further updates during the investigation; and
- make a further announcement when it has closed an investigation.
It appears that the current system of publicising enforcement notices after an investigation has concluded (which derives from FSMA 2000) will remain unchanged. (This would likely require a change to primary legislation).
The CP and proposals contain a non-exhaustive list of 'public interest' factors that the FCA indicates it would take into account when making a decision as to whether or not to publicise an investigation, including:
- protecting the interests of potentially affected customers, consumers or investors;
- whether an announcement might encourage potential witnesses or whistle-blowers to come forward;
- addressing concern or speculation (including correcting information already in the public domain);
- providing reassurance that the FCA is taking appropriate action;
otherwise advancing its statutory objectives.
Some of these factors are similar to the types of 'exceptional circumstance' FCA describes in its current approach (see current EG 6.1.3). However, the new list is much broader, and it is clear that the FCA intends to make announcements about its investigations much more routinely than it does at the moment.
The FCA's justifications for the changes, as they appear in the CP, involve a number of arguments, in particular, the use of transparency:
- as a regulatory tool, deterring other firms from misconduct;
- to help protect consumers, by raising awareness of issues;
- as a means of improving the effectiveness and accountability of the FCA itself, for example by 'making [the] pace [of its investigations] more visible'.
The FCA does recognise in the CP that it is under some legal restrictions as to what it may publicise (see paras 3.13 to 3.18), including the statutory confidentiality provisions of FSMA s348 and data protection law.
However, it says nothing about the rights of individuals under investigation in the tort of misuse of private information (see e.g. the Supreme Court decision in ZXC v Bloomberg upholding the right of an individual under police investigation not to be identified before charge), nor about the rights of both individuals and firms in defamation and malicious falsehood.
While the FCA benefits from considerable statutory immunity from liability in damages (see FSMA Schedule 1ZA at Part 4), its immunity is not unlimited. If the FCA's proposals are adopted in their current form, firms and individuals may need to engage promptly with the FCA to ensure that it does not unlawfully cause serious harm to the reputation of those under investigation and/or misuse their private information.
The proposed reforms, and the introduction of a public interest framework, means that it is highly likely that, in the future, FCA investigations will be made public much earlier than in the past. While the new policy would require the regulator to take account of the impact of such announcements on the market, it does not appear it would take into account the potential impact on a firm under investigation. There are, in our view, very few guardrails in what is proposed.
Firms and individuals to be treated differently
The proposals would, if approved, enable the FCA to announce routinely its investigations into firms.
The guidance and covering CP recognise, however, that it will not usually be in the public interest for the FCA to name an individual under investigation, and that it may be prevented from doing so as a matter of law, notably by the GDPR and ECHR. The FCA notes, however, that there may nevertheless be cases where legally it can name individuals, without providing details of what those cases might be.
What does the FCA plan to publicise?
The FCA's proposal is to cover 'sufficient information for public interest purposes' that it has identified in the specific case. It appears to be intended that an announcement would usually cover the identity of the person (generally a firm) under investigation, the industry sector and relevant law, and a summary of the suspected breach or other failure. However, the proposals mean that publications are likely to vary, rather than being formulaic. Accordingly, there is likely to be variation between firms not only as to whether or not an announcement is made, but in terms of the content of any announcement.
The FCA indicates that it plans to include a statement that the opening of the investigation should not be taken to imply that the FCA has reached any conclusion as to breach or finding of misconduct etc., or determined any enforcement outcome.
Will firms or individuals be able to negotiate the FCA's announcement?
The CP and proposed new EG indicate that the FCA would give the subject 'appropriate advance notice', which the FCA sees as generally no more than one business day, but there is express recognition that no notice is an option in urgent cases. It appears that, while firms are likely to be well advised to engage with the FCA over the content of the announcement in whatever time they have, the FCA is preparing an approach that would make effective negotiation of the announcement very difficult.
Finally, the new guidance provides that, if it closes its investigation, the FCA will make a public announcement confirming this and/or will amend the original announcement.
Will the policy changes be retrospective?
The FCA's proposal would see the new arrangements apply to both new investigations started after they come into force, and investigations ongoing at that point. In practice this suggests that, at the point the new policy comes into force, the FCA will need to consider whether to make an announcement (or a series of them) about its existing enforcement case portfolio (at least in relation to firms).
Other elements of the FCA's proposals would see the deletion of a considerable amount of material in the current EG, which it considers redundant or duplicative of other parts of FSMA or its Handbook (particularly the Decision Procedure and Penalties Manual (DEPP)).
The proposed deletions are, in our view, significant. For example, all of the information currently in Chapter 2 on case selection and the use of enforcement powers would be removed and replaced with a link to a high-level approach to the FCA's enforcement strategy to be posted on its website. The link is to the FCA's webpage on investigation opening criteria. In addition, where the information currently exists only in the EG but is relevant to the FCA's wider work, the FCA has indicated its goal is to move it out of EG and house it separately on its website.
Further, in our view, the movement of material from EG to the FCA website may have an effect beyond improved accessibility and consolidation of materials in one place. In short, it could enable the FCA to change more frequently its policies on points that have historically been set out in EG, without first consulting those affected by the changes. The FCA has issued EG in the past on the basis that it is 'general guidance' under ss139A and 139B FSMA subject to statutory consultation before being adopted. It is unclear whether the FCA would regard changes to statements about its enforcement policy published on its website (for example) as subject to the same duty to consult it has accepted in the past.
There are good reasons for firms and practitioners in this field to welcome the FCA's intention to move to a more 'streamlined' – and operationally manageable – portfolio of Enforcement cases.
In our view, however, some of the FCA's arguments for moving to greater publication of information about investigations are not compelling.
There is no doubt that some of the FCA's Enforcement caseload has moved slowly in the last few years; this is the experience of many practitioners in this area, including us. The FCA was roundly criticised for a delayed investigation by the Upper Tribunal in 2023. However, the issue in our view is not caused by a lack of publicity over the cases the FCA is pursuing, or likely to be resolved by greater publicity. It is more likely to be resolved by more strategic case selection by the FCA than we have seen in recent years, and better resourced Enforcement teams.
Further, in our view, a number of these proposals are highly controversial. In particular:
- there is no doubt (as the FCA recognises in the CP) that starting an investigation alone is not an indication of 'guilt' - i.e. that the firm or individual has actually breached any regulatory rule – nor should it be read as such. The legal test in FSMA that the FCA must satisfy before it may open an investigation is very low. However, despite any routine FCA statement warning that an announcement of a new investigation is not a finding of a breach, the court of public opinion is unlikely to be concerned with legal detail. Commentary in social or mainstream media about the opening of an investigation may see firms judged publicly – and their reputations damaged – on the basis of presumption and speculation, before any evidence has been gathered or any arguments put forward. It seems to us that would be a retrograde step;
- there is a very real risk of these new proposals leading to serious injustice, as some firms will undoubtedly be exposed to reputational damage (or serious risk of it) even if they are later found to have done nothing wrong. Some firms may well be discouraged from making good arguments they have, because commercially the benefits of doing so would be outweighed by reputational risks, and pressure to try to close the matter and move on;
- fairness of process matters considerably, and there is no doubt that misinformation circulating in public, or commentators rushing to conclusions, can prejudice a fair hearing later on;
- serious disputes between regulated professionals and their regulator need to be resolved in a forum that fairly allows each side to make its arguments without the outcome being prejudged. Regulatory rules and principles are frequently open to interpretation. A firm under FCA investigation may have very good technical arguments to explain why it did what it did, why its people acted reasonably and why it did not breach the FCA's Rules or Principles. It should be allowed to make those arguments to its regulator in a fair and balanced decision making process, and be judged after a thorough review of the evidence. The proper interpretation of the Consumer Duty, MCOB, CONC or the Money Laundering Regulations may matter enormously to a firm, the FCA, and industry more widely. The current process allows for those issues to be addressed in detail, and away from the public gaze, before a decision is made and then publicised. There is a risk that in the future these issues will simply not be ventilated - to the detriment of the financial services industry as a whole - because the reputational risk to firms of being found to be 'under investigation' at all will be too great;
- in our view there are arguments that by taking this step, the FCA is making the environment for regulated businesses in the UK less – not more – attractive, compared to the UK's international peers.
