Lords asks for FCA justification of enforcement proposals

The House of Lords Financial Services Regulation Committee has written to the FCA making several criticisms of its proposals to name firms under investigation. It is particularly critical that the paper explicitly rules out taking account of the impact of disclosure on the investigation subject, and that the FCA has not carried out a cost-benefit analysis of its proposals on the basis that it is not making any new rules.

The Committee says the proposals risk:

  • having a disproportionate effect on firms named in the investigations where firms are then cleared of any wrongdoing;
  • the overall integrity of the market – for example because of possible unwarranted impacts on share prices;
  • individuals being tarnished by having their names linked with an investigation even if their actual names are not published.

It asks the FCA to give it more information on several issues, including:

  • numbers of investigations into firms and individuals;
  • what percentage of closed investigations result in enforcement action;
  • length of an average investigation;
  • whether the FCA has plans to reduce the number of or speed up the timing of investigations;
  • the FCA’s reasons for making these proposals, and if they were based on any particular representations, who made them;
  • what consideration the FCA has given to a mechanism for appeal against a decision to publicise before publication happens;
  • whether the FCA has considered how a thematic disclosure could meet the public interest benefits; and
  • whether the FCA has done any analysis on the likely impact of a publicised investigation on the firm, and if so, what the analysis concluded.

It also asks the FCA to explain whether it considered providing a CBA. Given the consultation ends on 30 April, the Committee asked for a response by 25 April and has asked the FCA to note its intention to take evidence on the proposal, and that the FCA should not take any further steps until the Committee has reached its final conclusion.

Emma Radmore