FCA responds on enforcement proposal criticism

The FCA has responded to the House of Lords’ Financial Services Regulation Committee’s letter that criticised the FCA’s proposal to name firms it was to investigate and asked for justification of its proposals. The FCA says:

• that while it is proposing to move away from a presumption against disclosure, this does not mean there would be a presumption in favour of disclosure;
• in fact, investigations do often become public knowledge at the moment, for a variety of reasons;
• after repeating the reasons it gave in the consultation paper, it says that it has concluded that there have been instances in the past when earlier publication would have enhanced its response and the market’s reaction – it gives the example of the swathe of fines it levied on firms for AML failings in 2021-3 and says that if it had been able more overtly to communicate these failings earlier, other firms could have acted more quickly to resolve similar issues before they worsened. It also noticed the criticism it had faced over the length of time it had apparently taken to act over BSPS transfer advice, and the more recent request to it from the Chancellor to confirm what ongoing enforcement action it was taking in relation to the provision of banking services;
• its current refusal to disclose the existence of an investigation other than in exceptional circumstances can impede MP’s ability to help their constituents when constituents raise concerns with them, can stop whistleblowers coming forward and can hamper efforts to protect consumers from harm;
• many UK regulators already make disclosures when they open investigations;
• in response to the criticism about the potential impact on listed firms if the FCA announces an investigation, it says that last year it opened investigations into 4 listed firms of whom 3 announced the fact of the investigation anyway. It opened 11 other investigations, of which 1 was made public by the firm and the other by the FCA. It has noted only one instance over the 2021-24 period where a firm’s share price moved negatively by more than 1% following announcement – and it considers that was more because of an announcement that redress payments could affect solvency than before of the media coverage of FCA activity;
• that it has not explicitly ruled out taking account of the impact of disclosure on the relevant firm and says it is very open to receiving further evidence of the actual impact of announcement on firms and consumers;
• on the appeal mechanism, it says there would be the ability to challenge (while not addressing the fact that it proposes to give only 1 day’s notice);
• it is not ruling out thematic disclosure; and
• it will give some thought to how it can explain its thinking more in the absence of a cost benefit analysis.

The letter ends by acknowledging the significant changes the proposals would bring and says it plans a further round of discussion and engagement after it has considered the responses to the consultation.

An annex to the letter shows that as of 31 March 2024, of the 500 live investigations, 164 were into firms, of which 85 are regulated or listed firms. Of the 154 investigations closed in the past year, 67% were closed with no further action.