Treasury Committee publishes enforcement proposal correspondence

The Treasury Committee has published a further set of correspondence with the FCA on the FCA proposals to publicise enforcement investigations, and the Financial Services Regulation Committee formally announced its investigation into the proposals, and called for views by 4 June. The latest correspondence comprises:

  • a letter from it to Nikhil Rathi asking:
    • whether the FCA considered publicising investigations anonymously until it made a final decision;
    • what the FCA is doing to speed up the length of investigations – and asking whether it agrees that an average length of nearly 4 years is unacceptable;
    • how the plans to carry out fewer investigations are consistent with the FCA’s operational objectives;
    • how publicising investigations will improve the UK’s international competitiveness, given that other major regulators maintain the privacy of firms under investigation;
    • what work is the FCA doing to improve its metrics;
    • how much preparatory work will be done before naming a firm under investigation;
    • whether the FCA could carry on with its proposals if it could not rely on its legal immunity under FSMA; and
    • what consideration the FCA has given to whether its proposals could place the ongoing viability of a firm in jeopardy and whether prudential or financial stability concerns would outweigh the desire to publish – and whether this would risk a two-tier or unfair system where some firms were named and some not;
  • a letter of response from the FCA explaining:
    • there would be no presumption of disclosure but that at some appropriate point in some investigations the public interest may support naming a firm;
    • reiterating a statement in its previous response that many subjects choose to announce investigations;
    • listing circumstances when it is likely to be in the public interest to publicise investigations – such as where potential misconduct is already public, where a high level but anonymous description could in fact apply only to certain firms and so would prompt speculation and firms issuing denials, where there is potential ongoing consumer detriment (such as where it was asked to publish names of BSPS advisory firms it was investigating), where consumers need reassurance, to encourage potential witnesses to come forward, being able to provide more help to whistleblowers, where anonymity is inconsistent with the approach of partner agencies, where responding to parliamentary committees and in other situations where anonymising an announcement may have only limited positive impact;
    • explaining the factors that make investigations so long – including noting that it does not consider cases closed until any relevant litigation and enforcement actions are also concluded;
    • explaining that initiatives like greater scrutiny at the gateway, and regulatory change such as the increased requirements on principals of ARs should help lead to fewer investigations;
    • many overseas regulators have similar public interest tests to what is proposed and that the key ones that don’t have different objectives to the FCA;
    • there will typically be extensive supervisory work before an investigation may be opened;
    • statutory immunity was not considered and is not relevant; and
    • that the facts and circumstances the FCA will consider will include any potentially disproportionate impact, including on the viability, of naming a subject; and
  • a further response from the FCA to the Committee on Financial Services Regulation:
    • addressing the criticism that Nikhil Rathi himself had not responded to the Committee’s original letter by noting the FCA’s general practice of asking colleagues leading on the initiative to respond in advance of Mr Rathi and Ashley Alder answering questions before the Treasury Committee;
    • noting that responses received from trade bodies and law firms generally strongly oppose the proposals;
    • acknowledging that the FCA will take several months now to analyse and respond;
    • explaining that the FCA has no direct comparable peer among international regulators; and
    • explaining that the consultation came about because the FCA no longer considers a presumption against disclosure to serve its primary statutory objectives or support an appropriate degree of transparency and accountability. The letter ends by saying the FCA remains open-minded on how best to address the issues.

Emma Radmore