Lords Committee calls for FCA to cease “naming and shaming” enforcement plans

The Financial Services Regulation Committee has published a report – Naming and shaming: how not to regulate – setting out its views on the FCA’s controversial ‘naming and shaming’ enforcement proposals, and that the FCA has not yet made a convincing case for why a change to its existing enforcement powers is necessary. The Committee has said that if the FCA is unable to find an acceptable balance between preventing consumer harm, and managing risks to firms and market stability, it should not proceed with the proposed changes.

In the wake of considerable criticism of the consultation by industry stakeholders, the Committee wrote to the FCA in April 2024, seeking further clarification on the reasoning behind the proposals. It then launched an inquiry to examine the proposals further – respondents to the Committee’s call for evidence stressed significant failings in the development and communication of the proposals, including claims that the FCA had not engaged with firms prior to consulting, either to outline its intentions or to liaise with firms on the development of the proposals. The FCA failed to warn the industry of the consultation, which also did not appear on the Regulatory Initiatives Grid.

Following the substantial criticism of its proposals, the FCA then acknowledged the proposals could not continue as planned, and issued revised proposals in November 2024. However, the revisions did not change the key underlying proposal of allowing the FCA to announce more investigations at an early stage.

The Committee remains “deeply concerned” about what has happened over the course of the consultation process. The report stressed that it was incumbent on the FCA, if it felt a change in enforcement approach was required, to make its case convincingly and demonstrate that it had properly considered the potential impacts of such a change. The Committee criticised the “concerning lack of judgment” by the FCA senior leadership in relation to the likely response to its consultation.

The Committee does not feel the FCA has yet made a justified case for its proposals. It calls for the FCA to be transparent about the feedback it receives on its revised proposals, and says the regulator must be able to demonstrate that: the sector has been reassured that its initial concerns have been addressed; and that it is willing to put forward additional amendments to the proposals if necessary.