The Financial Conduct Authority (FCA) has published CP24/2: Our Enforcement Guide and publicising enforcement investigations – a new approach, which sets out a proposal that would see the regulator publicly announce the opening and progress of investigations, and other proposed changes to simplify the FCA's Enforcement Guide (EG). The FCA is seeking feedback on its proposals by 16 April 2024.
The new FCA investigation publicity framework
Currently, the FCA only publishes information about its enforcement investigations when these lead to outcomes, i.e. when the FCA decides to issue statutory notices imposing sanctions, or which impose prohibitions and requirements. It has only been in exceptional circumstances that the FCA has commented on the fact of – or progress of – an investigation. Recognising that enforcement action is not simply about individual instances of punishment, but that its greatest impact is as deterrence and in educating the market on what the FCA expects, CP24/2 sets out proposals to communicate more about investigations at an earlier stage.
Improving transparency
The FCA proposes publicly announcing that it has opened an enforcement investigation and publishing updates on the investigation, if the FCA considers that it is in the public interest to do so. Any decision to announce an investigation and/or to provide a progress update would be taken on a case-by-case basis pursuant to a new public interest framework, which will be in an amended EG 4.1. The relevant considerations will include whether the announcement will: protect and enhance the integrity of the UK financial system; reassure the public the FCA is taking appropriate action; assist in any investigations; or enable the interests of potentially affected customers to be protected. Considerations which may dictate that public announcement of an investigation is not in the public interest, include where it is likely to have an adverse impact on the stability of the UK financial system, or on the conduct of the FCA's investigation or an investigation by another regulatory body or law enforcement agency.
The FCA's announcement would include publishing the identity of the subject of the investigation, if the FCA assesses that it is in the public interest to do so and if there are no compelling legal or other reasons not to. The announcement would also include the industry sector and regulatory or legal provisions the investigation relates to, along with a summary of the suspected breach, failing or other misconduct being investigated. The announcements will state clearly that opening of an investigation does not mean that the FCA has decided whether there has been misconduct or breaches of its requirements, unless it is inappropriate to do so, e.g. if the FCA had already publicly taken supervisory intervention action against the subject of the investigation in which formal findings of breach have been made.
The FCA may also publish updates on an investigation involving individuals if it is in the public interest to do so. However, the FCA will not publish details of the information gathered or its conclusions, other than as legally permitted or required. Neither will the FCA change its current approach to confidential information, including the information that subjects and others give the FCA during an investigation.
Investigations involving individuals
In light of the FCA's data protection obligations, the FCA does not plan to announce that it is investigating a named individual, save in limited circumstances where the FCA can lawfully make such an announcement, in the public interest. Examples of where publication may be necessary include encouraging witnesses to come forward to assist the FCA's investigation or to fulfil its accountability to Parliament.
Implementation and impact
The proposed new approach to publicising investigations will apply to all FCA investigations, including those that are ongoing when the FCA introduces its new policy.
The FCA expects that announcing investigations early on would encourage witnesses and whistleblowers to come forward; this is also one of the factors which the FCA will use to measure the success of its proposed new investigation publicity framework. The FCA said that these proposals will also support its accountability by shining a light on the efficiency and pace of its investigations.
Changes to the Enforcement Guide
The FCA has carried out a comprehensive review of the EG and concluded that it contains redundant and/or outdated material. Therefore, the FCA is proposing to simplify the EG to make it a more useful and focussed document. This simplification includes moving some of the key information regarding the FCA's broader strategic approach to enforcement to the FCA's website and streamlining the remaining parts of the EG. However, the FCA is not aiming to make wide-scale changes to its existing policies in EG, which it considers remain fit for purpose.
Among the more substantive changes, CP24/2 includes clarifications on the FCA's approach to the attendance of legal advisers at a compelled interview of a subject under investigation where there may be a conflict of interest. The FCA will also remove references in the EG to preliminary findings letters and preliminary investigation reports as these are no longer in use. The FCA has also set out its approach to firms conducting their own investigations in anticipation of enforcement action, and clarified the basis on which the FCA will accept reports provided to it on a limited waiver basis.
Prioritising enforcement cases
The foreword to CP24/2 and the FCA's press release note that the FCA wants to speed up its investigations and focus on a streamlined caseload of investigations aligned to its strategic priorities where it can deliver the greatest impact. The press release also states that the FCA will close those cases where no outcome is achievable (i.e. no enforcement or remediation action is being taken), more quickly. However, CP24/2 does not set out any proposals on how this will be achieved in practice.
Initial views
On an initial reading, some of the proposals appear sensible and the overall aim of speeding up and streamlining the enforcement process will be welcomed by many. However, whether the FCA's proposals will achieve this while also maintaining appropriate due process remains to be seen, including in relation to its views on when publicity is in the public interest! As ever, a closer examination of the details and the wider context of enforcement will yield more insights.
We look forward to bringing you our insights following further consideration of the FCA's proposals shortly.
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