On 25 April 2024, the Financial Conduct Authority (FCA) published a letter that it sent to the House of Lords Financial Services Regulation Committee (FSRC) regarding its proposed changes, set out in Consultation Paper CP24/2, to its approach to publicising enforcement investigations. The letter responds to the FSRC’s letter of 22 April 2024 in which it raised concerns about the FCA’s proposals and asked for answers to a number of questions.

The FCA welcomes the FSRC’s interest in the proposals and states that it has taken note of the points raised. It explains that the proposals being consulted on cover one central element of effective enforcement – what the appropriate approach is to transparency – and are part of the FCA’s wider ambition to significantly improve the pace and focus of its investigations and together increase the deterrent impact of its enforcement work.

In its letter, the FCA sets out:

  • Its proposals and how they relate to its current approach to transparency in investigations.
  • The rationale for the proposals.
  • The approach taken by other UK regulators.
  • The data underpinning the consultation, as requested by FSRC, including the impact on firms and the wider market.
  • Answers to the FSRC’s outstanding questions.
  • Next steps.

Points of note

The letter provides some useful clarification in relation to the FCA’s proposals in relation to investigation publicity, including that:

  1. there would be no presumption in favour of disclosure – in some cases, the FCA may conclude that it is in the public interest to name a firm at the appropriate point in its investigative process, in others it may not;
  1. the consultation does not rule out the FCA taking account of the impact of disclosure on the firm that is the subject of the investigation – while it has not included such impact as a specified factor in its framework (having prioritised its primary objectives from Parliament), the FCA would, under the proposals, consider all relevant factors when weighing up whether or how an investigation interacts with the public interest test and will additionally consider likely impact on the relevant firm and senior individuals;
  1. the proposals recognise that there are specific legal considerations when publishing information about individuals, and it proposes to maintain its policy of not usually announcing that it is investigating a named individual. This will be part of the FCA’s consideration where naming a firm would almost certainly result in the naming of an individual. This is particularly relevant for small and medium sized firms; and
  1. in terms of an appeal mechanism following advance notice of an announcement, the FCA considers any firm or individual would have the ability to challenge a decision to name them, for example through judicial review or an injunction and the FCA is receiving feedback on this point during the consultation.

The letter also contains some interesting data on FCA investigations at Annex 1. As of 31 March 2024, the FCA had a total of 500 investigations underway, broken down as 336 investigations into individuals, and 164 investigations into firms. Out of 153 investigations closed during 2023/4, only approximately 18% resulted in FCA enforcement action such as a financial penalty or public censure (28), 14% resulted in other FCA action such as action by Supervision or another agency (21) and 68% (104) were closed with no further action.

Investigations closed in 2023/24 took an average of 43 months from the decision to open an enforcement investigation to closure. Also of note, investigation numbers have fallen consecutively over the last three years: in terms of investigations into regulated/ listed firms, 33 were opened in 2021/22, 22 were opened in 2022/23 and only 15 were opened in 2023/24. 

Next steps

In the letter, the FCA explains that it has engaged extensively with stakeholders over the course of the consultation and has received ‘much constructive feedback’, for which it is grateful. Once it has considered all responses ‘very carefully’ it plans to carry out a further round of discussion and engagement to ensure it has understood all points raised and to share its initial thinking. The FCA also plans to do more work with stakeholders on a granular level to be clear about the process it might follow, the matters it might take into account and, importantly, what announcements might look like. It explains that it will use this process to flesh out its draft public interest framework and, while it emphasises that the FCA under oversight of its Board will need to decide the content and timing of any final proposals, it looks forward to engaging with and hearing from the FSRC about its views.

Now that the consultation has closed, we expect the FCA will take its time to reflect on feedback and possibly also on the consultation process itself.  It seems unlikely that any new policy will come into force in the near future but those currently under investigation may be further incentivised to seek a conclusion before it does in order to avoid being in the first wave of announcements.