The FCA rows back on publication of investigations, but criticism continues

On 28 November, the FCA published a second consultation on its proposals to publish details of enforcement investigations at an early stage, modifying its initial proposals (more details here) to meet widespread criticism. 

Feeling on the FCA’s publication proposals was in fact so strong that there was  an inquiry into them by the House of Lords Financial Services Regulation Committee which culminated in a recent report, the title of which pulls no punches:  “Naming and shaming how not to regulate“.

New consultation

The FCA is making four significant changes to its initial proposals to publish details of investigations into firms:

1. It is now proposed that the impact of an FCA announcement of an investigation on the firm will form a part of the public interest test, and be central to the consideration of whether to announce an investigation and name the firm.
2. Firms will have ten business days’ notice of a draft announcement to make representations, with a further two days’ notice of publication if the FCA decides to proceed. This will give firms time to take legal action should they wish to do so. Originally only a day’s notice was proposed.
3. The potential for an announcement to seriously disrupt public confidence in the financial system will also feature in the public interest test.
4. The FCA no longer proposes to backdate the proposals by making proactive announcements of investigations that are already ongoing when the proposals come into effect (although it may reactively confirm investigations that are already in the public domain if this is in the public interest).

The FCA has tried to address some of the concerns that as 65% of enforcement actions have historically resulted in no further action, and as investigations closed in 2023/24 took an average of 42 months to complete, a significant number of firms may find themselves under a cloud for years where they have done no wrong. The FCA says in the consultation that its approach to enforcement has changed: the bar has been raised, and the FCA now considers whether other tools could be used to stop harm. As a result, it is said that investigation case numbers have fallen, as well as the time to complete investigations.

The FCA also notes that many investigations are already in the public domain anyway (of 41 current open investigations in November 2024, 15 have been made public by the firm itself). The FCA seeks to pitch this not a fundamental shift in approach to publication, but to allow it to confirm disclosures made by others, plus make a handful more where it is in the public interest, set against a background where it receives significant amounts of queries about investigations, often from government. The government also hopes the proposals will encourage whistleblowers.

Report

Despite this second consultation, the Committee report is very critical of both the way the FCA went ahead with these proposals (with what was said to be a lack of engagement or proper notification) and of the new proposals themselves.   The report concludes that it is unclear why the FCA needs to make the change: It already has powers to announce investigations in “exceptional circumstances”, and it is said that the FCA could interpret this more broadly and so for example announce an investigation if there was an immediate risk of consumer harm. In the Committee’s view the concerns remain that, although individuals under investigation will not be named, nonetheless it will not be difficult to identify relevant senior individuals at  firms that are named as under investigation – exposing them to reputational damage regardless of the outcome.  Further, it is unclear how the FCA will operate the public interest test to ensure it is transparent, fair and consistent. 

In addition, the report expresses concern that the proposals might harm the FCA’s secondary growth objective, and its initial assertion that its proposals were consistent with other international regulators is said to be “misplaced and misleading”.  Overall the conclusion is that the FCA has not made a convincing case for change, and should only proceed if it can show it has addressed concerns.

Conclusion

The consultation closed on 17 February 2025.  We wait to see what happens next, but whatever the outcome the FCA seems to have somewhat damaged its own reputation.