Investigations in public

BCLP’s Financial Services Disputes and Investigations team has today sent to the FCA our formal feedback in response to the FCA’s far-reaching proposals to shake-up its enforcement process by announcing that it has opened enforcement investigations into firms where it considers this to be in the public interest, as set out in its Consultation Paper CP24/2: Our Enforcement Guide and publicising enforcement investigations - a new approach.  A copy of the response has also been sent to the House of Lords Financial Services Regulation Committee following their letter dated 18 April.

We, like others operating in this sector and the House of Lords Financial Services Regulation Committee, have serious concerns about the FCA’s proposals.  Our strong objections to the FCA’s proposals are set out in detail in the response.

In summary, our formal feedback covers the following points:

1. We consider that the FCA’s proposals are not compatible with a number of legal obligations that apply to it, including:
   1. its general duties under section 1B FSMA;
   2. the restrictions imposed on it under sections 207 and 208 FSMA in relation to announcing a “public censure” of firms;
   3. its confidentiality obligations pursuant to section 348 FSMA; and
   4. firms’ and individuals’ right to privacy pursuant to Article 8 of the European Convention on Human Rights.
2. Moreover, we also consider that the proposals give rise to a number of significant practical issues, including:
   1. a likely material deterioration of the collaborative relationship between the FCA and the firms that it regulates, with that relationship becoming more adversarial;
   2. the risk of serious implications for individuals, whose conduct and reputation may be subject to speculation following an announcement in relation to a firm;
   3. increased levels of mass litigation against firms, also impacting on the FCA’s ability to ensure that it leads the way in getting redress to consumers.
3. If the FCA is intent on taking action, we consider that its proposals should, at the very least, be modified in one of the following ways:
   1. the FCA’s announcement that it is opening an investigation should be anonymised, not naming the firm being investigated; or
   2. if the FCA is intent on seeking to name firms in announcements of investigations, it should:
      1. broaden the factors that it takes into account in deciding whether to make these announcements to expressly include considering the impact on both firmsand any identifiable third parties.
      2. provide a credible and fair mechanism for firms and any identifiable third parties to make representations prior to the FCA publishing any initial announcement (we would support an amendment to the FCA’s proposals to adopt a process similar to that used by the RDC in respect of Warning Notice statements).

The deadline for feedback on CP24/2 is tomorrow, 30 April.  We are confident that the FCA will receive considerable feedback on these proposals.  We are monitoring developments in this space closely and will be publishing further updates on the FCA’s next steps.