UK FCA opens up “ongoing conversation” with firms over transparency proposals

In her speech, Therese addresses various topics.  She talks about how reducing and preventing financial crime is a focus of the FCA’s current Strategy 2022-25, and will remain a significant pillar in its next Strategy, due in 2025.  She also talks about how collaboration, with both firms and other enforcement agencies, is critical to the FCA’s work. And she mentions how data and technology play an important role in helping the FCA to do its job, on the basis that the quicker it can gather accurate information, the quicker it can respond to challenges as they arise.

But of most interest are her comments on the FCA’s renewed enforcement approach - and on the FCA’s recent proposals to publicise the opening of enforcement investigations, which show a softening of the FCA’s stance. We pick out the noteworthy points from these sections of her speech.

Increased pace and focus in FCA investigations

The FCA is focusing on a smaller number of investigations, which it is aiming to deal with more quickly.  Its rationale for speed is because it believes that the deterrent effect of enforcement action is greater the closer in time it is to misconduct occurring. Therese says, “[t]he longer it takes for outcomes to be determined, the longer it takes for [the FCA] to send signals to the market”.

Investigations closed in 2023/24 took an average of 42 months to complete, but the FCA is improving this.  It has achieved 24 outcomes so far for 2024, compared to 26 for the whole of 2023.  And it is streamlining its caseload to focus on a more targeted number of cases: it closed 60 operations in 2023/24, compared to 38 in 2022/23.  The FCA aims, Therese says, to focus on investigations which are better aligned to its strategic priorities.

But Therese warns that a reduction in the number of investigations does not mean a reduction in effort.  Rather it’s “about making a conscious decision to identify cases where the FCA believes there may be conduct creating the greatest risk of harm, and where an investigation is most likely to drive the greatest deterrence”.

So, whilst the FCA may be opening fewer investigations, we are told to expect to see a greater number of outcomes and a greater impact from its enforcement activity.

The FCA’s proposals for greater transparency

Therese refers to the FCA’s proposals to publicise enforcement investigations (as set out in its consultation paper CP24/2) as a “lightning rod”, and she acknowledges that FCA-regulated firms are “overwhelmingly against” the plans.  But she assures firms that the FCA is “listening” to their concerns, and it has analysed each and every one of the 130+ responses to its consultation.

She reiterates the FCA’s reasons for the proposals, which include giving consumers information to support their decision-making, the deterrent impact for other firms, and reassuring whistleblowers of FCA action. She also highlights that the proposals could address situations where another UK regulator can announce an investigation, but the FCA is unable to do so.  The recent fine on a large accounting firm is such an example: the Financial Reporting Council announced an investigation which was running parallel to the FCA’s own investigation around two years before the FCA confirmed its findings and that its investigation had existed at all.

Therese confirms that not all investigations will be publicised but that the FCA will follow “a case-by-case approach following assessment of clearly defined criteria” including (reassuringly) “consideration of the potential impact on the firm and market”.  She adds that the FCA “heard loud and clear that the criteria [the FCA] consulted on were too high level and lacked specificity”.

In terms of next steps, this autumn, the FCA will engage with trade associations, firms and others to explore how the FCA can develop its proposals and, as part of this, the FCA specifically recognises “the desire for greater definition on any new public interest test”.

Later this autumn, the FCA plans to provide greater detail on how the proposals could work in practice. It will publish case studies examining how the criteria might apply and what announcements could look like, as well as more information on the numbers of cases that might be affected.

Therese adds that the FCA also “heard clearly” firms’ concerns that they would not have sufficient time to make representations to the FCA in relation to the publication of an investigation, and that the FCA will respond to the constructive feedback it has received on this point.  She confirms that “[a]llowing firms time to provide their views on whether, what and when we announce, will be part of any proposal we take forward”.

In conclusion, she says the proposals need to be seen “within the vital context of a focused number of cases likely to deliver the greatest deterrent, and delivered much faster” and that the FCA “won’t be rushing into any decisions” but views this very much as an “ongoing conversation” with firms.

Commentary

FCA-regulated firms will be heartened to hear that the FCA appears willing to take their concerns regarding its transparency proposals set out in CP24/2 on board, and that it is opening up a dialogue with firms to help determine the exact content and detail of its plans.  Firms should take advantage of the opportunity for engagement with the FCA this autumn, in particular in relation to the criteria of the public interest test.

As Therese says, the proposals need to be viewed in the context of the FCA’s wider plan to streamline its investigations caseload and focus on cases which will have the most impactful deterrence. Given one of its considerations in deciding whether to publicise an investigation is also a question of impactful deterrence, one wonders whether most cases which are sent to Enforcement will therefore, by their nature, also meet the criteria for publicity. Time will tell how the two strategies will interplay.

Authored by Daniela Vella.