On 27 February, the Financial Conduct Authority (FCA) published a consultation paper (CP24/2) on its proposal to announce more details of enforcement investigations at the outset, as part of a push to increase transparency and deterrence of misconduct. If the change in policy goes ahead (after the feedback provided during the consultation period, which ended on 30 April, has been considered), it could have significant adverse reputational impacts on companies who would bear the risk of follow-on actions at an earlier stage, as well as increased exposure to defence costs.

As matters currently stand, the usual approach adopted by the FCA is that it only publishes information about its enforcement investigations after imposing a penalty. It has only been in exceptional circumstances that the FCA has commented on the fact of, or progress of, an investigation.

The FCA’s stated drivers for the proposed new approach is to increase the deterrent effect of its enforcement actions and provide further transparency to the market about the types of misconduct which it views as warranting a formal investigation.  A further benefit cited in the consultation paper is that publication of ongoing investigations at an earlier stage may also encourage witnesses and whistleblowers to inform the FCA’s work.  It is hoped that consumer awareness will also be increased.

However, the FCA does not propose that the new approach should be applied as standard in all cases; rather, consideration will be given on a case-by-case basis with reference to a proposed public interest framework. The circumstances in which earlier disclosure of investigations relating to individuals is made will necessarily be more limited.

Since the closure of the consultation period, there has been widely reported criticism of the FCA’s new policy proposal (including at parliamentary and government levels). Some of the criticism has focused on the potentially damaging effects the new approach might have on the international competitiveness and growth of the UK financial services market, while others have raised concerns as to unwarranted reputational damage and adverse financial implications. This is particularly so in circumstances where many investigations do not result in enforcement action; indeed, in 2023/24, 67% of all FCA’s investigations were closed without any action being taken. 

Both the House of Commons Treasury Select Committee and the House of Lords Financial Services Regulation Committee have sought further information and clarification from the FCA as to its proposals. The latter has gone so far as to launch an inquiry into the issue (with written submissions to that enquiry invited by 4 June 2024). We will have to await the FCA’s response to the consultation to see whether the strength and breadth of feedback will lead it to amend or completely withdraw its proposals.