The financial services sector has raised concerns about FCA’s proposed new enforcement approach that will see the regulator publicly name firms under investigation.
They say the proposed action by the regulator has the potential to cause “market harm” as well as “reputational damage” to firms.
FCA outlined the new enforcement approach in a consultation paper published yesterday (27 February). It said the new rule of naming firms under investigation at an earlier stage will “increase transparency and deter wrongdoing”.
FCA joint executive director of enforcement and market oversight, Therese Chambers, said: “By being more transparent when we open and close cases we can enhance public confidence by showing that we are on the case.
“At the same time, we will amplify the deterrent impact of our work by enabling firms to understand the types of serious failings that can lead to an investigation, helping them to change their own behaviour more quickly.”
The FCA stressed that any decision to announce an investigation would be taken on a case-by-case basis and depend on a variety of factors that will indicate whether to do so is in the public interest.
However, firms have expressed their disapproval with the proposed changes to enforcement.
James Alleyne, legal director in the Financial Services Regulatory team at Kingsley Napley LLP, said: “The proposed new approach has the potential to do enormous reputational damage to firms that may have done nothing wrong.
“Once “named and shamed” many firms will never recover. A case may be quietly dropped and the FCA may move on but the damage to the firm, its employees and customers could be profound.
“A cynical reading of this consultation would be that the FCA is seeking to distract from its own enforcement shortcomings by shifting the focus to the subjects of its investigations.
“There also appears to be no link between naming firms and more streamlined or quicker enforcement.
“The lack of recent enforcement activity at the FCA is the result of numerous factors largely centred on its own internal bureaucracy, prioritisation and decision making, and the issue of publicity is entirely irrelevant to that.
“The FCA has always been very clear that an investigation is a diagnostic tool that does not presuppose any culpability and, indeed, in this regard it is significant that around 65% of its cases are shut without any action being taken.”
PIMFA, the trade association for firms that provide wealth management, investment services and financial advice, said the new rule has the potential to cause market harm.
PIMFA head of regulatory policy and compliance, Alexandra Roberts, said: “It is not immediately clear to us how public announcements of potential enforcement action will support the FCA’s approach to supervision and enforcement – it seems unlikely to us that being ‘named and shamed’ publicly would be the primary deterrent for a firm committed to introducing harm into the market.
“More broadly, very real consideration needs to be given to what the potential impact will be on firms that are publicly subject to enforcement action.
“These announcements will lead to significant outflows for small firms in particular, rendering their businesses hollow shells of what they were previously, while larger listed firms will almost certainly be subject to significant shareholder volatility.
Roberts added: “The FCA’s caveat that an investigation does not automatically mean that there has been misconduct, or breaches of their requirements, simply will not register with the wider public and the market.
“If the FCA is committed to doing this – and we would urge them to really consider if they should – they need to give very real consideration to where the bar for a public announcement is set and who really benefits from a public announcement.”
However, the founder of consumer campaign group Transparency Task Force, Andy Agathangelou, said enforcement proposal should be welcomed if it helps the FCA “to finally get their act together”.
He said: “There has been widespread criticism of the FCA in relation to its approach to investigations, enforcement and its general lack of transparency.
“The independent report by Dame Elizabeth Gloster on the LC&F scandal, and the recent publicity about how the FCA has handled the Woodford saga show the FCA-led self-transformation programme has failed to be truly transformative.
“However, if this new consultation is an authentic attempt get the FCA to be fit for purpose on investigations and enforcement, then it’s to be very warmly welcomed. The financial advice sector will know whether this consultation has worked if it sees two things.
“Firstly, if it sees its ‘regulatory failure tax’ FSCS levy fall to virtually nothing. And secondly, if the FCA’s astonishingly poor TrustPilot reviews start to look at least a little bit respectable.”
Indeed. It is a stupid idea and has all to do with the FCA grandstanding.
This is toooooo funny!!
The FoD are hoping to achieve what exactly – real miscreants will have long gone by the time name calling is used, and what of naming individuals within the FCA who conduct any investigations?
Better they make public what their own shortcomings are – it is crass and unacceptable that FCA have such a low regard held for them. A Bailey has left a poor record behind him re FCA; looks like BoE won’t be far behind too!!
It seems that no one has to resign if there is negligence or poor performance, or aka PO, deliberate fraud at their level…
Not satisfied with ruining the LSE, promoting Teflon coated inadequates, using time to obfuscate the facts, and ‘starve out’ subjects of investigation – a trick used by HMRC with tax payers funds – they now lower themselves to inflating any complaint whether vexacious, jealous, or emotional.
This should only be exacted where their is a minimum level of evidence which can be shown to the subject of the investigation, this way, at least those at FCA will, themselves, have to pass a minimum ‘smell’ test!
This appears to be a disappointing return to the bankrupt philosophy of “shoot first and ask questions later”!
Now where did we here that one before, was it a certain Mr Wheatley?
We trust this is not a kneejerk reaction to recent criticism regarding inadequate progress with current enforcement cases.
“Cheap shots” tend not to be accurate shots.
Beware “misfeasance in public office” as the Post Office hierarchy are beginning to discover.
Guilty until proven innocent! How does ‘naming and shaming’ get the FCA’s act together, they don’t react to whistleblowing? Ridiculous again !
London School of Economics
London South East.
Both LSE for different reasons.
London South East, LSE, is a shark pit and should be
renamed but the FCA turns a blind eye . Why?
Mapp LSE chat